FBO Success: Unlock Potential Cost Savings in Your Fuel Supplier Agreement
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Multi-Part Series on The 7 Immutable Elements of Building Equity in Your FBO Enterprise
As we all know, running a successful FBO fueling operation comes down to dollars and cents. A penny saved per gallon here and there can mean better bottom line returns.
It’s really simple math. If you added a penny to the cost of every gallon sold annually, that’s $100 gross profit to the bottom line for every 10,000 gallons pumped. Not exactly chump change!
That’s why we recommend a hands-on approach when it comes to reviewing your fuel supplier’s agreement. In a previous blog, we talked about the term of the agreement and pricing methodology. For this blog post, we’ll discuss terminal locations, transportation and delivery costs and credit terms.
Terminal Locations, Transportation and Delivery Costs
These may seem like humdrum topics, but there are savings you can negotiate with your fuel supplier. As in most negotiations, knowledge is key.
The location of fuel terminals in your agreement (mainly for Jet A) can impact the cost of delivery for every gallon of fuel transported to your FBO (for avgas, see end of this section). Talk to your fuel supplier about terminal locations and the effect they can have on your business. You should select both primary and secondary terminal locations.
You need to make sure that the terminals have the storage capability for your product, as well as being located within a reasonable distance of your FBO. Know the cost of transportation from each of the terminals as well as any surcharges and extra waiting expense. The cost per mile can be different for each common carrier, therefore you need to manage this cost.
Once you know the location of your primary and secondary terminals where your fuel will be picked up, don’t settle for a single-source transportation company without exploring your options. It’s within you rights to get competitive proposals from multiple transportation firms. Although your fuel supplier may want to assure themselves of good quality control by the carriers, most all common carriers of aviation fuel are aware of quality control issues and utilize dedicated trucks & trailers.
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Also, delivery of your fuel should favor your schedule, perhaps during historically slow periods during the day. You might even consider night delivery. This will help in optimizing your quality control procedures and better manage your manpower requirements.
Regarding Avgas, because there is limited refinery capacity in the U.S for this fuel type, the cost of transportation may not be as negotiable as Jet A. Talk to your fuel supplier about your options.
Credit Terms
Credit terms are an important part of your fuel agreement so don’t hesitate to put on your negotiating hat, roll up your sleeves and dive in. The key is to provide good financial statements which will assist you in discussions with your fuel supplier. It is standard industry practice to use electronic payment methods of fuel and reimbursements back to you of your credit card receipts. This system assures both the FBO and the fuel supplier of prompt payments in accordance with your negotiated credit terms.
In our next blog post, we’ll examine additional components in developing a favorable fuel supplier agreement.
ABOUT THE BLOGGERS: John Enticknap (404-867-5518) has more than 35 years of aviation fueling and FBO services industry experience and is an IS-BAH Accredited auditor. Ron Jackson (972-979-6566) is co-founder of Aviation Business Strategies Group (ABSG) and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training.
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