Part Two: Fuel Costs Burning Your Business?

There's no magic wand when it comes to raising prices to cover the increased cost of fuel.

Some small business owners go boldly, while others set forth gingerly. Either way, the 66 owners who responded to my query about how small businesses are dealing with higher costs sent good information. I thought it would be useful to print verbatim some explanations of how they have passed costs on to the customer.

A computer services provider in Connecticut has an algorithm set up on his Microsoft Excel program, which shows that "when $3.50 per gallon for low-priced gasoline occurs, my surcharges have to change. Gasoline at the cheaper gas stations in my region is about $3.20 per gallon now…. I keep watching my figures."

Locksmith in Texas : "I raised my service call fee at the first of the year in an effort to offset the rising fuel cost. I have not heard much of any complaints from my customers. And the ones that did complain were okay with it once I explained how I could no longer absorb the ever-rising gas prices."

Gourmet products wholesaler in Florida: "We haven't raised prices for some time, however, we are charging a $20 delivery fee due to increased fuel and shipping costs. Majority of customers recognize the increased cost of doing business in this environment. Others complain. However, we are in business to make money. Our competitors have higher product prices, therefore, we strive to maintain excellent relationships and communication with our customers."

Small business owner: "Instead of adding a fuel surcharge, we have raised our hourly and project rates. So far, few customers have complained about the increase. The impact of the increase in fuel prices is really starting to hit now. I am all for the government keeping their hands out of things, but I do believe they need to impress upon the oil companies the importance of keeping businesses alive. One day, our greed will come back to haunt us when we no longer have the business structure to keep this country going. Of course, the executives making the decisions now will be long gone by then. How sad it is to have that attitude."

Stamp dealer in Pennsylvania: "Dealing with higher fuel costs: Buy gas at cheapest price offered, cut back on mileage by consolidating trips as much as possible, moderate price increases to cope with gas costs, discounts offered have been lowered for the same reason, increased emphasis on mail-order by pointing out to my customers that they get the same great service from me and save the money they spend on gas driving to shows."

Wholesale battery specialist in Pennsylvania: "We have a minimum delivery charge of $5 and a maximum of $25. Basically, we add 5 percent and put a ceiling on it. If the customer [complains], we tell them to go to hell or Wal-Mart, whichever is closer."

High-rise window cleaning companies in the Mid Atlantic region: "We have had to raise our prices solely for fuel cost reasons. Although our long-term clients, and larger clients, have had no fuel increase in their prices for fear we will lose them. New, and occasional, clients do have a fuel charge increase added to their price every time we send a crew to their job site."

Bed and breakfast in Vermont: "The gas prices/oil prices have dramatically affected our business. Mostly in areas of heating oil, which has gone up 50 percent last year and 35 percent this year. I have to pass that cost on to my guests. Since I use oil for heat and hot water, it becomes a year round challenge to keep up with the oil bill. I am of the opinion that these prices are here to stay so I will continue to slowly raise my prices…I have no choice with such large increase and no viable alternative."

Home improvement/repair business in Alabama: "We have coped with higher fuel costs by restricting the geographic area we serve and by charging higher minimum charges."

Sawmill operation in Maine: "I just raised the price per board foot [5 percent] from $200 to $210. I originally based my price per board foot on gas and diesel being $3.00 a gallon. Here in Maine, it hasn't reached that yet, but it's probably not far away."

Computer consulting in Maryland: "I have changed my fee system to a flat rate across three categories, residential, business, non-profit. I have a 30-mile free radius. If I go outside of that I charge per mile in addition. I raised my rates at the same time (doubled them) 6 months ago the first time gas went to nearly $3.00 here. I have held that line ever since. If prices climb higher I may raise again just a bit."

Coffee roaster in Florida: "We have changed the delivery process to smaller vehicle 30-35 miles per gallon for our wholesale accounts and have added to the cost of production an increase in the fuel costs per pound of coffee. The combination reduces our need for fuel and keeps the increase to our customers to a reasonable amount and lower than our competition."

