By Philip J. Baratz
We have a number of clients who have chosen to stick with the path that their grandfather trail blazed two generations ago, by selling heating oil to homeowners, along with installing and servicing the heating equipment. We have others who have rapidly diversified to the point where, as one of our clients put it, “if it’s a Btu, we want to sell it.”
For those who are content to stick only with what they know, there is not much in this article that will be of value to you. Steady as she goes used to win the race, but with shrinking mar- ket share due to increased competition, each year seems to be a struggle just to keep pace. For those who are seeking diversifica- tion, there is more to know than simply to say that you should be selling something else. Others are diversifying, so simply deciding to sell natural gas or to provide HVAC installation is not something that assures you that increased profits are right around the corner.
There is diversification within the energy industry—selling natural gas, propane or electricity. There is diversification within the heating oil industry—working on customized cap and/or budget plans, or perhaps finding new and unique ways to attract and retain customers. There is also the diversification that can allow for revenue streams outside of the norm—HVAC work or pure service contracts.
As natural gas has continued to garner market share—taking at least 1% of heating oil customers per year and most of the new construction—some dealers have taken on a two-pronged approach of fighting the utilities by informing customers about “misinformation” with the two fuels, while also embracing natural gas sales as a revenue stream. Becoming a natural gas marketer is very complicated in some ways, and very simple in others. It is a conversation that is worth having, but does require a certain level of commitment. WANTING to sell natural gas and actually profiting from the sale of natural gas are two differ- ent things. Having discussions with marketers and marketing agents is a good way to start the process.
Much of the same is true with electricity marketing, but the main challenge there is the thinness of (residential) retail mar- gins, and oft times the inability to regularly sell at prices below the incumbent utility.
Another approach, and in many ways “much closer to home,” that some dealers have taken is a diversification into propane sales. Much of retail propane is the same as heating oil, but the capital requirements (purchasing the propane tanks) and the supply contracting are quite different. It has the potential to be an excellent differentiator and profit center, but it is not for someone who has no experience outside of heating oil.
If the preference is to stick with what you know (heating oil customers), you might be best served taking a step back and reassessing just about everything in your organization. Do you acquire customers, or do you just “rent” them with a short-term lowball price offer?
Do you know your return on investment for a new customer — how long do you keep that new customer? How much revenue do you generate? What do you do to increase the likelihood that they will not be among the more than 50% of new customers who leave their new dealer within 5 years? Perhaps you need to start with a method to have this data readily available.
Price cap programs have been proven to keep customers longer than customers who are just pay- ing a “rack-plus” price. Budget ￼￼customers may hang around a bit longer, as well. Service plan customers have a tendency to stay, at least while contracts are in place. Keeping customers around might sometimes be just an issue of the calendar timing of the renewals of these programs and offers.
As far as generating what would be called within the heat- ing oil industry “non-conventional” revenues, some dealers are finding that they need to make the most efficient use of their workforce. In the past, some drivers and service techs would be given odd jobs—painting, re-asphalting the driveway—during the off-season. However, given the high cost of these employees, the risk of “summer layoffs” and the expense of not running things efficiently, they are finding the need to generate off-season revenue. Some companies will use excess capacity to perform service work for other companies, while others are spending time and money cross-training to provide year round heating, air conditioning, plumbing and electricity services.
The ultimate goal, even as the offerings slowly ramp up, is to be THE source for customers. If they think of you first, chances are they will stay with you longer.
Philip J. Baratz is president of Angus Energy which he co-found- ed in 1991 and the Managing Member of Angus Partners, LLC. Angus began providing hedging services in 1991, and has grown steadily, with over 600 clients, including publicly traded companies and municipalities. Angus offers a diverse range of products and services to distributors and end users, each customized to the needs and locations of the client.