Fuel Surcharge

SL42

We are a Sitework company and we are in the process of evaluating our fuel costs. We have purchased a meter to be used on all of our equipment to measure the unit after the job (or day) and then re-fuel, thus knowing how much fuel was used during that operation. Then divide by amount of hours worked, factor in work conditions and you have a per hour fuel consumption rate.

My question (and I hope it sparks meaningful discussion) is with the impending up the ass gas and deisel price that we see, how are other sitework or excavators "bidding" work (if long-term ie:for home builders or contracts that may not start for a few months or be in a contract of duration of a year) if the price of fuel goes up 35-50% (forcasted) this summer?

We think 2 things on this subject:

1.) If we raise the fuel surcharge too much and the price of fuel does not reach the high amount that is forcasted we may lose business or at the very least, look bad to our long term customers.

2.) If we under estimate the average cost of fuel for the busy summer season we may break even or worse - lose money. Trac-hoes, graders and dump trucks are not fuel misers.

We have had a fuel surcharge for many years now @ 7%. What is funny about that (most guys are similar with that charge) is it does not reflect the actual fluctuation in the price of gas over any given period of time. One year the local industries decided enough is enough and just slapped that on in an attempt to recoup costs. Bad thing is that charge has remained constant, while the price per equipment hour has risen with the cost of fuel just built in. The actual cost of the equipment in relation to gas is not accurate because the fuel surcharge does not fluctuate.

So I am opening this discussion so that hopefully we as a group can discuss methods of charging for fuel / costing of fuel.

Thank you...

Double-A

Is your 7% even coming close to covering your fuel usage?

__________________
"My clients’ wishes are the center of my attention." -- David Guido, a contractor in Woodstock, N.Y.
New York Times, July 20, 2006

SL42

No, I do not believe it is. It is hard to estimate as we have no data on what our machines actually use. The 7% has not changed in 8 years, yet the price has skyrocketed in fuel. All we do is look at our year end and see if we need to adjust any charges. But that is why I am bringing this up. The actual fuel surchage is not acurate as it stays constant. We adjust our machine/labour/fuel-(guesstamated...) and then we say that ___hours @ $***.00(our trackhoe rate) + 7% =_____ (clients bill). I am wanting to be able to estimate our actual costs (possiblly during fluctuating fuel prices....) and be able to efficiently relay those prices to the client. My hope would be that the client would realize a lower trackhoe price, with a legitamate fuel surcharge that simply reflects the current market price. I am looking to see what others are factoring in for fuel costs.

Double-A

So you were tacking on 7% but not tracking what that7% actually brought in? Wild.

I'm interested to hear as well. I think its a very timely topic that really effects more than just the equipment operators out there.

__________________
"My clients’ wishes are the center of my attention." -- David Guido, a contractor in Woodstock, N.Y.
New York Times, July 20, 2006

denick

This is a topic everyone should be concerned with. I need to understand how others are coming up with their costs? and how the surcharge applies?

The picture is of the equipment section of our accounting software. All the boxes are filled in. The left column is for owning costs (costs incurred wether the machine is working or not. The right column is the hourly costs
(machine running). Hourly, daily, weekly, and monthly rates are computed. Operators expense, overhead and profit are added to that to come up with a rate if we were to charge for work by the hour.

If this is followed I don't see a need for a fuel surcharge.

Attached Images

 

__________________
Nick

"Every day I remind myself that my inner and outer life are based on the labors of other men, living and dead, and that I must exert myself in order to give in the same measure as I have received and am still receiving" Albert Einstein

cdub

I agree with Nick. I build the price of fuel into my hourly rates, and change rates accordingly. I did, however, see a surcharge one of our concrete suppliers was going to use that used a table based on a fuel price of $2.80 and increased % surcharge with every $.10 in fuel price increase. I can't remember the exact numbers but this system makes more sense to me than, say, a flat 10%.

__________________
"The beatings will continue until morale improves."

woodchuck2

What i charge the customer per hour for equipment stays the same until there is a large price hike. Usually if the price of fuel goes up a few cents i dont worry about it or i just tack on an extra 1/2 hour to the time to cover the extra fuel costs. But i dont do alot of large jobs either so for me it is easier to keep track of. For the guys with larger equipment and larger jobs i can see where monitoring fuel consumption could be vital for larger profit gains and to ensure the machine is paying for itself and not just fuel. A machine will vary its fuel consumption by weather and the type of work/job it is performing so to monitor the consumption to me is a great idea. Maybe setting a specified per hour charge for the machine and then charge by the gallon for fuel consumed on the job would be a good start. The operator would have to keep a daily log of fuel usage and i would keep the tanks locked too. You could also charge a small delivery fee to the job also, tack it on the price of fuel.

