Your Business Is Under Siege: Are You Jumping over the Candlestick?

A recent CNBC report has predicted that historically low natural gas prices are here to stay for a long time. Record numbers of customers are converting to not only natural gas, but propane as well. Discounters continue to take business from full-service dealers. Consumption per customer and per degree day continues to fall as high heating oil prices drive up equipment upgrades and conservation. As a heating oil dealer, what are you doing about it?

My experience puts dealers into three categories: 1) denial: just keep doing the same old thing, the same old way, and prices will come back down, 2) sellers: valuations are down significantly and those selling are in for a big shock with the offers they will receive, 3) fighters: those dealers that are trying to be nimble and quick – and jumping over the candlestick.

Let’s focus on the fighters and what they are doing to protect and grow their businesses and family legacy. First, they are constantly striving to improve their core business. They are evolving their delivery processes to be more efficient. They are running their businesses more safely to reduce insurance claims and expense. They are running profitable service departments – yes you can (and have to) run a profitable service department. Most importantly, they are expanding the products and services they offer.

Service departments must be stand-alone profitable. The old paradigm of service as a loss-leader no longer works. Do you know your cost per call? Take your entire service department expenses and divide by the number of calls you run. Industry norms run from $120-$175 depending on your size and productivity. Now look at what you charge for a service plan that covers parts – if it’s under $300 you are losing money on all those plans (if you average 2 calls per customer, per year). Look at your billable work: you have to flat rate – period. Too many dealers are still using time and material and woefully undercharging for what they do. Look at frequency of billable calls vs. non-billable – most of what you are doing you are not billing for. Look at productive vs. non-productive time – over half your time is non-productive and generates no revenue. 3-5% of your customer base is buying replacement equipment every year. If you are not selling it to them, someone else is – and probably converting them in the process.

Diversification is critical. Start selling other products and services to your current customers and find new customers and products. The fighters are diversifying into propane, HVAC, and plumbing. They are selling more services to their existing customers to fight gas attrition and discounter pressure. They are selling more replacement equipment to their customer base, replacing tanks (not ignoring them), and, if the customer is going to convert, the fighters convert the customers and sell them a service plan to cover the new equipment. The fighters are running a smarter, more profitable business so they can de-leverage fuel margins and be more completive.

Get some help. There are plenty of vendors out there who are willing to help and provide a great return on the investment. Be nimble, be quick – start jumping over the candlestick.

By Tim Quinn