It’s Crunch Time: Execute Efficiently to Protect Your Propane Profit Margin

It’s early June as I write this. I think it’s safe to say the world has shifted drastically, and so much of what we need to do is much more difficult for one reason or another. Average hourly earnings continue to grow significantly, pushing our entire economy further and further into an inflationary three-headed monster. The historic inflation we are experiencing now is driving down real average hourly earnings. 

What does this mean for workers at the end of the day? It means their purchasing power has decreased even though their wages have increased. Real disposable personal income has been volatile since 2020 and the increasing rate of high inflation is standing in the way of real income growth. Indicators like this are anything but good news. 

“If you turn a blind eye to the world now, history will turn a blind eye to you later. Ignoring an issue makes you a tacit supporter of it.” This quote about ignoring indicators, attributed to Stewart Stafford, is a more eloquent way of saying, “It’s your ass if you do.”

High market conditions are presenting significant challenges for fuel dealers and, as things “tighten up,” fuel dealers must execute all aspects of their businesses with supreme precision to survive. The rules are changing as we speak. We have reached a unique crossroad with no margin for error, and utilizing technology to run the business more effectively is paramount. There isn’t much choice in the matter. You are either all in or all out.

Pick a Side — Your Side

Some expenses associated with running your business are 50% to 100% higher than just 18 months ago. I’m sure someone will lay claim to predicting that we would be staring down the barrel of $6 a gallon for heating oil in early June. 

Notwithstanding the optics of having to sell your product at 100% more than you did before, this has far-reaching implications and ripple effects for fuel dealers nationwide. The tenacity of our industry to continuously overcome adversity and its ability to continue servicing the public is a matter to record, and most admirable. 

Millions of consumers around the country rely on fuel dealers for comfort and peace of mind, knowing we are there to help our communities no matter the challenges and obstacles standing in
our way.

A Crisis on Multiple Fronts

It’s coming at us from all sides, and make no mistake: this is a triathlon, not a marathon, meaning you have to be good at more than one thing. You need to be adept in multiple disciplines.

It reminds me of the Clint Eastwood movie “Heartbreak Ridge,” where, as a United States Marine near the end of his career, he says, “Improvise, adapt and overcome.” If today’s environment does not call for this, I don’t know what does. You need to finetune your strategies across the board, but optimizing your payments strategy is critical and a top priority because your fees are directly tied to volume. 

Customers facing rising prices find themselves having to change their purchasing decisions. They must modify their behavior, and so should you.

Higher prices tend to result in so-called “demand destruction.” It forces consumers to consume less product because they simply cannot afford to buy it in typical quantities, or at all. In either case, they may stop or reduce consumption of Product A in favor of an alternative Product B, because the latter provides a solution at a lesser cost. 

Even if behavior modification is short term, the effects are like ripples in a pond. Sooner or later, those ripples touch everything. Higher prices also force some customers to defer purchases. For example, they buy only what they need right now, i.e., perhaps 100 gallons of fuel instead of “topping off” the tank that might take 200 or more gallons.

It’s touching you right now. Consider the phrase, “You can run, but you can’t hide.” For heating oil, propane or gasoline retailers, the current state of fuel pricing hits home on several fronts. The rising cost of goods is eating away at margins like we’ve never seen before. We struggle with how to mitigate the math associated with managing your replacement cost as prices climb. Of course, these compounded issues significantly impact the bottom line.

You and your customers are dealing with extreme and dramatic cost increases because of high retail fuel prices. The consumer is squeezed to afford the cost of filling their tanks. Retailer lines of credit are maxing out in many cases in order to keep supply on hand, and high retail fuel prices equate to greater processing expenses, all of which eat at your margin.

Every fuel dealer needs to be looking at its payment acceptance strategies and gravitate customers (and its company) to the friendliest, most cost-effective payment options for their respective bottom lines. For reference, in March 2021, the Energy Information Administration reported that heating oil nationwide began flirting above and below $3 a gallon and settled at less than $3 a gallon in the last week of March. Using $3 a gallon, that customer transaction of $600 for 200 gallons of fuel equates to processing fees that amount to half of what they are today.

Consider that today, with heating oil prices high and climbing, a delivery of 200 gallons will cost the consumer $1,200 or more. Now, I hope you are sitting down when you read this: depending on which payment methods are offered and utilized by the consumer, that single transaction will cost you anywhere from $3 to $30. Yes, unwise payment decisions can cost 10 times as much, wreak havoc on your bottom line, eat up your well-earned profitability or in certain transactions, eat up all your profitability. 

I’ve talked about this before, so you already know that using Visa credit translates to big fees that, one way or another, you or your customer must pay. I can’t stress enough how important it is to work with a payment professional who can help you interpret this and support you in your efforts to maneuver the minefield of credit card processing interchange fees.

So, no matter how you cut it, then versus now, fuel dealers are currently paying 100% more in payment processing fees today than they were in March 2021. The massive increase in Visa credit fees over the past year only adds insult to injury, further compounding the cost fuel retailers are seeing and feeling.

The good news is, utilizing more debit (any card brand) and e-check/ACH will be a huge help. Leaning toward Mastercard and Discover credit cards is certainly more “friendly” for your company and your customers. It’s not a heavy lift and telling your customers about it puts you in a very positive light as cost reductions help you pass on better value to the customers.

It’s a new world and only the strong will survive, but those paying attention and leveraging technology (and skills) will thrive by the capture of and essential cost savings to the bottom line.