SL42

We know what the 7% was bringing on, because we charge it to every job we do. We just know that what we are doing is not accurate enough in dealing with the fuel rates in reference to our bottom line. Just slapping the 7% on years ago was a quick fix that our local industry never got rid of and never dealt with it any other way. In our area we either have a delivery flat rate or a fuel flat rate. Since our machines are doing most of the work rather than our semi's that deliver them, we charge the fuel rate. We are worried that the price of fuel is going to affect our bottom line in a way that has never before been realized. Fuel is now going to tooooo much of an unknown variable and with how much it varied last year we are worried that it may affect our ability to put profit towards new equipment and end up with a broke down company. If you are able to forecast future costs you are able to stay current with newer equipment and not nickel and dime yourself to death with repair costs...which kill you in the long run.

tgeb

This site has historical data and some forward looking estimates in regard to fuel costs, it is worth checking out.

http://tonto.eia.doe.gov/oog/info/wohdp/diesel_ULSD.asp

With the historical data you can easily have some ammunition to support your rate increases.

For instance in my region Ultra low has increased $1.11 in the past 1 year.
If my mini excavator burns on average 2 gallons of fuel/hour, I can reasonably increase the hourly rate by $2.22.

The information is there, how you choose to use it is up to you.

__________________
Tom

www.gebcon.com

SL42

ohh.. and remember I am trying to bring out ways of incorporating future costs on long term clients/jobs (repeat business with home builders or school boards)...minimizing our fuel rate losses, and as well minimizing fuel rate overcharges. And hey!... if there are any mind readers or psychics out there it would be great if you lend a hand on this subject...LOL! I guess that if we are looking at fuel costing us an extra 100K - there needs to be a way to take that off of our profit margin and into the job costing side of things. Site work uses so much damn fuel that realistically it is such a major cost that it can make or break your estimate/actual cost/profit when it is fluctuating.

Tim Doyka

Yes but without the equipment or the fuel you would not be doing the work so the point seems confusing and a little anal to me.

denick

SL42,

I am not clear what the fuel surcharge you are talking about is for? Is it only to offset the rise in the cost of diesel consumed on a job?

Example,

The hourly charge for a 50,000. Lb excavator is $ 130.00

The owning & operating cost of the machine are $ 55.00 per hour
The cost of the operator are $ 45.00 per hour
Total costs $100.00 per hour


Cost per billable hour $ 100.00
Overhead Charge 18.00
Project Profit 12.00
Total Costs, Overhead and Profit $ 130.00

These numbers are theoretical and only something to start the conversation from. Please
check my math.
In mid 2007,
This 50,000. Lb excavator uses 6 gals of fuel an hour. We’ll use $ 2.70 a gal. for fuel.

6 gals an hour X $ 2.70 = $ 16.20 an hour for fuel. The $ 16.20 an hour is contained in the $ 55.00 an hour of operating costs already figured in the billable rate.
In an 8 hour day fuel for that machine costs $ 129.60

March 1, 2008
Fuel is now $ 3.70 a gal. That is a 37% increase? 6 gal. hr X $ 3.70 = $ 22.20 per hr.
In an 8 hour day fuel for that machine now costs $ 177.60 an increase of $ 48.00 37% more per 8 hour day. This is only the increase in fuel itself. Not how it affects the hourly rate.

At $ 2.70 per gal. fuel = $16.20 hr or. 12.4% of the billable rate.

At $ 3.70 per gal. fuel = $22.20 hr or 17.1% of the billable rate.

The increase in cost of fuel as part of the billable rate is $4.00 or 4.7% added to the rate

Is this what we are talking about?

__________________
Nick

"Every day I remind myself that my inner and outer life are based on the labors of other men, living and dead, and that I must exert myself in order to give in the same measure as I have received and am still receiving" Albert Einstein

rino1494

Fortunately, most people just look at the fuel in which the machine consumes. I look at the big picture. Along with fuel for the equipment, gas for the pickups has increase along with wages, insurances, taxes, parts, etc.... That $2.22 prolly should be tripled.

BTW Tom, did you see my message about the auction ??

__________________
Life is hard. It is harder when you are stupid

Uncle Sam wants YOU....to speak ENGLISH

tgeb

Yes I saw that, are you still planning to go there? I most likely would make the trip if you're going to be there. Not too much more than 1 - 1/4 hour for me.

