Philip J. Baratz Angus Energy pbaratz@angusenergy.com Oilheat Marketing... Is $600 a lot of money? The “back of the envelope” math above is not magic; while it may not apply exactly to your situation, it does seem to be “directionally” how full-service dealers operate. If you want to take all of these numbers down to a cents-per-gallon view, it would leave you with the 15–20 cent-per-gallon net profit sought by many. I need to emphasize that all of the numbers above are meant to be generic, not specific. They are not recommended numbers and do not figure in the many, many factors that can impact profitability such as weather, new hires, customer churn, supply issues, etc. I am just looking to give a 30,000 (or, perhaps, 1,000) foot perspective on things. If you have $675 of gross margin, or are spending $200 on selling, general and administrative expenses (SG&A), or are looking at taking home $175 per customer (all similar versions of the same economics), is spending a dollar or two on improved technology a lot of money (especially when that dollar or two can increase your profits multiple times over)? As technology continues to improve, the costs of staying current are often very inexpensive per customer. Back to the title of the article, is $600 a lot of money? To pay for a gallon of oil, it most certainly is. To buy a new service van, it most certainly is not. To acquire a new customer? That is not for me to say—but “the numbers” do express an opinion on value. As an industry, sometimes we do not have the proper perspective and what we are left with is adhering to what we have done in the past. “The past” can be what the prior generations did, or it can be what was done 20, 10 or even five years ago. The past can be guessing how much oil is in a customers’ tank instead of using a tank monitor, or it can be guessing how long a customer will stay with you instead of looking at the data. The past can be not tracking exactly why customers leave you or it can be an understanding that it is not always “because of price.” The past can be mailing out postcards to all of the customers who stopped buying from you or it can be using technology to target who you want to speak with and when. Focusing on the mailing of postcards led us to some interesting revelations over the past few months. We fully understand the impact and desire to “win back” customers. They were yours, so why can’t they be yours again? The simple answer to that question might lie in the reason they left you. If they left you because of price—as opposed to over a service issue—a new, low price might woo them back. If they had referred customers to you in the past, they are more likely to come back. If they thought you were too expensive, and /company/angus-energy /AngusEnergy @AngusEnergy Our industry does many things well. Dealers make efficient deliveries while rarely letting customers reach a “run out.” They understand the importance of communicating with customers and soliciting new customers. There is an understanding of the need to quickly respond to any problems with customer equipment. Additionally, many dealers (but not all), realize the importance of staying with the times; that can include the use of remote tank monitors, new ways to communicate with customers that are more efficient and constant training of service staff. However, one thing that we have been lacking as an industry is a good set of reference points, commonly referred to as benchmarks. Without benchmarks, you only know how you are doing relative to the budget you set for yourself (assuming that you have done the most basic requirement for a business—the planning and documenting of an annual budget), but not against your competition. How many gallons per customer do they sell? How many customers do they have on a price cap? How many service call-backs do they have? How much does it cost to acquire a new customer? How long do customers stay? Yes, I can go on and on. While you may have your answers to all of the above questions, it is still quite challenging to know if the answers imply that things are good, or if it means that things should be better. With easy access to data and technology in the modern world, many companies have started to automate processes to get better reporting, using business intelligence (BI) to improve their deliveries and to understand which customers are worth keeping (and pursuing), and which are not. Here at Angus, we are spending more of our time with our clients investigating what they must know—even if they don’t realize it. We are also building up a set of benchmarks (all anonymous) to give clients comfort (or discomfort) with how they are doing. If you are a full service dealer, selling 900 gallons per customer per year with a margin of 75 cents per gallon, you are looking to gross $675 per customer in a “normal” year (whatever that means!). On “average,” you are likely making six deliveries per year of 150 gallons, at a cost per delivery (depending upon what you include in your calculated cost of delivery) of $50 (including driver wages). So, you have started with $675 and spent $300 on deliveries (six x $50), leaving you with $375. From there, you must include everything else you need to run your business—salaries, rent/mortgage, operations for service, billing, sales and marketing, customer retention, HR, etc. Using a number of about $200 per customer per year (a number we have derived from many conversations—but it should be noted that with all of these numbers, yours may well be different), that brings your profit down to $175 per year. continued on p. 27 30 ICM/January/February 2017
ICM January-February 2017
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