By Nick Quaratiello
Blue Cow Software
Have you ever heard of the Ulmer Scale? Created by an entertainment journalist, the Ulmer Scale is a rating system for celebrities, which created the phenomenon of “A-list” stars all the way down to “D-list” has-beens. It is one way to tell who is a “hot property” in Hollywood and whose star has faded. An A-list actor is more likely to help a film become successful and profitable, while a D-lister is more likely to play a role in a box office flop.
Why the reference to Hollywood in an article for fuel oil and propane retailers? Using a rating system like the Ulmer Scale could help you increase the value of your company’s most valuable asset – your customer list.
A friend related a discussion he had several years ago with a fuel oil dealer who, despite working long hours, had struggled to keep his company profitable. He was dragged down by problematic customers who paid their bills late, made repeated call backs to his service department, and squeezed him for every penny of his margin. Finally, having had enough, the dealer made a bold move: he “fired” half his customers.
The dealer went through his list, customer by customer, and gave each of them a grade. The best, most profitable customers received an “A” while the least profitable names were rated with an “F.” He then drew a line at the halfway point of his ranking and informed the bottom half that he would no longer be able to delivery fuel or service their systems. It worked. His annual revenue dropped by almost half. But, surprisingly, his profits only took a very slight hit. More importantly, he was able to concentrate on serving his best customers, and even started making it home for dinner (most nights).
Is this radical surgery on the customer list a viable plan for your company? It may not be a step you are ready to take. But it would almost certainly benefit your business if you were able to identify the characteristics of your “great” customers – your own “A-list” – as well as those customers who are less profitable. You might have a feel for who your top customers are, but it is important to confirm your intuition with facts and figures.
This requires an analysis of your customer records to bring to light those traits you consider to be important in a customer. These characteristics may be different for every fuel oil or propane dealer. Here is a suggested list of “best” qualities you might want to see in a customer:
- Longevity – Have they been loyal to your company over a span of years?
- Payment history – Do they pay in full? On time? Without prompting?
- Average margin – Not every customer pays the same price per gallon, but the best will generate a healthy margin on a consistent basis.
- Add-on revenue – Has the customer purchased equipment and service above and beyond fuel delivery? Is the potential there for additional purchases?
- Service history – Does the customer utilize your service department? Are they reasonable in their expectations, or have they required frequent (and costly) call backs?
These are just five parameters you may wish to consider when rating your customers. Not one of them is based on a “gut feeling.” All are based on quantifiable transactions that can be tracked over a period of time. Use your management system’s analytics tools to set up your own parameters and create a customized report that ranks customers based on their “performance.”
Pulling data on each customer to create an “ideal profile” can help you quickly identify those A-listers who are the most consistent contributors to your profitability, and the D-listers who are dragging down margins and profits. Then you will have solid evidence to decide whether or not you should “fire” your lowest performing customers.
Accurate information delivered at the right time can be powerful. Discover how Blue Cow Software’s Ignite® tools can put the right information at your fingertips by clicking here. Or schedule a demo by calling us at (888) 499-2583.