Winter 2018, Vol. 4
- WINTER 2018
MAKING MID-SEASON ADJUSTMENTS
WRITTEN BY: BOB LEVINS
As we rapidly approach the middle of this late winter heating season, dealers find themselves wondering how they can make some quick adjustments to their business so that they get their company back on track before the end of the heating season. Before you can figure out how to make these adjustments, you need to figure out where the adjustments should be made. Below is a series of 5 pain points that we’ve found dealers feel mid-season more than ever. At the end of this article, we list a series of questions that you should be able to answer. Similar to our Dealer Scorecard, this will help you hone in on where you should start to make improvements.
You’re not alone. Many dealers are feeling the same pains as you are right now. Want to find out how other companies are doing this heating season? Take 5 minutes to answer the assessment questions at the end of the article and check back next quarter to see the results. Find out how your company stacks up in comparison to other dealers.
Fall Delivery Accuracy
I’ve always been reminded by my clients over the years that the fall is the most difficult time for making accurate deliveries due to the spanning of three seasons since last winter and last full delivery. The remaining winter burn, the summer (hot water gallons), the fall and then the winter, whose start has been playing games with us these past few years makes for a lot of variability in the customers burn rate. We are reminded of this every year as we encroach on the first cold snap window. With some, the degree day logs remain set for the fixed seasonal start and stops the same time every year but at times the weather will not cooperate with what should be the norm. The accuracy of projections could certainly be affected by this, yielding either greater than or shorter than expected deliveries and even runouts, depending on the capabilities of your back-office-system and your focused attention with maintenance in reacting to these variable.
We noticed that the late and clunky start to this heating season caused more runouts than usual for our clients. How did you fare as compared with an average fall season?
How wide was your delivery variance – very large deliveries and very small deliveries – in the fall, before the more predictable degree-day clocks started making sense?
Knowing when customer’s equipment transitions from hot water only to heat is key to running a more efficient operation. Do you know when this happens, or do you “discover” it in hindsight after making the first seasonal delivery?
Do you know how much would be delivered to a customer, prior to dispatching a truck to make the delivery?
The Fall Cold Snap
Each and every fall, when the first cold snap hits, the phones ring off the hook with first delivery requests and no-heat calls. We all know this and have lived with the nuance for decades, accepting it as our normal course of doing business. It creates a frantic peak of deliveries and service calls within the customer service department translating into work orders and demand tickets, eventually subsiding as the true winter peaking slides in behind it (we hope). Many customers are turning on their equipment for the first time since last season and need heat. The heat-only customer’s no-heat problems are normally resolved with a purge, as it is every year. Will-call customers have awoken to the fact that they might need product. Of course, there are also the automatics customers that don’t believe in your forecasting capability.
Early season “emergency deliveries” and equipment issues are commonplace. Do you have pre-season processes in place that lessen the impact of these inevitable events?
Do you track if they are the same people every year?
Do you know which specific customers might be most likely to call in an early season panic?
Understanding that their awareness of the upcoming season may bring new customers to your doorstep, expensive marketing programs have been put in effect to hopefully point them in your direction. Different campaigns have been designed, approved and implemented based on wanting to attract the desired customer profiles and as the cold weather approaches, the fruits of your labor and dollars will hopefully pay off. Generally, your customer service department’s new-account acceptance procedures would ask the new customer where they had heard about the company and then would align the response to hopefully one of the marketing programs you currently have in place. This important information, in turn, would be input into your back-office system so marketing could compare the investment made on programs versus results achieved.
Customer “gain and loss reasons” are amongst the biggest opportunities for increasing profitability and retention. When you add new customers and tanks to your systems, are acquisition reasons being properly applied to the new account record as they are set up?
Extended Gross Margin Goals
The fall temperatures are not cooperating with the burning rates required to meet your budgetary goals based on your standard forecast model. You are pumping gallons as the current delivery forecasts dictate but at some point, you realize that the run rate of the delivered quantities and resulting gross margins are trending behind where you should be at any point in the month.
We know that meeting gross margin goals at month end involve gallons pumped; however, it also requires knowledge of how those gallons are distributed across classes of trade as well as the price programs that are in place in order to accurately assess the correct course of action.
