Looking for efficiencies? Or just looking to spend less?

Written on: January 1, 2013 by Phillip J. Baratz

As the heating season is in full stride, dealers are generally more focused on TODAY than on planning for tomorrow or on wondering what the P&L impacts of some actions will end up being. More often, this is a “reactive” time of the year, rather than a planned out time of the year. There is a lot of talk about efficiencies, managing to the budget, economies of scale, and other such terms that all center on the desire to run things more efficiently and to make more money. There is also the old, small-company adage that if you spend less, you will make more, as opposed to some large-company approaches that a lot of spending is “an investment, not an expense”. No matter where you fall within that spectrum, you are in business to make a profit, and need to structure your company such that you are not making rash short-term decisions that will ultimately be wrong long-term ones.
During the winter, efficient deliveries are of the utmost importance. Whether your metric is gallons delivered per hour or gallons delivered per mile, you are seeking to control costs relative to gallons delivered. An “old school” approach to saving money would be to simply take a truck and driver off the road, and load up the burden on the remaining trucks and drivers. Will that save some short-term money? Most likely. Will that cause a problem elsewhere in your delivery system? Just as likely. Have you looked into a routing system that is more sophisticated than giving a stack of cards to your drivers and having them figure out their routes? Have you considered routing software to augment the intuition of your dispatch manager?
While you are busy with service calls during the winter—hopefully fewer than you would have otherwise, thanks to pre-season servicing—the approach towards making some extra profits might be similar to the “take a truck off the road” approach. You CAN let a service tech go, and look to save some money despite some overtime needed by other techs. The dollars saved will generally be dollars that should have been saved otherwise (i.e. the tech wasn’t needed in the first place), or might end up stressing the rest of the service department, and be money very poorly saved. Those personnel decisions might have been obviated had you been tracking excessive/repeat calls from customers. Perhaps some customers keep calling you back because their equipment is ready to quit and needs replacing. Perhaps they keep calling because they are looking for company and have a service contract with you.
Perhaps….. In any event, you need to constantly review why you are (re)visiting homes, and figure whether you should be offering them service contracts, and if so, at what price.
Margins are the toughest thing to deal with. You never quite know what a customers’ break-point might be, and despite the desire to make the exact same margins off of every customer, that simply is not and cannot be the reality. The notion of the “squeaky wheel getting the oil” is figuratively, and literally true in our industry. Out of fear that the pricing of your undifferentiated product (heating oil) will cause customers to leave, many times all a customer has to do is simply ask, and their price will be lowered—lest they look to move to another dealer. Consequently, in an effort to “be efficient” and profitable, the customers who DON’T ask for lower prices end up paying higher prices. This “piling on” has a tendency to get a little out of control, as there usually ends up being a smaller pool of “variable, head-in-the-sand” customers upon whom the make-up margins can be stacked. You need to analyze your customers, by category, and see if the splits are where they should be for the long-run, not just for today’s deliveries.
Lastly, in the never-ending effort to define a company by the number of customers as opposed to the number of dollars of profitability, the “cycle of violence” that has dealers losing high-margin customers and replacing them with low-margin “rentals” needs to stop. Adding a customer just because you gave him or her two years of free service, and heating oil for a margin that barely breaks you even is NOT a testament to the quality of your company, but an assurance that the customer will be back every year looking for a “deal”. Pick the right customers, but look at a “customer acquisition” as a true acquisition that will be worth more than the cost. I am not sure how many years you should plan to keep a newly acquired customer, but since the “old” ones are worth well more than the “new” ones, be sure that you are pricing the new ones in a manner that will add VALUE to your business, not just adding GALLONS.
The bottom line on the notion of “efficiencies” is that the company that manages each aspect of their operation in an honest (with themselves) and realistic approach will end up in the best position. It is not as simple as “I charge the most I can, and spend the least I can”. I am not sure that such an approach was ever the best, but it certainly is not today. Data is there and available. Don’t fear it, but embrace it. As several of my good friends have been known to say, “if you can’t measure it, you can’t manage it.” Start measuring.