to clarify my last post

Our district Christmas party was last night. It went much better than last year's and since it was at the local casino, we didn't endanger the good standing our senior salesperson enjoys as a member of the local country club which is where we had it last year.

I need to clarify my last post. While writing it, I got tired and stopped early. Like almost any service business in any industry, we charge a healthy mark-up for products. One could potentially justify this mark-up because of the ways we combine and delivery our products to the customer or because of some of the proprietary chemicals involved, but that's not the point. We charge a mark-up and that is a fairly fixed margin for each individual product. Any given month consists of many jobs, so the aggregate product margin each month probably changes very little from month to month.

Our costs for what we call services are much less fixed. For example, we charge for something called ton mileage. That is basically how many tons of product we haul times the mileage from our yard to the location we are taking it to. We charge for each ton mile and typically the ton mileage on a job ranges from a couple hundred to several thousand. Thus, the bigger (meaning more cement) and further away a job is, the more ton mileage there is. But how much is it costing us to haul each ton of cement each mile? Obviously, that cost is highly variable. If a job takes one fully-loaded truck, then that would be more ton miles than if that same job took only half a truck's worth of cement. Either way, we still had to send one truck and incur associated costs like having someone drive that truck. Also, a location could be far away, but almost all the miles there could be on smooth, easy driving pavement. Compare that relatively fuel-efficient trip to one which involves mostly dirt miles on slower going roads that induce more wear and tear on the trucks. The point is that our cost basis for each ton mile is basically impossible to measure on a per job basis, though I imagine some very noticeable trends become apparent on a larger scale.

Overtime is also a service charge where our costs are not fixed. For the most part, our original price estimates for jobs do not include any overtime charges. Our pricing is such that the first x number of hours are included. On most jobs, if we don't have to wait on the client, we can be on and off location in x hours or fewer. If we have to sit on (or just off depending on space) location and wait and it takes more than x hours, then overtime starts getting added to the ticket. We don't charge overtime only on personnel. There are also overtime charges for all the equipment. Time we spend idle on one location is time we cannot spend doing another job on some other location. If the client wants to tie up our resources, both people and equipment, and have us wait for a rig to stop being dysfunctional then there is a substantial price to pay. If all we're doing is sitting and waiting on location then that costs us very little. There is the cost for the wage employees for every hour on location that they get to spend on the clock whether they're sleeping in a truck or working. There is the increased fuel consumption for all the hours the trucks spend idling and the associated wear on the truck engines to idle for several hours. (This ignores any lost opportunity costs which are actually relatively minor compared to other costs.) All told, those costs are quite insignificant compared to the overtime the client must pay for having us idle on location.

In the end, spending 20 hours on location is a recipe for great margins for us. Our fixed costs are essentially our product costs and those are balanced by our fixed product revenue and produce a stable margin. When we start to add overtime, our cost basis for that time is far less than the revenue we get in return. Thus, the greater the percentage that service charges constitute on a ticket, the better the margin. I hope this clears things up.