ANGUS EDUCATIONAL SERIES
YOUR CUSTOMER NEVER GETS OLDER
Managing an Efficient, Targeted and Profitable Marketing Plan
DATE: THIS SPRING AT YOUR LOCAL ASSOCIATION
PRESENTER: DANNY SILVERMAN
The only constant in our industry is change, and today everything is changing much faster than in the past – which includes your target market. Come listen to Danny Silverman at your local association as he explores the proper tools to understand and embrace your evolving target market.
NEW CLIENTS –
WELCOME TO ANGUS ENERGY
Miller Gas & Oil, Shamokin, PA
Lakes Gas, Forest Lake, MN
R & B Energy, Harris, NY
Reinhardt, Oneonta, NY
Shipley Energy, York, PA
Sweetwater Propane, Ephrata, PA
Tri-Gas, Traverse City, MI
If you are interested in any of our solutions to make your business run more efficiently, effectively, and profitably contact us today.
*Blue represents the states of our new clients. Green represents the states of our existing clients.
COPING WITH COLD SNAPS:
Editorial by: Phil Baratz
The weather that many heating oil and propane dealers have been experiencing in the Northeast this winter has been challenging. While we all like to see the number of gallons delivered increase, the operational costs incurred can be significant and are an important part of the equation.
In speaking to dealers over the past couple of weeks, it was no surprise to hear they are facing more runouts than the “normal” 1% industry average. With recent challenges they are now looking at anywhere between 2-4% which can equate to hundreds of customers.
Energy providers are also tackling the issue of making smaller deliveries than normal. Prioritizing deliveries based on k-factors that can’t seem to keep up with extreme weather can be a major challenge. In addition, phone lines are inundated with customers claiming they have less product than the system is showing, but dealers can’t deny a delivery for fear that the customer will leave. These unnecessary deliveries push off drops that must be made and make a difficult situation much worse. In a major weather event, there is no room for inefficiency.
GREMLIN® Tank monitoring technology was borne out of our industry’s need for increased efficiency and automated results based on real-time data. Our system incorporates best in class technology to minimize overhead and maximize profitability regardless of market or weather conditions.
- Daily deliveries are automatically generated based on YOUR criteria and accurate, real-time inventories so every drop is an ideal drop
- Profitability is maximized as delivery routes are made up of only high priority stops
- Runs can be condensed resulting in less windshield time, more productivity and less wear and tear on equipment
- Customers can see their actual fuel level from their smartphone, reducing call volume and unnecessary delivery requests
- CSR’s are freed up to answer true emergencies
- Overtime and employee safety is managed more effectively as deliveries that truly need to be made are made well ahead of schedule and racing against the weather is eliminated
- Spring and Fall “heat only” deliveries are more efficient as they are based on accurate inventories, not historical tendencies
Managing demand during difficult weather events do not need to be hard. With GREMLIN® Tank monitoring technology, every delivery is an efficient one.
Click here to learn more about how GREMLIN tank monitors can maximize your business and minimize inefficiency.
Three to four months a year is the time we have to make most of our money, at a time when we are delivering the highest percent of volume.
Do you know daily how your volumes and extended gross margins are trending MTD?
Can you tell if something is contained in yesterday’s postings that could affect your goals?
Are you prepared to make the necessary adjustments when required with regard to deliveries and/or sale prices that could bring you back in line with your financial goals?
We’ve all heard the statement, “twenty-percent of your customers represent eighty-percent of your stress in season”. That stress level, at least financially, should increase knowing full well that many of those stressful customers have active service contracts in play as call after call are dispatched, resulting in no revenue but surely cost as your technicians attempt to solve the problem(s). As these calls occur, revenue for the customer’s contract is exhausted and the losses now begin to affect the fuel margins which were previously respectable. The challenge is to know when these customer’s issues have negatively crossed the threshold of being considered acceptable.
Do you track calls per customer per year?
Do you track callbacks per technician?
Do you have processes or procedures in place to recognize red flags and do you take action to resolve at a point of acceptable losses?
COMPLETE THE 5-MINUTE ASSESSMENT BELOW
Note: To take the survey via mobile, please visit this link instead: https://www.surveymonkey.com/r/coursecorrect
At this point, you should have a good starting point to make some course corrections before the heating season is over. Don’t forget to keep a look out for our Spring 2018 Newsletter to get the results of the survey.
