Prices at the pump are beginning to look like a small salary. Without proper planning, the cost of fueling vehicles and powering equipment can take a big bite out of your bottom line.
According to the U.S. Energy Information Administration (EIA), an organization providing independent statistics and analysis, gas prices have increased $1.06 a gallon in the last week of May for 2011 compared to 2010.
“We are living in a world with a volatile fuel market that seems to be changing and is extremely unpredictable,” says Rob Barber, vice president of fleet and equipment for The Brickman Group, Gaithersburg, Md. “You need to deploy as many tools in your toolbox as you possibly can to manage the cost.”
In some cities, gas prices have topped $4, and businesses are resorting to fuel surcharges or finding ways to offset the additional expense by looking inside for ways to cut costs.
This month, Lawn & Landscape spoke with three firms who are taking various measures to minimize the burden of blown-up gas prices.
Fueling customer retention
Two years ago when gas prices spiked, Dowco Enterprises “sucked it up” and absorbed the cost as a customer service-focused organization – one that was getting pricked by vendors that stuck a fuel surcharge on Dowco’s invoices. President Maurice Dowell wasn’t about to return that “favor” to his client base.
“That made me consider different vendors, and I told them if they continued to charge me for fuel, I’d find someone else,” says Dowco, who flat out refused to pay his vendors add-on pump fee. “Ninety percent of those vendors removed the fuel surcharges.”
In return, Dowco avoided slapping a fee on client invoices, and he thinks this tactic solidified customer relationships. “I would like to think we didn’t lose customers because of that, and I know we gained customers from competitors’ who added a fuel surcharge,” he says. “We were able to increase retention and if I were to weigh that against the 0.5 or 0.75 percent we lost on our bottom line, it was worth it.”
Dowco continued investing in his firm two years ago when fuel prices increased. He still took his wife out to dinner on Saturday nights. He continued hiring employees and building his company. “The increased fuel prices did not kill our business,” he says. “It helped reinforce the fact that we made a commitment to our clients and we were not going to pass the price on to them.”
But that doesn’t mean Dowell is lax about figuring costs into his budget. He crunches the numbers and adjusts the budget monthly, at least. Meanwhile, to protect his business, he revamped client contracts to include a clause that if gas prices increase more than 20 percent during a season, Dowco reserves the right to implement a fuel surcharge. Now, the fine print is there, but Dowell has never resorted to applying the surcharge.
“Even if gas goes up to $4.50 per gallon, which is the worst case scenario in our budget, that still will not push us too much outside of our budget for fuel,” he says. “We are going to continue to run the kind of numbers it will take for us to be sure of that.”
Specifically, fuel and oil were 3.6 percent of Dowco’s budget in 2010. This year, because Dowell’s projected revenues are higher, he budgeted 3.3 percent for fuel. Working the numbers, the actual dollars spent on fuel this year will increase, but he’s selling and producing more, so the line item is a slightly smaller chunk out of his overall budget.
So to stay on budget and minimize the impact of pump prices, Dowco keeps routes within the company’s “domination zone” and Dowell emphasizes fuel prices during weekly meetings. By targeting clients in Dowco’s sweet spot, which is where its high-end residential customers live, routing is tight and fuel costs stay in line. Dowell also uses mapping software and monitors driver behavior through GPS.
Additionally, the locked gas room where gas cans for two-cycle equipment are kept is only open during certain times. “We are more aware of the timing and there’s an accountability factor there,” Dowell says. “We adjusted our cameras so they have a good look at the pump,” he adds.
Sales personnel drive fuel-efficient Pontiac Vibes and managers drive smaller trucks. “If they have to carry something, they can get a field supervisor to do that,” Dowell says, noting that vehicle choice does make an impression. “It lets our customer and competitors know that we are environmentally conscious,” Dowell says.
Building a tight business
Before starting his landscape business, Quentin Dane asked his lawn care provider how the one-truck operation could possibly afford gas at $4 per gallon when the prices at the pump escalated back in 2008. Dane was the company’s only customer in the neighborhood.
“There was no way he could continue to drive to me at four bucks a gallon,” Dane says, adding that at that same time, he and his wife were exiting the restaurant industry and looking for a new venture.
Dane eyeballed his target market, and decided he could push out competitors like his lawn service and provide a more cost-effective option. “We focused on three neighborhoods within one mile, and the model we put together was ‘give me a chance,’” says Dane, explaining his referral-based business.
