Performance and Profit
Today’s fuel oil dealers, beset by competing energy providers and subject to increasing regulation, might be feeling a bit of business performance anxiety, but two consultants say they have developed technology systems designed to help.
Angus Performance Advisors, Ft. Lauderdale, Fla., and Hedge Solutions Inc., Manchester, N.H., both offer systems that use key performance indicators (KPIs) to monitor day-to-day business results so that dealers can promptly make needed operational adjustments to maintain margins and profitability.
Hedge Solutions Inc., has a margin tracking software that its fuel oil dealer clients can access on the Web and use to follow a certain key performance indicator ‘ margins ‘ on a daily basis, said Richard Larkin, president of the company.
‘When the market fluctuates, so do their margins,” Larkin said of fuel oil dealers, adding that dealers should ‘absolutely track their margins everyday ‘ and then set a target.
‘Because the season is 120 days long,” Larkin said, ‘they should be day counting ‘ how many days they’ve been above their target, how many they’ve spent below it.” He added, ‘For every day you miss your target margin in January, you need four days in April to make up for it because of the fact that the volume is different. You don’t want to wake up at the end of a month and the accountant is telling you you missed your margin. So, best to keep an eye on it from day one.”
It’s possible, Larkin said, ‘to use market volatility to your advantage, if you’re proactive and you are monitoring.”
A common practice among fuel oil dealers is to look at last month’s profit and loss statement to see how the company performed, said Bob Levins, managing director of Angus Performance Advisors. That’s too late, Levins said. Brite, primarily a Web-based system marketed by Angus Advisors, also is designed to help fuel oil dealers focus on key performance indicators on a daily basis and, if they are falling short, make ‘course corrections” immediately to hit revenue goals, preserve margins and keep the business profitable, Levins said.
Fuel oil dealers pay a one-time implementation fee, plus a monthly fee, to use the software online. Users are not asked to make a term commitment, Levins said, meaning they can stop using the system at any time. Dealers who register to use the Brite system are issued a ‘black box” – a hardware device, encrypted for security, that is installed to read the fuel oil dealer’s back office operational systems ‘ accounts receivable, delivery, service and sales data. The device sends that information to a secure website where it can be processed into reports generated by the Brite software.
Angus Performance Advisors runs initial checks with the fuel oil dealer to ensure that the data being provided are accurate. Then the dealer’s personnel, issued secure access to the website, can begin tracking day-to-day results and viewing reports designed to highlight key performance indicators and help them manage the business, Levins said.
Currently, the Brite system interfaces with back-office systems marketed by: Blue Cow Software, Lynnfield, Mass.; Automated Wireless Environments (AWE), Lake Hopatcong, N.J.; and ADD Systems, Flanders, N.J. Interfaces with other systems are being developed, with plans, ultimately, for interfaces with about a dozen back-office systems.
‘Metrics have always been important and always will be,” Levins said. The use of key performance indicators supports daily decision-making and helps business owners nip problems in the bud. Specifically, margins can be worked day-to-day to protect the health of a business.
‘One of the most difficult things in business today is that the executive sits behind a desk and comes up with these budgets, but they fail to communicate those budgets to their staff,” Levins said. ‘It’s unfair to give the people in the field the budgetary constraints and the budgetary limits, but not give them the ability to look at how they’re performing so they can make adjustments every day during the month.” The Brite system ‘allows people to see how well they’re performing on a daily basis so they can make course corrections,” Levins said.
By tracking and reporting volume and margin the system helps reinforce fiscal discipline, he said. The software generates reports and ‘pushes” them to the user, Levins said. The reports include, for example, details on service revenue from installations, contract billing and non-contract time and labor billing. ‘Dealers have to start making money on service ‘ or at least breaking even,” Levins said. ‘No longer is service subsidized by the oil margin.”
The software helps a fuel oil dealer set margins and define the role of hedging to protect price program margins ‘so you have realistic goals for the next twelve months,” Levins said.
One of the reports generated by the system tallies customers lost, including a note on the reason why each customer left. Customer turnover or ‘churn” is an increasing challenge, and some companies now are hiring ‘retention specialists.”
‘When a customer service rep is unable to save an account, they immediately switch the customer to this person who is trained in retention of customers,” Levins said. The specialist is given authority to give discounts, for example, and they can make promises, having latitude ‘to do things the customer service representative is not permitted to do,” he said.
By one estimate, the cost of landing a new customer is $600, Levins said, though that might not be true for all. Each fuel oil dealer, however, should know what it costs his or her business to sign up a new customer. Expenses to gain a new customer include: commissions, giveaways, advertising, marketing.
If a dealer gains 20 customers and loses 18, it’s a mistake to think he’s ahead of the game, Levins contended, ‘because the losses are customers that have been with you 5, 10, 15, 20 years.” Long-time customers are known quantities, Levins pointed out. The dealer knows their seasonal consumption of fuel and has sold equipment and service contracts to them. The new customers are unknown quantities, and a dealer is likely to be replacing parts on their equipment, possibly taking a loss on the service contract for the first year, Levins said. Some 18 months will have to pass before they become a ‘good” customer, he said.
Another report that the system processes and delivers to users via the website focuses on driver productivity, which is largely dependent on efficient dispatching, Levins noted. If a driver spends four hours delivering fuel oil and the remainder of the work day ‘painting tanks” or on some other task that generates no revenue and no profit, then that driver’s productivity plunges, Levins pointed out.
Even in a full day of delivering, the bulk of the driver’s time is necessarily spent driving, Levins said. ‘The greatest expense is getting to the tank,” Levins said. ‘When is the driver making money for you? When he’s pumping 65 gallons per minute. Everything else is expense.”
The Web-based Brite system focuses on three factors ‘ gallons per stop, miles per stop and stops per hour ‘ to help fuel oil dealers focus on those pumping, money-making minutes.
Maximizing stops per hour is largely a function of efficient routing, but being attuned to a customer’s consumption rate can help too, Levins said. For example, if a delivery is being made at one location and next door is another contract customer, Levins suggests delivering there as well, provided it’s known that the tank next door is low enough to receive, say, 140 gallons. The rationale being, Levins said, that the cost of delivery has already been incurred.
Even though fuel oil is a transaction-based business, reducing the number of transactions and making each transaction count more can drive down costs and protect margin, Levins said.
An excess calls report that the Web-based system generates can help fuel oil dealers delete such calls, Levins said. It identifies contract customers with multiple calls during the heating season. If a customer has a $300 service contract, which includes one cleaning or preventive maintenance call that costs approximately $140, ‘you only have room for one more service call before all the revenue from that service contract is gone,” Levins noted. The cost of each additional call after that has to be covered from fuel oil revenue, which eats at margins, Levins said.
Fuel oil dealers should focus on the revenue or costs generated by each customer, Levins said. ‘An individual customer is your source of revenue and your source of costs,” he said. A fuel oil dealer can make approximately $400 to $600 on a customer who is paying full margin, on a full-service contract, requiring one cleaning call in the season, Levins said. ‘That’s a good-performing customer ‘ and most customers are that way,” he said. About one-fifth are not that way, and they deserve special attention.
Levins said that the Brite system’s excess calls report can be run at the end of the service season, typically the end of February or early March, to identify the worst transgressors from the just-ended season. Brief the technicians on those customers and instruct them to take a bit of extra time to address the issues that prompted the extra calls. New parts or a new unit may be necessary. There may be a need for a visit by a supervisor or a salesman, Levins noted. The extra effort is worth it, he said, because ‘if you choose to renew, you’re going to have the customer for the next twelve months” ‘ and that customer needs to be converted into a revenue generator.