Choosing the Best Customers
by Joe Ciccarello, CPA, MST, Managing Partner, Gray, Gray & Gray, LLP
Growing the customer list – a retail energy company’s most valuable asset – is the most important task facing the owner or manager of any oilheat or propane business. More customers mean more revenue, which leads to higher profits. It is a simple equation that equals success.
Or does it? In the rush to add customers, be careful you do not open the door too wide. Not all customers are the same, and not all customers are profitable. You need to be aware of “tire kickers” and price shoppers who will take advantage of your eagerness to acquire their business, only to quickly leave for greener pastures.
Customer loyalty is not what it once was. Today, many dealers attract new customers with a variety of discount programs and special offers that practically give away any profit that could possibly be made. These dealers believe that, during the period of the low-price contract, they can demonstrate to the customer how good they are, leading the customer to stay on once the discounts end and the giveaways are over.
They Know the Game
The truth is that many customers know how to play this game, and they are quick to jump from company to company. Once the giveaways run out, they move to the next dealer and the next special offer. The first company will have made no profit, and never really had that homeowner as a customer! Every oilheat and propane company we talk to recognizes the foolishness in this game, and they swear they will stop. But once they see the competition doing it and they start losing a few customers they panic and feel they have to join in. And the music goes on.
That’s why it is important to assess every potential new customer in advance before signing them up. Every retail oil or propane dealer should have a new customer intake form or questionnaire to gather as much information as possible. In addition to the basics like name, address, and delivery location, lock down the billing address as well. The bill is not always paid from the same location, and you don’t want to waste time chasing down late payments.
If you wish to extend credit to a new customer you have a right to have them complete a credit application. Credit should not be an automatic approval. Make the effort to check out banking references, and even examine the customer’s credit rating. Putting the time in to do this up front could save you many hours – and plenty of headaches – later.
The fastest, safest and (in the long run) least costly way to extend credit is to allow customers to pay with a credit card. You may pay a few percentage points to the bank or credit card company, but your payments will be automatic and guaranteed.
In a mature market like we have here in the Northeast, growth for one heating company usually comes at the expense of another. Your competition is aggressively promoting their products and services with tantalizing offers of lower prices or free service. Many customers, eager to reduce costs, can be lured away by these enticements.
The Discount Spiral
Those frustrating efforts by other dealers to entice your customers make it tempting to join the rush down the discount spiral. You can slash your own prices to match the competition. Or erase profits by handing out oil coupons. Maybe you’ll offer a price cap program that you won’t be able to support in the middle of the winter when supplies are tight and prices spike. Or turn your service department into a non-profit by giving away their valuable time in order to sell more gallons.
Do you really want to do business with a customer who is only interested in the lowest possible price for a gallon of oil or cubic foot of propane? These customers can put a squeeze on your margin that will put added pressure on your bottom line. Sure you’ll sell more gallons. But at what cost?
The most important measure of success is not sales volume. It is profits. In order to generate those profits you must maintain a healthy margin that covers your costs and overhead, and still leaves you with a reasonable amount of profit.
It has been our experience over the years that dealers who are nervous about losing customers by holding fast to their margin are usually worried about nothing. The customers who leave for a cheaper price are generally the “problem” customers who are slow to pay, tie up service technicians, and complain about everything.
The truly loyal customers are those who appreciate the value and dependability a full-service company brings to the table. They are willing to pay a few cents more to ensure a higher level of service and a reliable source of oil or propane when they need it.
Those few cents more are what can make this a good, profitable year for your company. Now make sure you deliver on the value built into that higher margin.