If your only profit is from fuel, you live and die on margins, margin management and cash management. Have recent rapid and big price swings put some sweat on your brow? I’ve seen some little beads myself on marketers when I’m out speaking at a convention and cell phone price alerts start happening.
In our environment of change, extremely rapid change, you and your team’s ability to respond to the changing environment is key to profitability. You aren’t alone if you still sweat the price swings. Here are five ways to be prepared and possibly even capitalize going forward:
1) Deliberately maintain extra supply options. Single sourcing can be suicide during huge price spikes or any market disruption with allocations. Establishing multiple supply points and contingency or emergency fuel pull points can save you no matter how large or small your volume. Industry conferences are a good place to meet alternative suppliers and even competitors who can be allies in a pinch. It always amazes me how, in the aftermath of hurricanes, former arch enemies bond and cooperate.
In order for calm to prevail, having a written contingency plan for terminal outages is key to success. And despite everyone’s effort to go paperless, contingency planning should always be in hardcopy format because when you need it the most, you may not have power or access to computer systems.
2) Go beyond just what’s necessary on hauling capacity. Whether you own and run your own fleet, or prefer to use common carriers, it’s smart to constantly keep excess capacity. I know this contradicts stringent ROA optimization that I typically preach, but a spare truck (and drivers), whether owned or contracted, is very smart in today’s volatile fuel market.
For growing marketers, keeping your fleet in excess capacity means being very forward thinking on ordering transports and bobtails, since high growth marketers tend to bring gallons on so fast they can barely stay in trucks! If you don’t own your own fleet, and use strictly common carriers, build contingency planning into your contracts and put teeth into them with penalties.
3) Standardize to optimize. When Southwest airlines decided to standardize their jet fleet, it meant that pilots, crews and maintenance could work on every plane no matter as to what location. This gave Southwest a huge advantage. Use this Southwest-style thinking for all your equipment. Standardize as much as you can given brand-specific requirements. If the requirements are too onerous, it might be time to rethink your branding strategy.
In today’s marketplace, you have an opportunity to create your own brand, your own image, your own loyalty in your marketplace. By creating standardized equipment and standardized procedures, your team will be able to execute with the precision of a marching squadron, running right over disorganized competition.
4) Manage customer expectations from day one. What is day one? It’s the very first time a potential customer talks with someone from your company about potentially buying from you. If it’s someone that you are winning over from a competitor, know they have certain preconceived ideas about how you will manage price swings, based on their prior fuel supplier experience. If you don’t clarify fully what you do, they’ll assume it’s what the former supplier did.
If it’s a new fuel user your team is calling on, they’ll need to be even more thorough so the new customer knows exactly what to expect from you when prices are rapidly rising or rapidly decreasing. Many marketers building their business through dealer supply contracts tell dealers they will “take care of them” or “manage their fuel” so they don’t have to. All that is well and good until a customer thinks they weren’t treated fairly or according to your promises, which will surely happen in this price environment.
In some areas of the country, even smaller marketers have access to matching fixed price contracts on diesel. This can be very attractive when prices are rising, but contracts without good upfront communication and strong penalty language will surely be broken in a down market.
In order to know what you will and won’t do for various customers, and communicate that clearly to the prospective customer from the first touch point, you must know the value their potential account brings to you, which brings me to my final and most important point.
5) Systemize customer stratification – One source of the biggest gains our all inclusive M-Power™ program clients continually report is getting a system in place for determining best, average, and unacceptable customers. While many of us were raised in the philosophy of “every customer is a good customer” it simply isn’t true.
Getting clarity on the components of best customer and worst customer definitions, and then having a game plan for procedures for each class of customer during price swings, is not only a huge advantage to staying calm and focused, but it will pay off in dollars as well.
Our M-Power™ clients that have spent the time and effort required to develop the customer class definitions and procedures, have actually turned this into an articulated, marketed sales advantage that helps them capture higher margins and more gallons.
In fact, I’m firmly convinced that marketers who don’t develop these systems end up wasting huge amounts of dollars giving really great service to some of their least profitable customers.
So, in summary, I see price swings as a way of life going forward. If you arrange alternative supply options, keep extra hauling capacity, standardize, and manage customer expectations using a stratification system, you and your team will stay calm as a cucumber while prices rock and roll, and more importantly, your profits soar!