Gas prices keep gouging profits?

Posted by Leili

July 3, 2008

So, what’s a small business owner to do when gas prices keep gouging our profits? First, recognize that relief will probably not be swift. While voters scream for the government to do something about prices at the pump, there is very little to be done. Realize that while the price of oil is up tenfold since 1998 , the price of gas is only up $1 to $4 a gallon. (By the way, our prices are nothing compared to other countries - see chart ).

Since the cost of oil is 75% of our price at the pump, there is really no way to change the current trajectory. We don’t control the price of oil itself in our freemarket economy. But, you as a business owner can control how efficiently you run your operations and how you can offset the cost by your choices.

First, examine your supply chain and delivery methods. These are the most tightly linked to rising fuel prices. Can you examine your logistics and find ways to reduce shipping and freight costs? (Are you over leveraging FEDEX?) One client reduced costs by installing a priority system for shipping documents, offsetting the FEDEX shipments with Priority Post.

What steps can you take to reduce waste? Can you centralize your distribution? Another client switched fulfillment houses so that drop shipped products could be sent to both coasts using UPS 3-day ground and restricted customer shipments use of overnight delivery.

Can you switch to bio-diesel? Perhaps it’s time to examine alternate fuels.

These are just a few thoughts. You will, as the small business owner, need to be proactive instead of reactive. Take the time to evaluate your operation and see where your Profit and Loss Statement points to places you could tighten up.

Of course, you probably feel pressured to pass on the increasing costs to your customers. How and when you do this will be critical to whether or not you retain your customers in this price sensitive economy. Make certain to build your pricing model to reflect changes that customers can handle. Even though it will be tough to create more profits right now, continuing with a customer-centric policy will pay off, creating real profits long-term.

If you are wondering how to make these changes and determine your pricing model, you can use a combination of CRM, Market Research, and a matrix to reveal various pricing strategies. (Product Line, Optional Product, Captive Product, Promotional, ect.) Here is a great pricing article .