In the Know: Generating revenue

July 26, 2022 By    

In the Know is a monthly partnership between LP Gas and Propane Resources. This month, consultant Cooper Wilburn suggests ways propane retailers can generate revenue by switching to a fee-based business model.

QUESTION: What are the benefits of a fee-based business model?

ANSWER: Many propane retailers have experienced volatile winters during the past several years. While this past winter was relatively normal, large price swings occurred in the wholesale propane supply market.

Photo: Fokusiert/iStock / Getty Images Plus/Getty Images

Photo: Fokusiert/iStock / Getty Images Plus/Getty Images

With increased wholesale supply prices, retailers are forced to push significantly higher prices to their customers.  Should we as an industry help level out this volatility within the business and for our customers?

There have been many years when we waited, wondering if or when the winter was going to show up. Should retailers look into a fee-based model versus the standard cost-plus model?

Many other industries have already done this. Instead of receiving all of the margin on the commodity or service they sell, the margin is buried in monthly or yearly fees. These fees include, but aren’t limited to, customer fees, meter fees, hedging fees and statement fees.

Here are a few ways propane retailers can capitalize on a fee-based model:

⦁ Tank rent: Many propane retailers charge tank rent, but most times the fee doesn’t come close to covering costs, especially when the tank is hooked to a generator. The generator business could be great if a marketer was willing to charge the appropriate annual fee, knowing the likelihood that zero gallons of gas will move through the generator in the next three years.

⦁ Tank monitors: Leasing tank monitors can provide an additional source of income. Retailers may opt to charge an equipment fee instead of separate monitor and tank rent fees. This can discourage customers from requesting not to have the tank monitor by making it a requirement for service. Tank monitors and an accompanying fee will not only generate recurring income but also help save on efficiencies.

⦁ Gas: Like generators, many smaller tanks in the field will not receive deliveries for several years. Instead of waiting three years to deliver to these tanks, you might consider increasing the tank rent amount while also giving the customer “X” amount of propane gallons for “free” each year. This strategy produces a more consistent earnings stream and, in turn, flattens out profits. It also helps your business because you deliver on your own schedule.

The warmer winters and increased wholesale propane prices are either squeezing margins or putting a heavy load on your customer base. While a fee-based model may be slightly more expensive for your customers, over time it should help decrease the volatility of market pricing to the customer base. A fee-based model will also increase your earnings over time.

Cooper Wilburn is a consultant at Propane Resources. He can be reached at or 913-262-0196.

Comments are currently closed.