Improving FBO Productivity in 2012: Business Strategies for Better Success

(Part 3 of a 3-Part Series: Planning a Successful 2012 FBO Business Strategy)

By John L. Enticknap and Ron R. Jackson

 Productivity is never an accident. It is always the result of a commitment to excellence, intelligent planning, and focused effort.          —P. J. Meyer 

In the first two installments of this three-part series, we discussed “Our FBO Business Outlook for 2012”  and “Decreasing FBO Costs in 2012.” In this third part of our series we discuss ways to improve FBO productivity in 2012.

First of all, the key to executing any business initiative is to set realistic and achievable goals supported by workable strategies to accomplish these goals. As the P.J. Meyer quote suggests, intelligent planning and a focused effort are required. Here are three goals and supporting strategies we recommend to put you on the right productivity track for 2012:

1. Increase Line Service Productivity
        a.  Avoid ramp and hangar mishaps
        b.  Create a credible audit system
        c.  Increase fuel sales at point of connection
2. Produce Better Financials 
        a.  Fine tune your financial dashboard
        b.  Watch your fuel margins
        c.  Cash flow analysis and financial ratios
3. Build Long-Term Profitable Customer Relationships
        a.  Be the restaurant owner
        b.  Communicate your Customer Value Proposition
        c.  Don’t forget the Cheese

Goal No. 1: Increase Line Service Productivity
Strategy a: Avoid ramp and hangar mishaps  

In the FBO business, there is perhaps nothing more perplexing than a mishap on a ramp or in a hangar involving a customer’s aircraft. It not only costs the FBO money and possible loss of business, it costs the customer valuable time and causes, needless to say, customer dissatisfaction. 

The truth is, most mishaps can be avoided through proper training and adherence to a comprehensive Standard Operation Procedure (SOP) manual or document. Initial line service training and diligent recurrent training programs are essential. Following simple rules such as always using multiple wing walkers, especially in hangar situations, is vital. We recommend the NATA Line Service Training (LST) program as a great way to train your line service employees. 

Strategy b: Create a Credible Audit System

As we noted previously, extra training keeps ramp and hangar mishaps to a minimum.  However, we need to make sure training and management systems are monitored, utilized and policies and procedures maintained. An internal audit is one way to evaluate your training programs, but it’s hard to eliminate bias.  Only an external audit can give you a true benchmark measure of policy adherence and performance.

There are a number of qualified professionals you can hire to evaluate your training programs and review OSHA compliance as well as environmental, SPCC plans and other internal/external operational procedures. In addition, an outside audit can verify and establish your business’s credibility with your insurance underwriters, which can often result in lower premiums. It also aids in keeping your line service team sharp and focused on safety and quality.

Recently, NATA established an industry-leading Ground Audit program. It is a nationally recognized audit program developed by and for the FBO industry. It uses trained and accredited auditors, including this blog post’s co-author John Enticknap. It’s a good program, but not easy to qualify for or complete. You may want to be one on the first FBOs to register and use it in your marketing campaigns.

Strategy c: Increase Fuel Sales at Point of Connection

Since your line service personnel are often the first FBO employees to come in contact with customers, they all should take part in any customer service training afforded to Customer Service Representatives (CSRs). In addition, they should be totally aware of any fuel promotion you have in place and should be capable of “suggesting” extra fuel at perhaps a volume discount.

Once you have your refueler hooked up to the aircraft, there are no additional fixed costs. Therefore, this is a great opportunity to pass along a fuel volume discount and add more fuel to the sale. Incremental sales of this type really add up and help improve the bottom line.

Goal No. 2: Produce Better Financials
Strategy a: Fine tune your financial dashboard 

When you review your daily sales and productivity reports or dashboards, do you act on the information or just take it in stride? You should make sure the reports are giving you the information you need to make your business more efficient. 

When you review your maintenance shop productivity, do you make sure the numbers match your targets? If you want 89% productivity from your technicians and don’t achieve it, even for a day, do you act on the information? If you lose even a few days out of the month, it’s easy to lose a month of reasonable profitability. 

