Most oilheat and propane dealers have a budget item for the repair and maintenance of their delivery trucks and service vehicles. Those are “hard” assets that are very obvious. Yet few dealers put the same effort into maintaining their customer list – even though the value of the list far exceeds the combined value of every truck in a delivery fleet!
As a regular part of my business, I render opinions on the value of the customer lists owned by oilheat and propane dealers. As one of the most important assets in an energy business, the value of the customer list is used by banks to help them make lending and financing decisions. The customer list also plays an important role in the sale of a business and other transactions.
When you get right down to it, all the delivery trucks, service vans and storage tanks in the world have virtually no value unless there is a list of customers to which product can be delivered and service rendered. You should be focusing on keeping your customer list current and “clean” in order to preserve and even enhance its value.
There are a number of factors that affect the condition – and thus, the value – of a customer list. These attributes go far beyond simply keeping the delivery address up-to-date. Here is a checklist of twelve factors I use when determining the value of a customer list. You can use it to benchmark your own customer list, and to shore up any areas that may be weak.
- Margin Quality – Are margins weak or strong? How do they compare to other companies in the dealer’s region?
- Customer Quality – Automatic delivery accounts are great, but when on a budget payment plan they are preferred customers. “Will-call” accounts or cash on delivery carry much lower values.
- Geography – Are customers spread out, making dispatching difficult and increasing delivery costs? Or are they concentrated for more efficient distribution?
- Service – Do you offer service and installation to customers? Or do you subcontract all work? Offering more than just product delivery makes every customer potentially more valuable.
- Profitability of the Service Department – How many customers are signed up for service agreements? The more the better, but only if the service agreements are priced properly to ensure profitability.
- Competition – Are discount operators saturating the area? Or are you competing on a relatively equal footing with other full-service dealers?
- Access to Alternative Energy Sources – Do customers have the option of easily switching to pipeline gas? Do they have access to electricity, solar, plasma geothermal or coal for heating purposes? The fewer options the better.
- History – Are you established with a loyal customer base? Or are you a new company buying accounts with low prices and giveaways? Stability equates to higher value.
- Image – Are your trucks and property clean, with a recognizable logo. Or are the trucks unpainted or cheaply labeled, dirty and old? Perception is reality when it comes to dealing with the public, and a clean image helps boost awareness and value.
- Economic Outlook – What is the economic trend in your marketing area? Is unemployment still high? Is the real estate market strong or weak?
- Acquisition Activity – How many oilheat or propane companies have sold in your market area in the last few years? Are competitors leaving the business? Is there a bigger player entering the market? Buying and selling activity sharpens the focus on customer list value.
- Transaction Terms – If the customer list is being valued for a purchase or sale, the terms of the deal play a role in the value of the customer list, just as the customer list plays a role in the terms of the sale.
Don’t let the value of your customer list slip because of neglect. Pay attention to these factors that can work to erode the value of the list. With the right focus they can also help to boost the value of each of your customers.
John H. Nardozzi, CPA, CVA, MST is the owner of Nardozzi, LLC (www.nardozzillc.com) which provides consulting and valuation services for oilheat and propane dealers.