Written on: February 17, 2025 by Phillip J. Baratz
As I sit at my desk on a mild November day, I’m struck by the unpredictability of our industry. Who knows what the weather will throw at us in the coming months or how the price of oil will fluctuate. It’s a mystery how the economy will fare after a transition between administrations. In our line of work, we plan for the predictable but must always be ready to adapt when the unexpected hits.
In the heating oil business, we spend our off-season—from May to October—planning meticulously so we can execute effectively during the cold months. Yet, even with the best-laid plans, we face unpredictable challenges: sudden cold snaps, driver illnesses and fleet repairs. Once those Heating Degree Days (HDDs) start rolling in, we often find ourselves operating on muscle memory:
• If it’s much colder than expected, overtime costs rise. If it’s warmer, deliveries get pulled forward with hopes that early deliveries now will free up capacity later.
• When choosing between two due deliveries, the one with a higher K-factor might be delayed—unless it’s for a long-time or particularly vocal customer.
• Variances in delivery sizes often result in a Post-it note reminder, but it’s usually the back-office system (BOS), not the dispatcher, that adjusts the K-factor over time.
• Service managers plan to review callback reasons but sometimes get too caught up in the daily grind to follow through.
• New customer leads are met with skepticism—who switches providers mid-Winter unless they’re struggling to pay?
While Winter is largely reactive, its success hinges on our off-season preparation. Why were high K-factors scheduled for January? Was that delivery size variance an anomaly or part of an overlooked pattern? Did you address callbacks from annual cleanings? Most importantly, have you assessed if your customers are profitable?
This last question has gained traction as companies consider growth or potential sales. While I won’t tell you whether to buy or sell, I will say this: always be prepared to sell. That means understanding your company’s value—and that of your customers.
Calculating company value often involves multiplying actual and expected profits over time (earnings before interest, taxes, depreciation and amortization [EBITDA] times “x”). For instance, if your company earns $2 million annually on an EBITDA basis and a buyer values it at 5x EBITDA, your company could be worth $10 million. This base value excludes factors such as inventory or debt but highlights how crucial it is to understand profitability.
In today’s data-driven world, there’s more focus on dissecting that $2 million profit. Are all 10,000 customers equally profitable? Of course not. Some might bring in $200 each while others cost you money. Understanding this range is vital.
We’re working with clients to model per-customer profitability by considering all revenues and direct expenses (oil, equipment, delivery costs) and allocating indirect costs (admin, rent). Why? Sometimes it’s just “to know.” Other times, it’s to recognize that not all customers should receive equal treatment or to identify up-sell opportunities and weak service techs. Occasionally, it might even mean “firing” a customer.
Ultimately, if you sum up all customer profitability accurately, you’ll understand your company’s true value. This insight can guide decisions on improving results, leveraging opportunities, or deciding whether you’re a buyer or seller.
Ask yourself: Do you really know which customers drive your profitability? Have you aligned your strategies with clear insights? Knowing these answers can determine not just survival but success in our competitive market. ICM
