The key to successful commercial pricing is a thorough knowledge of your financials.
In Today's Rapidly Changing Economy, Accurate Commercial pricing is more important than ever. To be successful, a commercial collection company needs to understand the various components of its pricing model and what may impact those components.
This article describes pricing for front-loader trucks used to collect a mixture of municipal solid waste (MSW) in various container sizes. It will show how a hypothetical commercial collection company arrives at standard monthly charges for its service, depending on the size and number of containers, and frequency of service.
Know Your Operation
Before a company can begin to price commercial collection service, it needs to measure its past performance, which comes from the company's route sheets. Measurements can be tracked over any timeframe, but the best measure is the last three months. That should account for fluctuations due to weather, changing traffic patterns and other factors.
The first measurement is minutes per stop. The driver's total hours multiplied by 60 and then divided by the number of stops serviced will yield the average minutes per stop. A stop may include servicing two or more containers.
The next measurement is pounds per container yard. This is measured by dividing the number of tons disposed by 2,000 (the number of pounds in a ton) and then dividing by the container yards picked up.
Consider the following example: A driver might work a 10-hour day, servicing 104 containers at 100 stops (four of the stops had two containers each) and make two disposal trips, one carrying 17 tons and another carrying 18 tons. For this example, his volume picked up might have been 679 container yards. Using the calculations above, the minutes would average 6 minutes per stop and 103 pounds per container yard.
Know Your Costs
There are direct and indirect costs for commercial collection, such as the costs of owning and operating vehicles, purchasing and maintaining containers, disposing of waste, supervising, billing and accounting. To accurately price its commercial service, a hauler needs to have good financial records.
There are many different ways to present expenses on financial statements. But to develop a good price model, a commercial collection company only needs to segregate its costs into three categories: disposal costs, container expenses and total truck costs.
Disposal costs are the total amounts charged by whatever disposal sites the company uses to dispose of commercial MSW. Typically, a disposal site will bill a hauler for the number of tons the firm disposes of at the site.
Container costs include the depreciation of the containers purchased and all of the expenses related to maintenance and delivery. Maintenance and delivery expenses cover parts, paint, welding supplies, labor and the operating costs of container delivery vehicles.
Total truck costs include operating expenses, truck depreciation, supervision, billing, accounting, administration, insurance, driver labor and mechanic labor. Although many of these costs are not directly related to the commercial collection service, they are a part of providing the total service and need to be recovered as part of the price charged to the customers.
Know Your Return
How much do you want to make? The most consistent result is attained when a company decides what percentage return it wants to achieve from its investment. Multiply that capital investment by the percentage, then divide by 12 to determine the amount of monthly profit needed.
If a company wants to achieve a 15 percent return on its investment, and it has invested $500,000 in trucks and $720,000 in containers, then it needs $6,250 in monthly profit from the service part of the price model and an additional $9,000 in monthly profit from the container portion of the model to do so.
However, a company calculating the profit needed to achieve its return should use the replacement costs for its assets. Its pricing model will more accurately reflect the price needed to keep, maintain and replace equipment.