Beat High Energy Costs

BOT TOM SLUG TK LINE b y J o h n rDS te o z n i a k Pete o r beat high energy costs Don’t let those big numbers hurt your bottom line. Instead, take steps to control expenses and stay competitive Sean Merrill, the owner of Merrill’s Organics LLC in Emmett, Utah, has a lot to smile about. His organic fertilizer business is thriving, with eight products that are distributed to 160 independent garden centers across the U.S. as well as to Wal-Mart stores and Whole Foods supermarkets in Idaho, Colorado and Utah. Looking ahead, he plans to introduce two to three new products annually, capture more market share and even take his fertilizer products into international markets. Business is good. But like many small business owners, Merrill is dealing with a growing 09 Instinctively, entrepreneurs like Merrill know that they need to adapt to thrive in this period of fluctuating energy prices. The challenge lies in figuring out how to harness expenses, stay competitive and grow the business. Offset Your Costs As fuel prices rise and fall, small business owners are looking at innovative ways to decrease their dependency on transportation and offset the cost of petroleum-based materials. Merrill says that his shipping costs have jumped by as much as 10%, and the price of plastic packaging for his liquid fertilizer products is also up 10%. To cut these expenses, Merrill is regionalizing business operations and reducing the use of such packaging. “We’re working to set up licensing relationships with suppliers and to market to garden centers in centralized locations where our products will be made, packaged and sold,” explains Merrill, a KeyBank client. The move will reduce shipping costs, and regional burden: skyrocketing gas prices. While consumers struggle to pay more at the pump, entrepreneurs are challenged in many areas other than their gas bills. Transportation expenses have dramatically increased, as has the cost of everything from raw goods to employee wages. Consumers are becoming thriftier and tightening their purse strings, making it harder to meet sales goals that were once the norm. Plus, gas prices may jump one week and decline the next, complicating any type of budget forecasting. 4 BUSINESS VISION WINTER PHOTO CREDIT TK SLUG TK by John Doe PHOTO CREDIT TK BOT TOM LINE operators will know the top local markets in their areas better. Merrill is also planning to substitute plastic packaging with waxlined cardboard boxes for his liquid fertilizer products. Another small business owner, Mark Fritch of Sandy, Oregon, was hit with the expense of fuel for his truck. Fritch, who designs and builds high-quality handcrafted log homes, distinguishes his company by delivering outstanding service and quality workmanship. After meeting with prospects, he offers them free follow-up sessions to address questions, which means that he has to drive his diesel-powered truck for long distances. When fuel prices moved above $4 a gallon, he estimates, his gas costs shot up from $175 to $600 per month. He seemed to have two options: scale back his customer service and risk losing clients or watch expenses climb dangerously high. But Fritch discovered a Web-conferencing tool that enables him to meet with clients online in real time. The conferencing allows Fritch’s customers to see his computer screen virtually, which means that he can share his designs and documents online. The move cut his diesel costs by at least 10%. “I’m saving a lot of time too, and I’m getting a lot of great responses from my clients, who love the Web conferences,” Fritch says. KeyBank clients John and Maura Siegenthaler, co-owners of Lind Outdoor Advertising, in Mansfield, Ohio, are also fi nding ways to save on fuel for their eight-truck fleet, which services approximately 600 billboards throughout Ohio and in several Indiana locations. “Our billboard workers and their supervisor have done a very nice job of maximizing every mile,” John says. For example, they plan work assignments to eliminate multiple trips to job sites. Lind also uses the global positioning system (GPS) While rising gas prices make running our business more of a challenge, we’ve been able to respond with carefully planned steps that have allowed us to keep growing. —Sean Merrill, owner of Merrill’s Organics LLC, in Emmett, Utah “ ” on drivers’ cell phones to help them fi nd the most fuel-efficient routes, such as roads that have fewer traffic lights. Some GPS devices offer additional services, including daily updates on which gas stations have the lowest price per gallon. Focus on Revenue While small companies are understandably focused on cutting the cost of gas and other operational expenses, it’s just as important to keep revenues growing. Many small business owners are finding that they must include surcharges on their bills to cover costs. Today most customers will understand a surcharge. But that doesn’t mean they like it, so you should explain to them how Net Benefits WINTER 09 While changing fuel costs challenge many companies, some online businesses are seeing dramatic growth Since opening Forthefit.com, an Internet retailer that sells clothes for short men, Consuelo Bova had seen a steady 50% growth in annual sales. Then in January 2007, when gas prices first hit the $3-per-gallon mark, Bova’s sales spiked by 100%. After gas prices rose to $4 a gallon later that year, she says her sales skyrocketed by 225%. “It’s clear that people tend to shop more online if gas prices are higher than usual,” Bova says. A 2007 survey by business software company iCongo found that more than one-third of consumers were more likely to shop online than at a store because of gas prices. The advantages are shared by many industries too. Like Forthefi t.com, the online DVD-rental company Netflix seems to be benefiting from this trend. Despite floundering DVD rentals, it had posted better-than-expected profits by the middle of 2008. So if you’re thinking of expanding your Web presence, now might just be the perfect time to join the world of e-commerce. 6 BUSINESS VISION you calculate your formula, says Jason Zickerman, president and COO of The Alternative Board, a Denver firm that coordinates advisory boards for small businesses. “Be careful about the way you communicate the news of price increases,” Zickerman adds. “With your best customers, plan to speak to them directly about the surcharge and avoid a written notice or e-mail.” quit because of expensive commutes. Lewis estimates that if that were to happen, both new-employee training and the expense of lost clients would cost his company even more than the $25,000 he set aside for gas reimbursements. “The bottom line is that I have good employees who have helped grow this business, and I don’t want to lose them,” Lewis says. There’s no quick remedy that will reverse the effects of increased energy costs. But smart business owners can manage to offset that expense while continuing to expand operations, as Sean Merrill has learned. “While rising gas costs make running our business more of a challenge, we’ve been able to take carefully planned steps that have allowed us to keep growing,” he says. WINTER Earn Employee Loyalty The cost of fuel affects everyone involved in a business, from owner to employee. To decrease the expense of commuting, many companies offer incentives such as monthly gas stipends and flexible hours to keep valued employees on board. A 2007 survey by Opinion Research Corp. found that more than 50% of employees expect their companies to start or expand a carpooling program, mass transit benefits or work-at-home privileges. Dave Lewis, president of Operations Inc., a human resources consulting firm in Stamford, Connecticut, provides his staff $1 per gallon toward their commutes when visiting clients. It’s costing Lewis an estimated $20,000 to $25,000 a year, but it’s worth the investment. He worries that some employees might be tempted to 09 Key Business Online Get valuable help in managing your cash flow, especially in light of fluctuating gas prices, with Key’s secure online-banking tool. Monitor your accounts and transfer funds easily too. Call 1-888-KEY4BIZ to learn more. 7 BUSINESS VISION PREVIOUS SPREAD: SHANNON FAGAN/ THE IMAGE BANK/GETTY IMAGES; THIS PAGE: GETTY IMAGES