We now operate in a world where the best laid plans designed by very smart managers are inevitably disrupted by price volatility, weather, demanding customers, skyrocketing costs and employee productivity issues to name a small handful. Gone are the days when retail prices changed six times per year, customers never left, workflow perceived as fairly easy to manage and margins were fat. The retail fuel business today is defined by perpetual and real time challenges that are invariably complex and extremely frustrating. Making money seems harder than ever.
Disciplines such as optimization, business process innovation, IT solution ecosystems and automated digital marketing seemed like silly words used by pedantic consultants but now they are part of the fabric of our industry day in and day out. Things are happening faster, demanding equally fast accurate and decisive reactions. So, what are dealers to do? They must design and produce accurate and timely metrics that will inform long term strategies, while at the same time inform short term tactics, continuously adjusted for threats to strategic objectives on a daily basis. Welldefined key performance indicators (aka KPI’s) are the answer. They will provide ongoing visibility into a company’s overall business performance, delivering measurements that are informative, sometimes reassuring and most definitely actionable.
KPIs can be your lifeblood, as our industry endures its ongoing high-speed business environment changes. How do I begin using KPI’s? First, become educated in the interplay between two categories of numbers: your “Plan” (think budget) and your ongoing operational performance (what am I doing and how am I affecting my plan?). The days of looking over your shoulder into last week or last month to see how you performed are quickly being replaced by how did I do yesterday and how am I trending to my month-end goals? It’s now all about looking forward and establishing desired monthly goals in your most impactful categories of revenue, cost and growth. To this point, I strongly suggest that you plan well for four categories, at a minimum:
(1) Liquid product volumes and extended gross margins, by product, down to the trade class and price agreement levels
(2) Service revenues broken down by contract, non-contract and installations
(3) Payroll hours and dollars, both straight and overtime, your greatest expense other than product
(4) Customer (tanks) gains & losses, forecasting your desired growth, in volume and margin
As a result, MTD variances to plan KPI’s should be monitored daily for liquid product volume, extended gross margins down to trade class and price agreement levels, service revenues, as well as payroll expense (straight and overtime). Metaphorically, a pilot planning a flight from point A to point B understands the importance of achieving desired results: on-time departure, smooth flight and safely arriving at the destination, on time.
Strategically, with the technology and information at his/her disposal, such as the aircraft’s gross weight, potential traffic in route, forecasted weather, wind and other considerations that could adversely affect achieving the overall objective, the pilot determines the best route to take, altitude to be used while in route and projected fuel consumption. Good planning based on good information, past, present and forecasted increases the likelihood of achieving expected results. Some might suggest that this is considered enhancing predictability.
Now that your plan has been put in place, with your desired revenues and gross profit, your resulting net profit value will be heavily influenced during the month by your ability to achieve these revenue goals set forth but also your ability to control your sometimes uncooperative operating expenses. This is where your short-term tactics come into play, using carefully defined KPI’s that, when scanned by you daily, will inform you of potential threats to the achievement of your objectives. Knowing what the threshold values of these metrics are for your company at any given time is important because without this benchmark, the KPI’s are meaningless and will not solicit any of your concern or as important, your action.
In addition to the four categories of KPI’s mentioned earlier, several other operational KPI’s should be monitored closely, daily:
- Margins – Daily and MTD unit margin and extended gross margin by product, trade class and price agreement type
- Gains & Losses – net ahead/behind tanks, volume and margin
- Delivery – Gals/hour & GM$/hour, strongly influenced by its components of gallons/stop, miles/stop and stops/hour
- Service – Technician callback ratio, technician calls/8-hour day, excess calls by customer and revenue by technician (the last will require adjusting for working on contract calls)
- Accounts Receivable – Days of Sales Outstanding (DSO)
- Degree Days – often used as a benchmark against increased or decreased sales volumes, using a three or five year average
In many ways, the experience of any fuel dealer trying to navigate today’s complex market environment is similar to the pilot’s needs to accomplish his goals as well. While in route, as compared with a dealer’s month, he will be confronted with certain unexpected bumps along the way, making various adjustments with power, altitude and heading, as needed. He relies heavily on accurate and current information provided by the technology employed in the cockpit and made visible through his instruments. Being on top of this information at all times allows him to “stay ahead” of his aircraft and not behind it, poised to react with informed and decisive corrective action.
Think of business analytics containing your KPI’s as your instrument panel, a place to find everything you need when time is of the essence and an invaluable partner that can help you arrive at your destination predictively, on time and safely, regardless of the challenges you face.