Aquarium services company in Louisiana: "We had to add a small fuel surcharge to attempt to keep pace with the rising fuel costs. We cannot request what we feel the customers think is 'worth it' for the rising gas costs versus the overall monthly charge for our service. We still lose money on gas expense even with the surcharge. However, we cannot justify any further increase to our valuable customers at this time. We, along with many other businesses, are feeling the pinch."

Office technology company in Michigan: "We're dealing with higher fuel prices by adding a modest ($2/month) fuel surcharge to our monthly maintenance/service invoices. We are also using [a package delivery company] to ship small supply orders."

Water treatment contracting business in Arizona: "I operate four trucks, 2 diesel and 2 gasoline. I held out on price increase until June of 2006, but with the rising cost of materials (copper pipe & fittings up 135 percent from two years ago – there's a story for you), coupled with gas prices over the top, I raised prices not to create a profit margin but to maintain a post-era profit margin. I added a surcharge to calls that are over 35 miles out."

Instrument repair for doctors in North Carolina: "Most of my work is performed on my customer's location. I increased my mileage charge last year and none of my customers have complained."

House-painting business in California: "I try to build up estimates and then do them in order of distance. I try to avoid unnecessary travel, and trips for materials are kept to a minimum. (Many times I have the supplier deliver to my jobsites). I have had to raise my prices resulting in less customer acceptances of my bids. Also as owner of my company, I now work more on the jobs, trying to cut labor costs."

Real estate sales in Florida: "I sell used manufactured homes within a 20-mile radius of my office. This means I should drive customers who are looking to buy around to all the listings we have... [now] I give them a map and directions of the listing, it's the only thing I can do anymore. I don't want to raise our prices, so this is the best solution for us. I am losing business, and I don't know how much... So gas is affecting me and my job."

Remodeling business in Kentucky: "We are adjusting our variable overhead portion that gets charged to each job. Business owners must do this or something else to recoup the rising cost of fuel. Not doing so is just poor business practice and potentially puts your business at risk."

Contract landscaping and lawn service in Texas: "We are coping with high energy costs in a few ways. First, we have bid all new contracts approximately 40 percent higher than previous years. Second, all renewal contracts have been increased between 25 percent and 40 percent. In the contract we have covered the expense of gasoline rising to $4 and $5 a gallon by introducing a surcharge should it reach that level. We also have covered a possible oil embargo in the contract as well by possible reduction in service. As it is early in the bulk of renewals, we have had 20 percent renew and have only formally lost 4 percent. Most of those lost are elderly and on a fixed income which is regrettable. We expect to lose approximately 10-12 percent. We are also placing bids more aggressively. The third way we are coping with high energy costs is to ensure that all of our equipment is running in proper order and assessing which items must be replaced… Our final option would be to sell some contracts and lay off employees or reduce benefits or delay pay increases. Something we pray does not come to fruition."

Land-clearing service in Washington: "I recently had to raise my rates for the first time in 10 years, adding a 20 percent surcharge for fuel and a mileage charge for distant jobs (over 50 miles from home). It has cost me some business, about 5-7 percent.… I'll know more after a fall storm season which is where I make a lot of money."

Click here to read Part One: Fuel Costs Burning Your Business? Don't Keep Your Customers in the Dark

For more information about the small business owners who have not yet raised their prices, please see Part Three: Fuel Costs Burning Your Business? Don't Keep Your Customers in the Dark

Susan C. Walker writes a personal finance and economics column for as well as this small business column. She works for Elliott Wave International, a market forecasting and technical analysis company, and has been an associate editor with Inc. magazine, a newspaper business editor, an investor relations executive for a real estate investment trust and a speechwriter for the president of the Federal Reserve Bank of Atlanta. She graduated from Stanford University.

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