Its All About The Margins
BOB LEVINS Managing Partner of Angus Analytics
As we can all appreciate, at the end of the day “It’s all about the margins” or more precisely, the unit and extended margins achieved. We understand that within this simple calculation is a layering of product-related costs and other operating expenses that, if not monitored carefully and often, could represent the difference between a profitable and not-so-profitable month or year. In our seasonal industry, the opportunity to book materially profitable months is limited.
During your planning process, we recommend that you “segment” your projected unit margins and extended gross margins down to the product, trade class and price agreement levels. The misconception that it all falls into one bucket as an “average” does not match the reality of today’s business environment, and can only work if your customer base remains exactly the same year after year and all your customers behaved in the exact same manner – this is not the case. Profits today are in the details.
Then, of course, you protected these desired results by hedging your pricing program gallons properly, further minimizing the threat to your goals. But it doesn’t end there. As you know, other forces continually challenge your targeted profitability. These forces include product price volatility contributing to your ability to adjust your posted price, decreased volumes caused by warm weather, short positions in your program gallons requiring you to go to the rack at then-market prices in order to cover your deliveries or perhaps even input and maintenance issues on sales and purchases. You must watch these numbers closely on a daily basis to ensure that nothing has gone awry with your plan. It is not uncommon for managers to discover errors well after the fact which represent thousands of lost dollars. Identifying such issues immediately allows you to correct business process issues or other errors as they arise, with the intent of getting back on course over the remainder of the month and preserving the desired profitability. You should always be on the lookout for anomalies, those one-off transactions or groups of transactions where someone may have simply erred on the input side or failed to complete a process. If the error is in the favor of the customer, these issues may not be discovered until after month-end, when corrections to the customer account and journal entries would have to be frustratingly made. You really need to address these issues in a more timely manner, which can only be done if you recognize the issues when they occur. Scanning your margins on a daily basis, for the most recent transactions, is a process I recommend very highly and is what BRITE is designed to provide. We have witnessed many issues over the years with our clients, some that might have had significant consequences had they not been noticed via their daily scan; publication accounts with deliveries posted but never billed because a person was on vacation, transposition of numbers where unit prices were overridden and extended values were erroneous, costing in the red due to bill-of-ladings not being posted as well as many file maintenance errors in their accounting systems that had to be corrected. There is also a feeling of comfort you will have when you review the margin columns by product to see that you are actually making what you had anticipated and the ship is headed in the right direction. You then can focus more of your efforts on ensuring the operational side of the business is not eroding the margin from the bottom though costly inefficiencies.
As we approach another season, hopefully one that will be MUCH better (and colder) than the last, your delivery sales transaction counts will begin to rise. As this happens, it will be increasingly important to watch your margins, down to the customer level, daily. You will want to catch any unforeseen business process issues immediately and resolve them before that first cold snap. Exceptions will always occur and should be addressed as they happen, one at a time. This will lead to reduced risk, improved predictability and increased profits.
Brite Tech Notes
Recent System Improvements
- Additional filters for Product and Customer Owned added to Company Profile – Tanks widget
- Product column available in Company Profile – Tanks widget detail/expanded view
- Range of tank sizes setting added to Tank Gains & Losses widget
- Delivery type columns and filters added to Tank Gains & Losses widget
- An estimate for Projected Units is calculated for Tank Gains & Losses widget if they are not available from the BOS vendor
- Performance improvements for Tank Utilization Dashboard
Watch your email for upcoming webinars in our BRITE Educational Series
WHAT IS YOUR COST/DELIVERY?
BOB LEVINS & RASHAAN BASKERVILLE
For decades delivery inefficiencies have continuously challenged our quest for maximum profitability, as improving technology and our revised procedures attempt to get us closer to meeting our forecasts. In order to properly assess the impact that poor delivery performance might have on your bottom line, you must first know your numbers – cost per delivery being one of the most important. In this webinar we discuss this important metric and the key elements of your business that you can focus on in order to improve it..
Have we become an industry of averages? It that good or bad?
Often when faced with too much information to process, we revert to averages. Batting averages in baseball; delivery size and annual consumption in our industry. Averages can be informative – batting average over the course of a season, for example. Sometimes they are not – when a player is on a hot streak or a cold streak. Almost always though, an average is assumed to be indicative of what is going on in a general sense.
Picture this situation: You are told that your family is hosting a Sunday brunch for a group of forty people whose average age is 30 years old. You prepare salads, sandwiches, some roasted meats, and pick up a few six packs of beer and wine coolers. About an hour later the group of forty shows up, most are in their late-20’s and early 30’s with a hand full of seniors and a few children. Their average age is, indeed, 30 years old. The brunch goes off without a hitch, and the food selection is right on target. Now imagine that when you opened the front door to welcome your guests you were greeted by twenty 60-year-olds, with twenty of their newborn grandchildren in tow. The average age is indeed 30 years old, but you’ll likely end up with a kitchen full of leftovers.
The same can be said about deliveries to your customers. You may AVERAGE 160 or 170 gallons (into a 275 gallon tank, as an example), but how many of those gallons are truly near the average? Are they all bunched together or are they disbursed all over the place like the babies and the grandparents?
BRITE tracks every delivery to your customers, and can segment in many different ways. While it enables you to know the average delivery size – by selected segment – it will also empower you to analyze the average to determine if it is a result of efficient deliveries or the result of just a bunch of random numbers that happen to have a particular average.
Looking at the two charts below, we can see this more clearly. Note that the data represented below is ACTUAL data derived from over 500,000 deliveries with the following characteristics: auto delivery, heating oil, 275 gallon tanks, using K-Factor for scheduling.
Chart A is the familiar “bell-shaped curve” that shows that the majority of deliveries are close to the average (the “mean”), but that there are also many deliveries that are far away from the mean. Those outlying deliveries can either be too high (risking a possible run out) or too low (leading to a delivery likely to result in no profit whatsoever). More efficient deliveries would not necessarily increase average delivery size, but would certainly bunch the deliveries closer together.
Chart B, based on the same 500,000+ deliveries shows how far off the K-Factor based guesses truly are. As you can see, over 40% of all of these deliveries were more than 30 gallons away from the average delivery size.
Why should you care? Imagine the impact of raising your average delivery by 40 or 50 gallons – WITH the knowledge that the planned delivery and the actual delivery would be very close. Picture the bell shaped curve not based upon K-Factor guessing, but on actual knowledge of how many gallons will be delivered. Know your numbers. Improve your numbers. Improve your profitability.
NEW CUSTOMERS –
WELCOME TO BRITE
Energy Distribution Partners, Chicago, IL
Stone Road Energy, Bridgton, ME
J.W Pierson, East Orange, NJ
Rucci Oil Company, Staten Island, NY
Cubby Oil Company, Somerville, MA
Bourne’s Energy, Morrisville, VT
*Blue represents the states of our subscribers
What Is Your Plan?
The unofficial start of the heating season is right after Labor Day. Phones start ringing, service appointments are made, deliveries are scheduled, pricing plans are set up for the season – but have you taken the time to plan for your business? Do you have a budget in place? Is budget variance reporting reviewed on a monthly basis so adjustments can be made if necessary?
Years of working with fuel industry clients has shown that frequent, repeated financial review and honest discussions about performance are vital to producing appropriate profitability. Leverage our finance experts to quickly put a plan in place, benchmark and meet (and exceed) your goals.
Contact An Angus Finance Specialist Today: 860.658.4473