MEANINGFUL METRICS: A Mid-Season Financial “Spot Check”
Written by: Jeff Simpson
The middle of the heating season is typically not the time we recommend our advisory clients undertake significant financial structural changes to their fuel distribution company. Such changes are often best tackled before or after the peak season so that the focus of management is centered on making money when the time arrives. Nonetheless, we regularly review some key financial metrics with our clients during the heat of battle to detect any developing earnings or cash flow complications. Here are our top three:
(1) The Liquid Gross Profit Metric: (Revenue by Fuel – (Cost of Goods Sold, incl. hedge settlement)) ÷ Gallons
Simply stated, know your margin! Not just your targeted margin or even your average margin, but your actual margin by fuel type and trade class. View your total monthly liquid gross profit goal as a necessity, not an aspiration. This requires budgeting for a specific margin for each fuel, each trade class and even each pricing program you offer. With this level of detail, it’s easier to understand when and where margins can be widened to make up lost ground that may develop due to HDD variations, commodity price moves or a misalignment of hedges purchased to cover pricing programs. Specific fuel margin goals roll up to produce high-level gross profit goals. If gallons or margins lag the budget for any reason, an immediate change to margin where possible is necessary to keep pace with your liquid gross profit goal. Knowing your actual margin at any point mid-month allows management to make informed, proactive decisions about pricing instead of reacting too slowly or being too heavily influenced by competitors’ pricing. Set your liquid gross profit goal for each month, determine specific margins based on your anticipated gallon sales and track this metric daily. The use of business intelligence software such as BRITE® makes this an easy task.
(2) The Borrowing Base Metric: (Accounts Receivable <90 days x 80%) + (Usable Inventory x 50%)
Just about every fuel dealer has a bank line of credit. The primary intent is to support the operation while you wait for your customers to pay you. While bank line of credit structures can be simple (similar to a credit card) or complex (with detailed daily or monthly reporting requirements), we always encourage owners to view their line as a lender views it: a loan facility to support short-term needs. How can you best determine if your line of credit is working properly?
Periodically compare your actual line of credit balance to your short-term assets, including accounts receivable and inventory (i.e., your “borrowing base”). Banks commonly permit a borrower to advance funds equal to 80% of accounts receivable aged less than 90 days plus 50% of fuel and usable parts inventory. This is a valuable metric to understand. If your line balance exceeds the sum of this borrowing base calculation in any month, it is a sign that your line of credit may not be functioning properly and that the line has been used over time to fund long-term assets or to cover losses. View this situation as a clear warning sign that your earnings targets, financing structure, or perhaps both, must be revisited.
(3) The Current Ratio Metric: Current Assets ÷ Current Liabilities
In my book, this is the most important metric about your company to know and understand. Easy to calculate, your current ratio provides a comprehensive snapshot of your company’s cash (liquidity) strength and cuts through the often false sense of security many dealers feel when they are sitting on large cash balances resulting from customer budget payments and other prepayments for future service or were able to survive the previous winter. The current ratio is calculated as total current assets divided by total current liabilities and can often simply be determined by lifting these line items from your latest balance sheet in your financial statement. The key current assets for a fuel dealer are cash, accounts receivable and inventory while the key current liabilities are accounts payable, line of credit balance, customer liabilities and the current portion of long-term debt. If this ratio exceeds 1.0x, a company is typically positioned to have adequate cash to weather the peak heating season. If this ratio falls below 1.0x, it indicates a working capital deficit exists and may be an indicator that the company needs to increase its earnings targets, restructure its debt, or both. If the situation is severe enough, a company can run out of cash when they need it most. Know your number and check it each month. After all, having enough cash to provide fuel to your customers when they need it is the key to preserving the value of your business. If you see weakness in this metric, take steps to address the shortfall with your advisor.
GREMLIN® Tank Monitors:
- RF heating oil and RF propane tank monitors in beta
- Tank monitor integration for RCC
- Miscellaneous updates to the GREMLIN® Dealer App including:
- New tank sizes
- Install feedback loop
- Consumer app logos at Dealer Level
BRITE® BI Software:
- BRITE 2.5 released, allowing us implement requests quicker