It’s the same thing on your fuel sales. If you’re having a soft month, run a fuel promotion. Use some demand pricing to stimulate sales.

Strategy b: Watch your fuel margins  

During our NATA FBO Success Seminar we talk about fuel margins. This is no doubt one of the most popular subject matters at our seminars! Without a decent fuel margin your business doesn’t go anywhere. 

With requests or demands for lower prices from your customers and contract fuel programs, there is increased pressure on your margins. We would like to recommend you institute our $2.00 management plan, another strategy we teach at our NATA FBO Success Seminars. 

It works like this. When you price your retail Jet A fuel, set a two dollar margin as a goal. For example, in today’s market the price build-up would be approximately $3.30 GCPM-Platts—plus 65 cents for Federal taxes, transportation, and flowage fees, etc.—plus a $2.00 margin.  Therefore, the total retail price would be $5.95. Most FBOs are above this retail market price already!  Remind yourself, every time you have to spend $2.00 on overhead, you have to pump another gallon of Jet A. We suggest you keep a $2.00 bill on your desk to stay focused! 

Strategy C: Cash Flow Analysis and Financial Ratios 

We think it is fair to say most of your financial reviews involve looking at your profit and loss statement and balance sheets.  As a reminder, you should also look at your Cash Flow Statement. This statement summarizes the operating, investing and financing activities of your business as it relates to inflow and outflow of cash. This translates to either positive or negative cash flow. With a focus on liquidity rather than profitability, it’s one of the single most important financial tools for your business.  The statement provides a clear picture of how quickly cash is leaving the business compared with how promptly it is coming in.  Have your bookkeeper/accountant provide this statement at least monthly. 

There are two types of financial ratios which generally measure two areas within a company:

• Liquidity ratios indicate your company’s ability to meet current obligations on time. With problems in this area, you have trouble paying your bills on time. It helps identify needs for more capital, more sales, better management or all of the above.
• Profitability ratios measure your performance regarding your ability to generate revenues, net income and acceptable return on investment. 

These are handy tools to use in your business to spot trends both good and bad.  With these tools, you can have a better handle on cash management and forecast the effect on operations and profitability. 

Goal No. 3: Build Long-Term Profitable Customer Relationships
Strategy a: Be the restaurant owner 

In a previous blog, we discussed in length the concept of being the restaurant owner in managing your FBO business.  Simply, this means getting out from behind your desk and managing by wandering around.  Observe the workings of your FBO first hand. Praise your employees for the job they are doing. 

But most importantly, just like the restaurant owner, meet and greet your customers from time to time. Show your CSRs and Line Service personnel, by example, how to create long-term profitable customer relationships by listening to the customer, calling them by name, and above all, thanking them for their business. 

Strategy b: Communicate your Customer Value Proposition 

Do you know what your Customer Value Proposition (CVP) is?  It’s basically what you would tell someone about your business in a short ride on an elevator.  It’s usually no more than a sentence, but it becomes your business mantra, your call to action. 

As an example, here is one we developed for one of our clients, Heritage Aviation in Burlington, VT: 

At Heritage, we are committed to quality service, the comfort of our customers 
and a safe environment for their aircraft…and that’s Service You Can Fly On! 

Not only is the CVP important for customers to understand, it also serves as a short, daily reminder about the level of service and commitment requested of all employees. In other words, it’s a service standard. Don’t be afraid to display the CVP in your FBO, publish it on your website and post it on your Facebook page. 

Strategy c: Don’t forget the Cheese! 

One of the customer retention strategies we touch on at our FBO Success Seminar is the concept of developing a memorable way for FBO employees to deliver an exceptional customer service experience. While most FBOs don’t tolerate mishaps on the ramp, why should they tolerate miscues with customers? 

By standardizing your customer service training, you can consistently meet the needs of your customers, increase retention, and build the long-term profitable relationships you value. 

At Aviation Business Strategies Group, we’ve developed a standardized training approach we call Don’t Forget the Cheese!  

Simply, it’s a memorable way to help employees remember to do the simple things, like smile, even when they answer the phone; be professional yet personable; and above all, add a little something extra to each transaction. That’s the power of not forgetting the cheese! 

