Wednesday, September 12, 2012

Hey Grinder Guy, How Much Should I Charge for Contract Grinding?

Great Question.
In a perfect world, you would know your costs, add your margins and submit your price. Knowing your real cost is the dilemma in this industry.
Several factors weigh into how much you CAN charge for your grinding services:
·         Competition- This is the number one economic factor. Obviously the more competition, the less you are able to charge. For example, back several years ago, clearing and grinding for $3000 per acre was the norm. Then as clearing jobs dried up the price went to $2000 an acre, then $1000 an acre and then finally some companies were grinding for free so they could capture the materials to supply fuel contracts that they were tied to. That put a lot of others out of work……..and nobody ended up making money.
·         What materials need to be ground? Shingles or Pallet Wood? There is a huge difference in wear life of screens and tips. If you haven’t ground shingles before, you sure don’t want to quote a price not knowing what your cost will be.
·         How fine are you grinding the materials? Making a 1” mulch product takes a lot more fuel per yard to make than say a 6” minus fuel product.
·         What equipment is being supplied. Just the grinder? Or is support equipment needed also?
·         Equipment moves and Travel Time- Generally, a per unit price is given to move the equipment to and from the jobsite. A lot of Contractors do not have their own truck to move equipment, so they sub it out and charge their customers a flat fee. Employees travel time to and from sites are sometimes paid. Just depends on your employment. Not always, but in general, company employees that report to an office or shop location daily, are paid to travel to an outside job while in other situations, such as Union Construction for example, employees move from jobsite to jobsite and travel is not paid.

One major issue of travel, with any employee, is travel expenses. What expenses are covered and which are not? This seems to be a moving target with some companies. When things are good, a lot of things are overlooked, but when costs get scrutinized, companies generally go overboard and cause resentment. When a 99 cent draft beer isn’t reimbursed but a $1.50 soda is, that doesn’t make sense. The GSA publishes Per Diem Rates for Hotel and Meals per State, County and even some Cities @ . You can use these rates as a general guideline or set your own rules, but make them clear and reasonable. Some companies just give their employees a Company Credit Card to pay for Hotels, Meals and Fuel. If you trust an employee to take care of a million dollars worth of equipment, you can probably trust them with a credit card.

            When figuring costs, you can probably use an equation that will conclude your cost is $1 per yard as well as you can find one that will conclude your cost is $10 yard. The best scenario is to figure out what is reasonable income to add to your bottom line. Don’t worry about how much you are making per hour, but rather, this $20,000 will pay two payments on your grinder this year which makes everything you do all year more profitable.

Here are some estimated pricing thoughts and issues, but remember what you are grinding and how you are grinding are different in most cases:
  • Typically large 1000 HP Grinders or Shredders on landclearing type debris would be in the $300-$500 an hour range plus support equipment. These rates are the same for shredders even though your costs are significantly lower with shredders.
  • If you can charge by the ground yard, you know you are getting paid for all that you are grinding and the customer will know his actual cost per yard of material. Then it is easy to price and plan for sale. The customer would then not care if you were grinding 100 yards an hour or 500 yards an hour. But you will need an accurate way of measuring the amount ground, such as hauling off all the material. Just measuring a pile after its ground doesn’t take into account all the compaction and material loss on the ground. These jobs are usually in the $3-$5 range.
  • If you measure and charge for the pile that needs to be ground you know you are getting paid for all that you are grinding and the customer will know his actual cost prior to the grinding being completed. You will need to view the material beforehand to see what type of materials, logs and stumps which cost more to grind, or brush which costs less. Check for compaction in these situations also. These job are more in the $1 -$3 range
  • Charging by the acre is pretty much the going rate of the area,$1000-$2000
  • If you charge by the hour, you must go off an hour meter on the machine or something similar. If your employees take an extra 15 minutes for lunch or show up 5 minutes late, the customer is concerned that they are paying hundreds of dollars an hour and not getting what they paid for. They also get concerned when only 100 yds an hour are being ground instead of 500 yds an hour.
  • Consider trading grinding time for materials or fuel, etc.
  • If the customer supplies support equipment, be sure the equipment is adequate enough to serve your grinding needs or your 1 week job turns into tying up your grinder for 2 weeks.
  • Consider a discounted rate for an extended contract or repeat grinding jobs.

Another issue you may consider is insurance. Be certain your coverage includes offsite work and that your liability coverages are adequate for the areas you are working in. This includes your transportation coverage and your subcontractors coverage. If your subcontractor has an accident with your three quarter of a million dollar grinder, make sure his coverage isn’t for $125,000. The Grinder Guy was in this situation personally and that’s why I am telling you now.

In addition, one provision you may want to put into an onsite grinding contract is that the customer be responsible for any damage to your grinder as the result of contamination in their piles. They may say their pile is clean but you didn’t pile it there, they did. If you run an excavator tooth, that just happened to be in the pile, through your high speed grinder, you don’t want to have to pay the $30,000 repair bill.

So in conclusion,
  • What needs to be ground and to what size?
  • Try and find out the going area rate
  • Cover yourself and your equipment
  • Figure out Expenses- Travel, Per Diem, Mileage, Transport
  • Find an accurate, acceptable measurement for billing

Dave Whitelaw,

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