In the Know is a monthly partnership between LP Gas magazine and Propane Resources. Our focus this month is on problem customers, addressed by consultant Cooper Wilburn.
Q: In one of your recent newsletters, you refer to firing customers who are a drain on company resources. Can you explain what this means and when propane retailers should consider it?
A: We’ve all heard of the 80-20 rule, in that 80 percent of some output is produced by 20 percent of some input.
In the retail propane sector, the output is the time one must deal with customer relations and the input are those customers; 20 percent of the customers create 80 percent of the work. This doesn’t exactly apply to the drivers out in the field, unless the same customer runs out of gas on a consistent basis, but more to the office staff in dealing with customer relation issues.
You know which customers they are; they’re the customers that try to beat down your price, the ones that call when their tanks read 2 percent or the customer that brings in a check that makes you wonder every time whether you’re going to get hit with a bad-check charge from the bank.
Let’s look at a quick, basic example: Assume a company has 3,500 customers. Instead of firing 20 percent of the customers, let’s start by firing 1 percent. Going back to the 80-20 rule, if you take 80 percent of the total hours one would work in a year, you would get 1,664. Now, since we are only going to fire 1 percent of the customers (35), the estimated increased hours you would have per year are about 416 hours, or 1.6 hours per week.
At this point, you might think firing 35 customers is just madness because, if the average customer uses 500 gallons and you get a 65-cent margin on those gallons, you will lose $11,375 in gross margin.
That is why having a plan for those extra hours gained is important.
Fill those newfound hours with things like getting your records in order or performing more gas checks (which can also save on insurance costs). Visit households in an area where you’ve considered expanding. Take the 1.6 hours you gained each week and visit 15 households. If you convert one of every 15 households to customers each week, you would obtain 52 new customers per year. Assuming the new customers are at the same gross margin with the same gallon usage, you just netted $5,525 after firing those 35 customers that were causing you all of the headaches.
Find those customers causing most of your problems. Determine if you really want to keep them. Are they paying their bills? Do they continually run out of gas? Are you even making money on them? It’s tough to fire them as customers, but it may be best for you, your employees and your company as a whole.
We haven’t even touched on the intrinsic value of your employees’ sanity or the time consumed by complaining about those bad customers. If 35 customers are too many, ask your staff to write their top five headache customers on a list. Compare the customers and fire the five most challenging (do this annually). Your staff’s morale should improve, as well as your profitability.
Cooper Wilburn is a consultant at Propane Resources. He can be reached at firstname.lastname@example.org or 913-262-0196.