FBO Best Practices Series #3: Use a Savvy Fuel Pricing Strategy: Think Win-Win
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By John L. Enticknap and Ron R. Jackson, Aviation Business Strategies Group - ABSGgroup.com
Welcome to our blog series on FBO Best Practices. With each blog post in this series, we’ll discuss “Best Practices” in running an efficient and effective FBO operation.
Best Practice #3: Although discounts off the posted price have become a standard industry practice, FBOs must use a savvy fuel pricing strategy and think win-win.
At our recently completed NATA FBO Success Seminar in Las Vegas, we again had very lively discussions concerning dealing with contract fuel suppliers as well as learning more about practical pricing theory. The bottom line: discounts on retail/contract pricing of fuel are here to stay as well as tight/competitive pricing in the maintenance shop.
So how do we manage these most important issues to maximize our return and profitability?
Let’s start by looking at a hypothetical business example we’ll call FBO XYZ. This FBO just paid $32,000 plus for a load of Jet A and their tanks and trucks are full.
The maintenance shop has 10 mechanics trained and ready to go. Payroll, wages and benefits for 25 employees, is due in five days to the tune of $23,750. However, the ramp activity has slowed way down and the maintenance shop is almost empty, therefore, cash is tight.
The posted price for Jet A at FBO XYZ is $6.37 per gallon. However, a little research reveals the average posted price for the regional area is $5.37 per gallon. In addition, the posted labor rate for maintenance at XYZ is $98.00 per hour, slightly higher than the regional average.
Although FBO XYZ may have the largest margins in the area, they just might manage themselves out of business unless they take a realistic approach to their pricing strategy. After all, customers do have alternate choices for picking up a load of fuel in the area and there is even more latitude in shopping maintenance needs.
Over the years, XYZ has stuck to their same traditional ways of doing business and has avoided dealing with contract fuel suppliers as much as possible. In addition, they’ve over bought on fuel and are experiencing a slower-than-normal maintenance market. Overbuying and sales dips are common problems in retail businesses both large and small.
Yes, an FBO is a retail business. XYZ sells a commodity, fuel, just like a retail store might sell shoes. Big box retail stores have spot discounts from time-to-time in order to move inventory. Therefore, FBO XYZ might consider taking a page out of Nordstrom’s or Macy’s playbook.
Sometimes FBOs think that by discounting/marking down the fuel price or refusing to do business with contract fuel suppliers they will automatically lose money. We are here to tell you the fastest way to go out of business is to hold on to old market pricing ways.
Discounts off the posted fuel price have become a standard industry practice. Look no further than the major FBO chains. They use contract fuel suppliers and deal directly with end users with discount programs. Yes, discounts are here to stay, but FBOs must use a savvy fuel pricing strategy and think win-win.
If you’ve been to one of our FBO Success Seminars or read our blog posts regularly you know we advocate pricing fuel and services based on knowledge. FBOs should know exactly how much it costs to pump a gallon of fuel while maintenance pricing is based on efficiency and carefully evaluating productive man hours.
With this knowledge, the best practice is to price fuel and services based on a win-win strategy where both the FBO and the customer feel they’ve received good value. This includes understanding the competitive landscape in which the FBO operates. Do your homework. There are several websites you can visit to gauge the average price of fuel in the area. To determine average aircraft maintenance rates, pick up the phone and call maintenance shops in the area and be sure to include the high-end auto dealerships where your customers have their cars serviced.
In essence, be competitive. However, do not discount to the point where you are competing solely on price. This only attracts the industry bottom feeders that are not loyal, complain, take up all your time and will flit to the next FBO offering the lower price.
Our research indicates the best way to differentiate an FBO brand is by developing an exceptional customer service experience. After all, fuel is fuel. But delivering a unique customer service experience, coupled with a sense of receiving a good value, become great motivators for a customer to return.
Here are a few tips to keep in mind:
- Create and base discounts around company goals
- Explain sales and discounts to customers
- Overbuying is the No.1 cause of excessive discounts
- Keep three to five days fuel inventory, no more
- Adjust labor sales to average labor hours available
- Only think about adding labor when overtime is more than 15 percent consistently
- Be flexible and timely with your discount structure
- Don’t give everybody your best markdown; deal on a case-by-case basis
One of the best ways to initiate a discount strategy is to target your potential customer base with a direct communication: phone, email or snail mail. Be selective on which potential customer receives an offer. Maybe it’s a customer you haven’t seen in awhile or you’ve tracked specific tail numbers to a nearby FBO competitor.
Once on the ramp, show them your best customer service experience. It’s truly win-win.
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Send us an email to Ron@thejacksongroup.biz or jenticknap@bellsouth.net and visit us online at www.ABSGgroup.com.
About the bloggers:
John Enticknap
John Enticknap has more than 35 years of aviation fueling and FBO services industry experience and has served as president/CEO of Mercury Air Centers, a network of FBOs he grew from four facilities to 21 locations. He has international FBO experience including opening the Royal Aviation Terminal in Kuwait. John has held executive management positions with DynAir Fueling and CSX Becket Aviation and holds a Bachelor of Science in industrial management from Northeastern University. He teaches the acclaimed FBO Success Seminar for the National Aviation Transportation Association (NATA) and is an NATA certified safety auditor. John is the co-author of the forthcoming book FBO Survival! Keeping Your Operation Lean, Mean & Profitable. He also writes an industry blog titled FBO Connection for Penton‘s AC-U-KWIK Alerts. He is an active ATP and CFI rated pilot with more than 8,100 flight hours; certified in both fixed and rotary wing aircraft. jenticknap@bellsouth.net, Ph: 404-867-5518 www.absggroup.com
Ron Jackson
Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. He has held management positions with Cessna Aircraft, Fairchild Aircraft and Bozell Advertising. Ron developed the strategic marketing communication plan and programs for Mercury Air Centers and consults with numerous FBOs in areas of marketing, promotions and customer service training. He is the author of Don’t Forget the Cheese! The Ultimate FBO Customer Service Experience. and co-author of the forthcoming book FBO Survival! Keeping Your Operation Lean, Mean & Profitable. He is a certified journalist and co-developed NATA’s acclaimed FBO Success Seminar Series. Ron writes an industry blog for Penton’s AC-U-KWIK Alerts titled: The FBO Connection. Ron@thejacksongroup.biz Ph: 972-979-6566 www.absggroup.com