Read Part 1: Our FBO Business Outlook for 2012
Read Part 2: Decreasing FBO Costs 2012

Let us know what you think!  Please email John Enticknap at jenticknap@bellsouth.net or Ron Jackson at ron@thejacksongoup.biz. 

Ron Jackson
Ron is Co-Founder of ABSG and President of The Jackson Group, a public relations agency specializing in aviation and FBO marketing. He has held management positions with Cessna Aircraft and Bozell Advertising and is the author of Mission Marketing: Creating Brand Value and co-author of Don’t Forget the Cheese! the ultimate FBO Customer Service Experience. 

John Enticknap
John founded Aviation Business Strategies Group in 2006 following a distinguished career in aviation fueling and FBO management, including as president of Mercury Air Centers. He is the author of 10 Steps to Building a Profitable FBO and developed NATA’s acclaimed FBO Success Seminar Series. 

Lessons of $1 Hot Dogs Help FBOs Cut the Mustard

Frankly Speaking, FBO Customers Must Relish Their Surroundings, Be Happy and Perceive Fair Value

As a red-blooded American, I love hot dogs, apple pie and baseball. Being from the Dallas area, I’ve been following the Texas Rangers through thick and thin for more than 20 years. Mostly it has been thin, though the Rangers made it all the way to the World Series last year for the first time in franchise history.

When the newspaper hits my driveway at 6 a.m., I read the sports section from stem to stern and go over the box scores and team stats.

Recently, I read a sidebar article about Dollar Hot Dog Night at the Rangers’ stadium. On Wednesdays when the Rangers are in town, they cook some 65,000 hot dogs for hungry patrons. At a buck each, the promotion attracts a lot of families to the game, and the conies are quickly snatched up!

The Art of the Deal

I’m sure you have your favorite sport, and if it’s baseball, you know how a hot dog with your favorite beverage tastes on a warm summer night around the diamond. It hits the spot! But something else is going on at the ballpark.

In the article, the writer asks a university professor for his opinion on why a $1 hot dog attracts so many to a game when patrons can have all the hot dogs they want for a lot less money by buying them at a supermarket and eating them at home.

His answer, posted in the Dallas Morning News, is what spurred me into writing this blog post.

According to Ernan Haruvy, a management professor at the University of Texas at Dallas, a perceived deal, such as the $1 hot dog, depends on several factors, including:

1. Your physical surroundings
2. The customer’s mood
3. What the customer believes is a fair value for the transaction

OK, that all sounds logical because the customer is at the ballpark; therefore, the surroundings are fun. Secondly, because a day watching baseball is better than a day at work, the customer is probably in a pretty good mood. And lastly, $1 for a dog that usually costs $4 seems like a relatively fair value.

But what does this have to do with an FBO?

Play Ball!

In previous blog posts, Are You the Restaurant Owner; Do You Feel Lucky; and Don’t Forget the Cheese, we discuss what is important to customers when they choose a particular FBO.

First of all, the physical surroundings need to be pleasant enough that they don’t cause a distraction. The ramp and equipment need to be neat and tidy. Line-service personnel should use crisp ushering techniques to guide the aircraft. The facilities, particularly the bathrooms, need to be as clean and sparkling as possible.

Next, from the time the customer comes onto the ramp to the time for departure, it’s everyone’s job to create an atmosphere that keeps the customer in a good mood throughout the transaction. Customers who fly on private and business aircraft are used to getting good service wherever they go.

And finally, when the customer goes to pay the ticket, it’s important that he or she truly believes it represents a fair value. Remember, just because you may have offered a volume fuel discount doesn’t mean the customer flies away feeling like he or she received a fair value.  

For the type of customer that you want to attract and keep, receiving a fair fuel price is just part of the equation. If you failed to deliver an exceptional customer service experience, chances are your facility will not be remembered, and you will not get a recommendation.

So the next time you bite into a red hot coney, remember these three simple principles of pleasing a customer:

1. Maintain good physical surroundings.
2. Keep the customer in a good mood.
3. