It’s Time to Implement an Oil Delivery Fee
Written on: March 15, 2021 by Richard Goldberg
Years ago, I made a name for myself in this industry by figuring out how oil companies could charge up to 75% more for service plans. I remember our first project—a company called Abbott & Mills in Newburgh, NY, tried to raise its contract from $89 to $99 dollars, but pulled back when they started getting numerous customer complaints. We did some analysis, conducted several focus groups, put our marketing caps on and came up with a strategy that actually raised the price to $149, and introduced a more comprehensive plan at $189. And the phone calls? There was barely a peep. They made a huge profit with less pushback than they received from the $10 increase.
That experience taught me a great deal about what fuel companies can and can’t get away with, and why. More importantly, I learned how to get very good at making fuel dealers more money.
Consumers are accustomed to fees so why not implement an oil delivery fee?
Over the years, I’ve used that acumen in a variety of ways. I remember when Agway Energy was still in the retail oil and propane business, with hundreds of thousands of accounts. They had been giving a price cap for free to 40,000 customers, which was viable when it cost only 2¢ per gallon to execute, but not when it cost 20¢–25¢ per gallon. I implemented a strategy that allowed those customers to either shift onto budget plans (which helped the company with cash flow and retention) or pay 10¢ per gallon for the cap. Either way, the company came out ahead. Again, there was little customer pushback.
We went on to help hundreds of oil companies increase service plan charges or introduce cap fees. We also pioneered an “opt-out” strategy to get 25%–30% of customers on budget overnight. We’ve reduced or eliminated earlypay discounts, eliminated coverages and shifted customers in and out of various options.
In virtually every case, owners and (especially) employees were initially fearful of upsetting the apple cart. In each case, we found a way to accomplish their objectives with far less customer resistance than they expected.
It’s time to start charging delivery fees
I bring this up because there’s an opportunity staring you in the face that could give your bottom line a serious, permanent boost. It’s called “adding a delivery fee,” and if you handle it the right way, your customers will tolerate it with barely a whimper
Many propane companies have been adding delivery fees for years. We’ve helped many of them either introduce fees or increase them.
Heating oil dealers have been hesitant to follow suit, worried that such fees would trigger customer losses, or create a competitive disadvantage when it comes to new sales. It turns out, those fears are very overblown.
Over the last two years, we’ve introduced oil delivery fees for multiple companies in very different markets. In each case, our strategy increased profit significantly with little downside. Retention stayed strong. New sales stayed strong. Only now, they had a brand-new source of cash flow to count on every year.
Customers shop price, not fees
U.S. consumers shop for price, but tolerate “nuisance fees” surprisingly well, as long as they:
a) Aren’t exorbitant;
b) Aren’t hidden; and
c) Are explained in a way that makes sense.
Your costs are certainly rising each year (health care, tech and driver wages, liability insurance, regulatory compliance costs, etc.); gallons are dropping; you are also facing increased regulatory pressures. Your delivery fee offers a safer bet than raising your margin, and it is not as dependent on weather.
Do the math
To calculate the impact of a delivery fee, take your active customer base and multiply it by the average number of deliveries they get per year (usually around four or five). Then multiply that by the fee—usually $5 or $6. For a company with 3,000 customers, you’re looking at $70,000–$100,000 per year. For a company of 6,000 customers, it’s $140,000–$200,000 per year, and so on. The best part is that all this money drops to your bottom line. There are no on-going costs associated with it. If you are ever selling your business, the value of your fee simply multiplies.
But my people are scared…
I started this article by reprising my history so that you would realize that I know more about this subject than your team of naysayers. I’m not saying it to brag. I’m saying it because I want you to make a lot more money. Most of you know me long enough to trust that I’m not exaggerating the results.
The challenge is that most customer service or sales managers operate defensively. It’s the nature of the industry. We are constantly on the defensive. We mostly hear from customers when they are upset, or when our prices are higher than some competitors, or when someone wants to covert, etc. Ten calls can feel like an avalanche.
Some companies are reluctant to charge fees because they have built their previous promotion around the fact that they don’t charge them. I have a unique vantage point, because we work for companies that charge fees as well as those that don’t. There is no distinguishable difference in the results. The “we don’t charge fees pitch” is not a magic bullet, even if you did win some customers by saying it. If “no fees” was magic, everyone would fly Southwest airlines and not United or Delta. No one would rent from Airbnb, whose fees are substantial. Everyone would stop subscribing to cable TV. You get the picture.
Now is the time to start
It does not take long to get started, but there are questions to be answered:
• What do you need to include in your customer communications?
• Do you tell them about it beforehand, or does it simply show up on the delivery ticket?
• When is the best time to roll it out?
• Do all customers get charged, or are some excluded?
• How do you handle new customers?
• What should you call it?
• What should you charge?
• How do you get your customer service team trained so they can confidently deal with calls?
• Can you test it with a smaller group rather than roll it out to everyone?
Please contact me if you would like to discuss this, but it’s best to move fast. There are still plenty of deliveries left this year and you are leaving a lot of money on the table that you will need in the years to come. ICM
Rich Goldberg is President of Warm Thoughts Communications, Inc. Warm Thoughts is the nation’s largest marketing firm focusing exclusively on the heating oil, propane, heating oil and HVAC industries. See more of their ideas at warmthoughts.com. You can reach Goldberg at [email protected]; or 551-482-8133.