__________________
Tom

www.gebcon.com

denick

To continue my thought is what rino mentioned. Everything about a machine goes up with the price of oil. Oils, grease, steel everything. As does the replacement cost of the machine.

Again as rino said, all the support equipment costs also rise. Everything from wrenches to the fuel truck.

How is all this accounted for.

In 1980 we were charging $95.00 for a 225 CAT Excavator. Today same size machine $130.00 ??? Costs have risen how much??

__________________
Nick

"Every day I remind myself that my inner and outer life are based on the labors of other men, living and dead, and that I must exert myself in order to give in the same measure as I have received and am still receiving" Albert Einstein

SL42

Yes it is anal...LOL! I may not have mentioned to you guyz that I am an estimator - we are anal about ALL costs so that we can bid on work. If I lose by 1$ or 100,000$ on a 2 million$ job I still lose. Knowing what our costs are are vital for my job and our company. The situation I am trying to open up for discussion is what are/arn't any of you doing about the forcasted short term spike in fuel cost on long term bids. Are you willing to up your price to curb any profit loss in profit due to fuel price increases (not known yet what they might be); or do you keep the rates the same and just soak up the added cost for the fuel to run the machines? After we went through our last years book we discovered we spent 15% more on fuel than we estimated at the beginning of the year (in relation to our hourly rate). When dealing with home builders they need to know what your cost is so they can tell the home buyer what to pay for the house. Typically they recieve the same price for 1 year from us. After last years spike in fuel cost and then our impending reduction in profit, we are worried that we will literally lose money on every basement we dig this summer as our price is set in spring. So the idea is not that fuel+machine+overhead+profit=hourly rate, it is that fuel is becoming so volitile lately that maybe the idea of long term set prices may be a thing of the past - do we change the way we tackle this? Do we set our prices now for 3 or 6 months instead of a year? I am not taking about referal work or someone phones you up through an ad. I am opening up discussion about what do we do - soak up the cost of fuel and kill the machines off because we have no money in the coffers or do we up our prices and hope we do not see ourself undercut by the duck divers (estimators lingo for those weird companies that bid WAAAY below the average line of bids) that do not factor fuel in or care even to know their cost and end up going bankrupt because of this...?

I am just thinking that since fuel is getting so high and so volitile lately what can we do as an industry to keep ourselves alive and on the same page? I, nor the clients in general (in my opinion) want to see the good quality companies that do consistantly excellent work go out of business because they had to take 100,000$, or 200,000$ out of profit due to the rise of fuel (potentially 50% increase this summer). Profit is the main component of expansion and renewal within a company.

dayexco

you'd be scratching your head were you to sit down and see how we estimate/bid jobs....we get the plans, i scan through them, write my "magic number" on a piece of paper, put it in my wallet. son does the takeoff, estimates time/fuel/labor/overheads, etc etc......and his number ultimately comes within 1-3% of the number i have written on the piece of paper in my wallet. there are few variables in soil conditions where i'm at, water tables, etc....i've done it for so frickin long that it's become repititious

__________________
someday, i'll be as patient as Nick.

ElIngeniero

I'm curious day, are you saying that you simply glance at the plans and pull a number out of the air and are still within 1-3%? If you're truly that good, your son needs to let you do the estimating .

Our business is also family run and my dad has a similar feel for the jobs but he's typically the one that is a little too anal. A job can be $2,000,000.65 and he wants to make sure we leave the 65 cents tacked on the proposal.

dayexco

as i stated before. much of our work is repititiouis. i know how many gals of fuel we burn a day, on the ave. how much we produce daily. the only thing to click into your head are your variables...fuel, material costs, etc.. yeah, we do everything on excel, and i'm probably the only contractor's whose bids have unit prices like $10.13 instead of $10 or $10.25. i wouldn't say that i'm that good, i've just done it so many times.

i've had jobs we've bid where we had 4-5 bidders...i was low, and we're all within 1-5%. walked away not making a freakin dime....then i've had piles of jobs where i've been 20% from 2nd and had the greatest profit margins. i tend to think of what i want out of the job vs. where will my competition be at price wise. we lose some jobs, but it seems like about every 3 yrs, one of the local banks are selling out competition because they were trying to "part" the job out too much. gut instinct should tell you where you need to be. not saying that you don't need to put it together on a spreadsheet just to make sure you don't forget something.

__________________
someday, i'll be as patient as Nick.

SL42

sounds like us as well - Dad is the senior boss - I am the junior. Yes the senior will usually visualize like that. Train your son to see that vision as well if you can!