Our industry does many things pretty well. Heating oil and propane retailers make pretty efficient deliveries while rarely letting customers “run out”. They understand the importance of communicating with existing customers while soliciting new customers. They respond quickly when needing to service their customers’ heating and cooling equipment. Additionally, many heating oil and propane dealers realize the importance of staying in front of the curve; that can include the use of remote tank monitors, digital service and delivery dispatch, and ongoing training of their staff.
However, one thing the industry has been lacking 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 compared to how many you sell? How many customers do they have on a price cap compared to how many you have? 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 these questions, it is still quite challenging to know if those 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 (Business Intelligence, “BI”), to improve their deliveries, and to understand which customers are worth keeping (and pursuing), and which are not. At Angus Energy, we are spending more and 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) on 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 6 deliveries per year of 150 gallons, at a cost per delivery (depending on 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 (6 x $50), leaving you with $375. From there, you need to 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.
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 factor 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 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 multi times over)? As technology continues to improve, the costs of staying current are often very inexpensive per customer.
Think 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 5 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 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 whom you want to speak with and when.
Looking just at the last point – 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 you let them run out of oil twice, they are very unlikely to come back. This is all logical, but most win back campaigns make the same offer to everyone. Two prominent missteps are: (1) making only one offer when you should know what might bring them back (depending on why they left in the first place), and (2) making an offer to all, when some of the lost accounts are simply not coming back, and your data should be telling you that. So ask yourself, should we even send the postcard or letter?
After the cost of delivering oil, the next most impactful and inefficient expenditure is in sales and marketing. Companies often spend about $60 per customer per year – of the $200 SG&A dollars – to retain existing customers and to solicit new ones. Too often there is no clear delineation between dollars spent on retention and new customer acquisition, but given what we have seen over the 25 years century in this industry, it is clear that there is a “spray and pray” approach to customer retention. Send everyone a newsletter – even without knowing who may or may not open it. Give everyone who calls about “price” a $25 credit, regardless of their longevity or their customer score (yes, you need to segment your customers – they are not all the same).
Email marketing has improved customer communications and is a step towards better ways of engaging the younger homeowner. However, as tech trends come and go, and email has been around for a while, it is starting to be perceived as this millennium’s version of “snail mail”. Communicating with customers is of the utmost importance, and proper, professionally crafted messages are absolutely necessary. Otherwise, you might just be sending out noise, no different than the teacher in the Peanuts comic strip. Combining the right messages with the right methods of communicating is key.
Almost everyone has a smartphone (at least almost every single family home owner), and as we all know, when the phone buzzes, we look. It can be a text message or a “push notification”, but the statistics are that about 97% of text messages are read within 3 minutes on a smartphone, while less than 30% of emails are read on a smartphone, even hours later. It isn’t an accident that the “delete” button is far easier to find for an email than for a particular text message on a smartphone. Steve Jobs’ legacy still lives! When you match the desire and need to communicate with your customers with proper and customized messaging, along with a strong knowledge of which customers need which message at any particular time, it is likely a much more efficient way to communicate than an ad in a newspaper or even on a nice website.
The message here is that we all need to communicate. We need to send timely and relevant messages to customers. They are no longer out there looking for us – we need to look for them, and to engage them. If you have the data, and you have the message you want to convey, shouldn’t you look for the best way to spend that part of your SG&A?Share