In the Know: Diversifying beyond home heating

Q: How might a propane marketer diversify beyond home heating gallons?

A:

Home heat gallons have always been the coveted usage for a residential account.

The secret to building value without significant capital investment is to add burner tips to your existing accounts. It is similar to Amazon increasing sales to existing customers by suggesting items customers might like based on their search histories or reminders that they still have items in their carts. The goal is to get as many propane burner tips as possible in each household you serve.

If the home has a propane furnace, then work to have the homeowner switch out the water heater from electricity to propane. The same goes for the cookstove and dryer. You currently make deliveries to this location, so why not increase the number of gallons you drop? Sure, you may need to increase the size of the tank or make an additional delivery, but that’s all good.

If you assume you have 3,000 customers and 80 percent of your customer base is home heat only, you have 2,400 customers available to add water heaters, dryers or cookstoves. Let’s say you can sell a dryer and water heater to 2 percent of your potential customer base in the first year. That would be 48 water heaters and 48 dryers.

Assuming propane usage for a water heater is 200 gallons and a dryer is 150 gallons, at a 75-cent margin, you would gain 16,800 gallons of non-heat-related gallons in the first year and increase your gross margin by $12,600. After the fifth year, you would add 84,000 gallons and $63,000 in gross margin per year, not to mention the margin obtained on sales and installation of the new propane appliances.

If you track the type and age of appliances in each customer’s home, propane marketers can begin to target customers who have an electric water heater or cookstove based on its life expectancy. From a supply and cost standpoint, propane demonstrates a clear advantage over electricity. Retailers should educate their customers about these cost savings to gain gallons. Your customers will pay someone for these services. Why not you, the propane company?

Tamera Kovacs is a financial consultant and industry expert in business valuations and sales at Propane Resources.