Ask business owners, and certainly any contract sweepers, what their biggest challenge is…and the top three answers will be fuel costs, fuel costs, and fuel costs. It is with us every day of every month, a constant hammering away at our bottom line. The run-ups in cost are mind boggling. They are rapid. There is no way to recover quickly.
The time-tested remedy of fuel surcharges is losing its effectiveness. For the last several years you could hear numerous business owners - including sweeping contractors - almost boast about the rising price of gas because they were actually "turning a profit" on their fuel surcharges.
Indeed, that could be done for the short term. It was easy to hear stories about how to simply apply a 2.5% increase on every invoice and call it a fuel surcharge. The increase in fuel would only be costing a contractor maybe 1% off the bottom line, so a 2% or higher surcharge was a newfound profit. If the customer accepted it for a few months in a row, some contractors would imbed the increase in the base price and be set for the next surcharge…or for new profits when gas prices eased.
That was fine for the Hurricane Katrina days and $60 oil. Back then a combination of surcharges and some belt tightening was a way to thrive in an era when oil roughly doubled. Well, it's roughly doubled AGAIN since then and the effects are rolling through the economy and will continue to do so.
Fuel surcharges are somewhat like taxes: You just can't raise them forever. At some point they become unsustainable because shopping centers and highway projects simply will not be able or willing to afford the fuel surcharges on top of the other energy induced inflation stressors. Public and private clients already are writing multiple year contracts that disallow fuel surcharges. Services are being reduced and canceled, and payments are slowing down. The customer base is shrinking for shopping centers and the tax base is shrinking for governments. The message is clear.
Contract sweepers are going to have to attack this animal from all sides. The surviving contractor will be low debt and high tech. He (or she) will be diverse, have a dense customer base, and be very creative within all legal employment frameworks. GPS and communications equipment will have to be maximized to reduce the administrative cost associated with running our businesses. Fuel-efficient fleets are a must. Recession friendly change orders are vital.
The innovative, nimble, forward-thinking business sees opportunities expand in times of trouble. Strategic consolidations might be absolutely necessary.
When everything is booming, a whole lot of people can make a business work. In tougher times, only the top contractors will survive and some will thrive.
Author Chuck Wright is a NAPSA board member and managing partner of The Wright Group LLC in North Carolina. For more information about joining NAPSA visit www.NAPSAonline.com or contact our office at 269-383-6993.