Dane built Bel-Air Lawn & Landscapes on tight routing and filled his schedule with clients by offering each customer a 15 percent discount for signing on their next-door neighbors. “It’s an entrenchment strategy,” Dane says. “We have our epicenter where we drop the trailer, and we work toward the edge of that circle and give each house an incentive to sign up their next-door neighbor. We continue to build out from that circle.”
Since founding the company three years ago, Dane realized that he can nab a next-door neighbor for 10 percent off rather than 15, so he cut the discount slightly. The discount doesn’t hurt his profit because he can save on windshield time and fuel. He figures the “free money” he gives new customers by marking down their service price is a wash, and he can continue to build his territory.
“If we are going to build this company on economies of scale, the more houses we can do when we park a trailer, the better,” Dane says. Bel-Air’s largest swath of houses is 12 in a row. “We literally mow every yard down the street,” he says.
Another reason that his park-and-produce system is helpful: His trucks just aren’t that fuel-efficient.
“They are what they are,” he says of the commercial vehicles that generally get 18 miles per gallon on the highway and less than that around town. But Dane focuses on doing business within a five mile radius of his “epicenter,” so that mileage is less of a big deal than if he were focusing on commercial clients dispersed throughout the city, he says.
“Gas is a secondary issue for me,” Dane says. “I’m actually taking advantage of high gas prices because if a company takes any customer who asks, ‘Will you put a mower on my lawn?’ the business will go bankrupt real quick.”
Keeping customers close to home is how Dane can grow on a shoestring budget.
“There are a bunch of one-truck companies and there are a ton of huge companies, and I’m in the middle,” he says. “So, I’m gobbling up these small guys who can’t afford the gas, and the big companies that are looking for commercial accounts.”
By sticking to his target customer – the residential maintenance customer within a 10 minute or so drive from his home – Dane and his three crews are taking over their neighborhoods. “We’re not worried about trying to find fuel efficient vehicles, etc.” he says. “We’re just trying to get that house next door.”
Tapping into efficiency tools
A few years back when fuel prices last spiked, The Brickman Group started tracking its fuel spending and discovered that idle time ate up about 10 percent of its overall gas consumption – parked vehicles burning up costly gasoline.
That’s a hefty price for a lot of sitting around. But it’s easy to fix.
“Extensive idling is a huge fuel waster, and solving that problem is as simple as teaching your drivers to turn off the ignition or not start up the truck and let it idle while they are loading up,” says Rob Barber, vice president of fleet and equipment at Brickman.
Brickman discovered this statistic and others while reviewing information it gathers through its fuel card provider. Aside from providing fuel cards used by each branch’s drivers, these providers offer tools that help businesses track their fuel spend.
“Most of those providers have key performance indicators that are associated with your fuel purchase history that you can manipulate to create information for your business units,” Barber says. Basically, you can find out how you’re spending those fuel dollars, and where. “You can create a suite of tools that report on tank capacity violations or extended idle times, and many providers also offer resources like geographic fuel station locators that provide their current price per gallon.”
Information gives Brickman the power to control its fuel spending by making smart purchasing decisions. This is critical because fuel is the company’s fourth largest expense. One way that Brickman has reduced the cost of getting from point A to point B every route is by editing its fleet. For years, the company purchased Ford F-450 diesel trucks, and before 2008, when emissions standards were put in place that required manufacturers add costly components to these trucks, it was cheaper to fill and operate a diesel truck. But today, that’s not the case.
“We transitioned the fleet over to gas trucks in the F-450 line, and that improved our capital picture and carbon footprint,” Barber says. “It kept our miles-per-gallon cost structure flat, so that was a good move for us.”
So the company looked for more ways to reduce fuel spending and targeted manager vehicles. A few years ago, Brickman had a mileage reimbursement program in place, and many of the managers were driving Ford F-350 trucks that average 12 miles per gallon.
“We moved into the four-cylinder Ford Ranger and deployed 500-plus Toyota Prius hybrids,” Barber says. Of the company’s 3,000-vehicle fleet, one-third is hybrid or small trucks that improve the company’s overall miles per gallon. Additionally, Brickman hedges a percentage of its annual fuel spending – a practice started after the last spike in gas prices. “The misconception about hedging is that it’s a gamble and it could cost you more, and that’s absolutely true, but you can’t look at it in that fashion,” Barber says. “You have to look at is as, ‘Now I can predict my cost,’ which creates a predictable bottom line and a predictable price for customers.”
The author is a frequent contributor to Lawn & Landscape.