As the owner or decision-maker of a company, one of the most important things that you need to do is prioritize your time. Very few people can be experts in sales, marketing, operations, purchasing, hedging, service and technology, yet those are just some of the important aspects of your business fighting for your attention. In addition to the obvious advice of hiring the best people for the job(s), you need to optimize your time, and of equal importance, be aware of and avoid things that you should not be spending time on.
Oil dealers are in the customer service and operational efficiency business, much more so than they are in the “oil business.” If you ask the typical dealer what the price of crude oil or heating oil is, he or she will easily quote for you the current price. In addition, the dealer can probably tell you what happened at the latest OPEC meeting, that the U.S. wants to cut off Iran’s ability to sell oil and is pretty sure that runaway inflation in Venezuela is going to keep hurting their exports. All of those bits of knowledge are good to know for casual conversation and to stay current with geopolitical events, but they don’t really help your business all that much.
While I am a very big proponent of pricing programs (especially capped-price offerings), and I appreciate the logic of using the markets to appropriately protect against the vagaries of the weather, none of that has to do with a desire or an interest in trading swaps, options, weather derivatives or the like. It is purely centered on the importance of keeping customers nice and happy without big price surprises (customer service) and doing what you can to maximize your profits.
We speak with dozens of dealers every week. Our conversations run the gamut from customer acquisition strategies, to delivery efficiencies, to expanding working capital lines. We look at many things with our clients that are controllable and that—given sufficient focus and prioritization—can truly move the needle in optimizing their profitability. However, we keep seeing that an inordinate amount of time is still spent on guessing what the price of oil is going to do.
Hedging for pricing programs is not hard. I will repeat: it is not hard. The hard part is getting out of your own way and realizing that, on average, you will not guess correctly on price movements more than 50% of the time. Imagine if you let 50% of your customers run out of oil, or if 50% of the calls from your customers went unanswered. Hopefully you are making sure that 100% of your calls are answered within a short amount of time (except for the last week this past December when we experienced an abnormal cold snap—no one answered all of those calls), and that you are working on not only avoiding run-outs, but also, making the most efficient deliveries possible.
If you want to find ways to move the needle in your company towards reliably predictable profitability, it is most likely not found in reading newsletters and looking at historical price charts to determine whether prices are going to spike or collapse. Sure, either or both are possible, but since that is fully out of your control, you need to put a plan in place, execute that plan and then concentrate on the things that you can control. Seek out an advisor (not a speculator), and find someone who is willing to take on the risk that you do not want to take on (think of hedging as buying profit liability insurance).
As the world, globally and domestically, continues to evolve, seek out things that you can do better:
How can you deliver the same number of gallons with fewer deliveries?
How can you promote your service contracts to lead to better retention?
How can you use digital marketing in a cost-efficient manner?
Should you stop sending out win-back postcards?
Should you have a third-party finance company finance your new equipment installations?
These are just a few of the things that you must think about if you want to survive and thrive.
I have been tracking the oil markets for almost 30 years. I can always explain price movements—right after they happen. The world is moving at breakneck speed. You need to find a way to slow it down. My suggestion: spend time on the things that matter, not on what you think you can guess at better than the rest. ICM