For locked in contracts, I can see the essence of a fuel surcharge. With a fixed revenue stream for a year, you have to hold your margins if they are that close.
We have about 17% of our gross revenue is from contracted maintenance, which we average 37% net profit on. Our fuel costs are up to about 2.3% of last months gross revenues, which is up from 1.7% the month before, and all from price increases.
We recover our fuel cost in overhead, based upon production manhours we will sell this year. By utilizing a dollar cost averaging and spreading the overhead fuel cost out over the entire recovery area, we are able to keep that impact fairly minor on the profitability number.
We will not implement a fuel surcharge on these maintenance accounts. What we will do is to raise those prices, mid contract by addendum so that we can hold that increase even if gas does come back down
.
We have not raised a maintenance contract in 3 years, but now seems like a prime time to do it for a legitimate reason.
Our public contracts are bid well in anticipation of inflations, and last year I built the 2005 budget on $ 3.00 a gallon gasoline, and I have 2006's budget set at $ 3.75, which when we add 2 employees and by selling those additional hours, we will actually lower our overhead cost per hour, and allow us to meet our profit protection targets at all times.
if the gas reaches $ 3.75 we are covered, if not then we make some extra profit.
With 83% of our business coming from construciton projects, and with 30 push clauses in our proposals, and by sticking to not less than 30% net profit margin, and closer to 40%, we will not get touched with any profit loss.
We will start operating off 2006
's budget the first of October as we have every year.
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