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.

Know Your Pricing Model

There are three parts to a pricing model: containers, service and disposal. The container factor is a calculation based on the container replacement cost, and a percentage derived from knowing your container costs and your return.

The container cost comes from dividing a firm's historical container cost (annualized if they represent a period less than one year) by the investment in containers. If the annual container cost is $45,000, and the investment in containers is $720,000, then the annual container factor is 6 percent. When that is added to the annual return of 15 percent, the total annual container factor is 21 percent, or a monthly container factor of 1.75 percent. Therefore, a customer who has a 6-yard container with a $600 replacement cost should be billed at least $10.50 per month for the container alone.

The truck portion of the pricing model is based on several calculations. First, the replacement cost is multiplied by the desired return rate. That number is then divided by 12 to get the monthly amount needed to generate the desired return. Next, the monthly truck costs are added, and that sum is divided by the driver hours per month in order to calculate the truck costs per driver hour. After that, the truck costs per driver hour are divided by 60 to find the costs per minute, and that number is multiplied by the minutes per stop to determine the revenue needed for each service stop. Finally, the revenue needed for each stop is multiplied by 4.33 (average weeks in a month) and then by the number of times each week the site is serviced.

Using this formula, a commercial collection company with an average minutes per stop of 6 minutes, 650 driver hours per month, total truck costs of $97,500 per month, a replacement cost of $600,000 for the trucks and a desired return rate of 15 percent would need to bill $69.95 per month for a stop that is serviced once per week.

Disposal cost is a calculation of the average pounds per container yard multiplied first by the size of the container and then by the frequency of service. That number is then multiplied by 4.33 (for weeks per month) and then the applicable disposal site rate before being divided by 2,000 (the number of pounds in a ton). If our hypothetical commercial collection company is in a market where the average disposal rate is $40 per ton, it would need to bill $53.52 for a 6-yard container serviced once per week.

By bringing the various components of the pricing model together and calculating the price for different frequencies, a hauler can produce a price sheet for different container sizes and frequencies. Using the above financials, monthly billing rates for a 6-yard container are outlined in Figure 1.

Know Your Customer

Every commercial customer is unique in terms of space available, types of waste streams, special schedules, security and other factors. One price does not fit all customers, so the pricing model can be adapted for individual customers.

Customers that have space for additional containers can improve by adding containers instead of increasing the frequency of their service. Many companies count additional containers at the same stop as “half-stops” since the driver doesn't have to drive to a different location. A location with two containers would be counted as 1.5 stops for the purpose of pricing.