Rashaan Baskerville
BIO :
Rashaan Baskerville , Director of Angus Finance , has over a decade of experience in the financial services and energy services fields . He helps fuel dealers develop and implement business growth strategies . He can be reached at ( 860 ) 658-4462 or rbaskerville @ angusenergy . com .
Will This One Mistake Drag Your Propane Business Down in 2022 ?
By Rashaan Baskerville
Energy prices have been on a wild roller coaster ride over the past couple of years , which has caused periods of motion sickness for both fuel dealers and their customers . Year-over-year energy price changes have ranged from lows of -19 % in May 2020 , to highs of + 33 % in November 2021 , spanning more than 50 percentage points in less than two years . The highpoint near the end of last year has not been seen since September 2005 , when oil was nearly $ 100 / barrel . In November , oil was under $ 80 / barrel .
So , while commodity inflation is certainly impacting the rising energy prices we are seeing , there is more to the story . According to the Federal Reserve , the culprit is supply chain bottlenecks resulting from the pandemic . Within the fuel distribution industry , this issue has been felt most sharply in one particular area , propane businesses . While the fuel price increases noted above have had a strong impact , they have been compounded by even greater impacts in the prices of steel , which reached all-time highs last year .
So what is the biggest mistake you can make as a propane dealer in the current environment ? Nothing .
Doing nothing to overhaul your pricing strategy in the face of sustained price increases could cause damage for years to come , and some businesses may never fully recover , or perhaps may be forced to sell to a competitor . Fortunately , however , there are many alternatives for you to address rising prices head-on and even structure your business for greater profitability in the years ahead . Here , we will focus on propane tanks .
One of the largest costs of acquiring new customers is the cost of steel tanks . These costs can cause a large strain on relatively new propane businesses and those that are growing rapidly . If not managed properly , growth can be slowed or halted due to the impact on cash flow and available lines of credit , which can become insufficient to operate . Therefore , it is imperative that you act as soon as possible to keep your business on track .
Here is a list of steps to take right now to begin addressing your propane pricing strategy :
1 ) ANALYZE
• Start by researching your latest cost / tank by tank size and comparing that to your tank costs when you last updated your overall pricing strategy .
The longer the timeframe , the larger the difference you will likely find .
• Next , review your current payback period by tank size and how it has changed over recent years . Measure this against your target payback period for each tank size to determine the magnitude of the gaps you will need to address .
2 ) PRIORITIZE
• Determine which tank sizes comprise the bulk of your customer list . You will need to ensure that your new pricing strategy will most heavily impact these customer segments so that your overall average payback period for all tank sizes meets your goal .
• You will also want to forecast which tank sizes represent the most opportunity for growing your list over the next 1-3 years so that you do not need to continuously make major strategy updates to keep up with cost changes , as your portfolio makeup also shifts .
3 ) PLAN
• How much additional revenue do you need to generate to reach your targeted payback period ? By applying your findings from the Analyze and Prioritize steps above , you can calculate your annual revenue growth requirements .
• There are a wide range of options for generating additional revenue , however you must decide which are the best levers for your specific business to apply , based upon your cost structure , customer base ( company vs . customer owned tanks ), and applicable regulations .
4 ) IMPLEMENT
• Create a dynamic pricing model that will let you know how to adjust your prices over time to keep up with changes in your cost structure .
• Update your current pricing structure to match your current cost structure and desired payback period .
Conducting a thorough pricing strategy overhaul can be a large undertaking , however it is crucial to the ongoing viability of your company . By knowing the key points to consider noted above , you are on your way to preparing the necessary data and resources for getting it done . Once those are in place , just do it ! l FON
32 FEBRUARY 2022 | FUEL OIL NEWS | www . fueloilnews . com