It’s Time to Implement
an Oil Delivery Fee
Years ago, I made a name for myself in this industry by
figuring out how oil companies could charge up to 75%
more for service plans. I remember our first project—a
company called Abbott & Mills in Newburgh, NY, tried to
raise its contract from $89 to $99 dollars, but pulled back
when they started getting numerous customer complaints.
We did some analysis, conducted several focus groups, put
our marketing caps on and came up with a strategy that
actually raised the price to $149, and introduced a more
comprehensive plan at $189. And the phone calls? There was
barely a peep. They made a huge profit with less pushback
than they received from the $10 increase.
That experience taught me a great deal about what fuel
companies can and can’t get away with, and why. More
importantly, I learned how to get very good at making fuel
dealers more money.
Over the years, I’ve used that acumen in a variety of
ways. I remember when Agway Energy was still in the
retail oil and propane business, with hundreds of thousands
of accounts. They had been giving a price cap for
free to 40,000 customers, which was viable when it cost
only 2¢ per gallon to execute, but not when it cost 20¢–25¢
per gallon. I implemented a strategy that allowed those
customers to either shift onto budget plans (which helped
the company with cash flow and retention) or pay 10¢
per gallon for the cap. Either way, the company came out
ahead. Again, there was little customer pushback.
We went on to help hundreds of oil companies increase
service plan charges or introduce cap fees. We also pioneered
an “opt-out” strategy to get 25%–30% of customers
on budget overnight. We’ve reduced or eliminated earlypay
discounts, eliminated coverages and shifted customers
in and out of various options.
In virtually every case, owners and (especially) employees
were initially fearful of upsetting the apple cart. In
each case, we found a way to accomplish their objectives
with far less customer resistance than they expected.
It’s time to start charging delivery fees
I bring this up because there’s an opportunity staring
you in the face that could give your bottom line a serious,
permanent boost. It’s called “adding a delivery fee,” and if
you handle it the right way, your customers will tolerate
it with barely a whimper
Many propane companies have been adding delivery
fees for years. We’ve helped many of them either introduce
fees or increase them.
Heating oil dealers have been hesitant to follow suit,
worried that such fees would trigger customer losses, or
create a competitive disadvantage when it comes to new
sales. It turns out, those fears are very overblown.
Over the last two years, we’ve introduced oil delivery
fees for multiple companies in very different markets.
In each case, our strategy increased profit significantly
with little downside. Retention stayed strong. New sales
stayed strong. Only now, they had a brand-new source of
cash flow to count on every year.
Customers shop price, not fees
U.S. consumers shop for price, but tolerate “nuisance
fees” surprisingly well, as long as they:
a) Aren’t exorbitant;
b) Aren’t hidden; and
c) Are explained in a way that makes sense.
Your costs are certainly rising each year (health care,
tech and driver wages, liability insurance, regulatory
compliance costs, etc.); gallons are dropping; you are also
facing increased regulatory pressures. Your delivery fee
offers a safer bet than raising your margin, and it is not
as dependent on weather.
Do the math
To calculate the impact of a delivery fee, take your active
customer base and multiply it by the average number
of deliveries they get per year (usually around four or
five). Then multiply that by the fee—usually $5 or $6.
For a company with 3,000 customers, you’re looking at
$70,000–$100,000 per year. For a company of 6,000 customers,
it’s $140,000–$200,000 per year, and so on. The
best part is that all this money drops to your bottom line.
There are no on-going costs associated with it. If you are
12 ICM/March/April 2021
Photo: Petr Kratochvil
Consumers are accustomed to fees so why not implement an
oil delivery fee?
Rich Goldberg
President,
Warm Thoughts
Communications, Inc.