If you’re in the propane business, you may feel a little left out at times in our newsletter. We don’t mean to ignore you! Even though we don’t specifically mention propane at times, much of our advice applies to you. This month, though, we wanted to do a special article for our propane marketers.
To boost cash flow and profit at your propane business, start with pricing. About 90% of the propane marketers we deal with could earn a few more pennies in gross margin without losing any customers. Sometimes we get a little complacent about our propane margins because they are so much higher than fuel. Don’t ignore opportunity for a better price.
Next, consider a budget billing plan for your residential customers if you don’t already offer this service. Made popular by the home heating oil folks, budget billings help even out your company cash flows during slow months, and help your residential customer with his budget.
Next, get the budget billing on automatic bank drafts. By your customer signing one agreement for a fixed charge per month, you’ll eliminate paperwork.
As you prepare to get all your customers on budget automatic drafts, now is a good time to use a price hedging tool. Working with a reputable market specialist such as Penterra/Petrous, you can lock in forward pricing and protect yourself from price movement risk.
So now you have a good price, your margin locked in and your customers on auto-billings. The challenge is now making the lowest-cost delivery possible. The absolute best way to monitor and compare delivery efficiency is to convert all delivery costs, including trucks and drivers, to a per-gallon basis.
Once you have the per-gallon data, you can then compare efficiency within your own fleet, and also compare your efficiency with similar marketers in the industry. Don’t assume that big guys do it cheaper and better. Our experience has been that some of the smaller, family-run operators have the greatest efficiency.
Finally, let’s talk about equipment and service. With already pretty darn good margins, many marketers forego profit opportunity that could come from selling newer propane equipment. There are excellent bottom-line profits by cross-selling propane burning fireplaces, BBQ’s, water heaters, etc., plus propane usage increases. In addition, there are extra profits from installation. Focusing on summer propane use items is a smart way to add to low-cycle income.
Finally, remember it’s friendly service that your customer wants and that friendly service keeps you in business. Use customer surveys to be sure you and your employees are providing the best service possible.
