When you fit compensation and benefit costs into your budgeting and financial planning, pay decisions can help your margins instead of hurting them.
You probably spend a lot of time forecasting things you cannot control, like wholesale fuel prices, winter weather, or how many customers switch to heat pumps. But when it comes to payroll and benefits – an expense you can plan for – many companies just use last year’s number, add a percentage, and move on.
This method used to work – when CDL drivers were easy to hire, and health insurance costs only went up a little each year. That is no longer the case. Compensation and benefits are now much more unpredictable, and if you do not pay close attention, you could lose track of a cost that takes up a big part of your revenue.
This article is not about plan design or open enrollment – you already have a broker or professional employer organization (PEO) for that. Instead, it is about how compensation and benefits should fit into your budgeting and financial planning as an owner or CFO, so your pay decisions help your margins instead of hurting them.
Seasonality Makes Compensation Planning Different Here
In most industries, payroll is steady and easy to predict each month. That is not the case in heating oil and propane. You keep a core team during slower months, but when cold weather hits, you rely on overtime, temporary drivers, and sometimes subcontractors. So, your compensation budget really has two parts: the base labor cost to keep things running all year, and the extra costs during peak season to handle demand spikes.
Many dealers combine these costs into one payroll line, making it hard to tell if a bad quarter was due to a cold January or creeping base staffing levels. Instead, split them in your budget. Your fixed base pay should match your customer count and delivery setup. Your overtime and temporary labor should line up with degree-day forecasts and past peak-to-baseline delivery ratios. When you see both parts clearly, you can manage them better.
The Real Cost of Losing a Driver
Every dealer knows it is harder and more expensive to keep CDL drivers than it was five years ago. But few have calculated the cost of losing a driver midseason. You need to include that number in your budget, not just rely on a gut feeling.
Begin by adding up recruiting and onboarding costs, including the time a new driver spends learning routes and working less efficiently. Then add the overtime you will pay your current drivers to fill the gap. Do not forget the risk of missed or late deliveries during your busiest weeks, which can lead to losing customers later. When you add it all up, most dealers find that keeping a driver with a small raise or a well-planned retention bonus is cheaper than replacing one, even before considering the safety and service risks of a less experienced team.
That is why you should include driver and technician retention as a specific line item in your compensation budget, rather than treating it as an emergency fix. Offering a retention bonus for completing the full heating season, paid after the busy months instead of up front, helps keep your best people when you need them most. This turns a last-minute scramble every November into a predictable, manageable cost.
Tie Incentive Pay to Margin, Not Just Volume
Plenty of fuel dealers pay drivers and route managers some form of incentive based on gallons delivered or stops completed. This is easy to track, but it rewards volume regardless of profitability, and volume alone does not cover your costs.
Two drivers might deliver the same amount, but one could be efficient while the other uses more fuel and racks up overtime. A more useful structure ties a portion of incentive compensation to metrics that track back to margin: route efficiency (gallons per hour or stops per route mile), on-time delivery rates that protect your service contracts, and low callback or exception rates that reduce your cost to serve.
This approach really helps your budget. When incentive pay is tied to efficiency and margin, the improvements often pay for the program itself. It is also much easier to justify in a budget review than an incentive pool that just gets bigger as volume grows, even if that volume is not profitable.
Where Family Compensation Fits In
Many heating oil and propane dealers are still family-owned, which raises a unique question: how do you pay family members fairly without causing problems down the road?
This is not just about keeping the peace at family gatherings. If you do not set family pay at a fair, market-based level, you could run into trouble with lenders, minority owners, future buyers, or even the IRS. As you build your budget, compare family compensation to what you would pay someone outside the family for the same job, and keep a record of your reasoning. Taking this step now can save you a lot of trouble during a sale, valuation, or succession.
Build a Rolling Compensation Forecast, Not a Once-a-Year Number
Dealers who handle this well do not just set a compensation and benefits budget once a year and forget about it. Instead, they use a rolling forecast that updates every quarter along with their volume and fuel cost estimates. This way, if there is a colder month or unexpected driver turnover, it shows up in the numbers right away instead of being a surprise at year-end.
At the very least, your forecast should separate fixed base pay from seasonal labor, track benefits as a separate line item rather than hiding them in payroll, include at least one retention scenario for drivers and technicians, and list family compensation separately. You do not need new software for this, just the same careful approach you use for fuel buying and hedging. For most dealers, compensation is the second-biggest cost, and it is one you can manage.
This article is for general planning purposes and doesn’t replace advice from your accountant or advisor about your company’s specific compensation, benefits, or budgeting decisions.
Marty Kirshner, CPA, MSA, is the Partner who leads the Energy Practice Group at Gray, Gray & Gray – A Frazier & Deeter Company, an accounting and advisory firm that specializes in the energy industry.
Frequently Asked Questions
How much of revenue should a heating oil or propane dealer expect to spend on compensation and benefits? This varies enough by business model, region, and the extent to which you handle delivery and service work in-house versus through contractors that a single benchmark is not very reliable. Your accountant can calculate your specific ratio from your own financials and compare it to your prior years. The more useful exercise is not hitting an industry number anyway; it is understanding how your own ratio splits between fixed base staffing and seasonal variable labor, since that split tells you where your real budgeting risk sits.
Should we budget overtime as a separate line from base payroll? Yes. Blending them makes it hard to tell whether a payroll overrun came from a colder season, from inefficient routing, or from base staffing levels that grew without a deliberate decision. Separating fixed and variable labor costs gives you a much clearer view of what is driving the number.
Is it worth paying a retention bonus to drivers instead of just raising base pay? Both have a place, but they solve different problems. Base pay increases affect your fixed cost year-round, while a season-completion retention bonus is a variable cost you can size to your budget and time to match when you most need drivers to stay. Many dealers use a combination: a competitive base pay to attract and retain talent generally, plus a retention bonus targeted at peak-season risk.
How do we know if our incentive compensation program is helping margins? Look at whether the metrics you are rewarding move in the same direction as your gross margin. If you are paying incentives on gallons delivered but your cost per delivery is not improving, you are likely paying for volume rather than efficiency. Shifting the incentive structure toward route efficiency, on-time performance, or upsell metrics usually gives you a program that pays for itself.
We’re a family-owned dealer. Do we really need to formalize how we pay family members? If you ever plan to bring in outside financing, sell the business, transition it to the next generation, or bring in a minority partner, yes. Reasonable, documented, market-benchmarked family compensation protects the business’s financial credibility and makes any future transaction or valuation far more straightforward.
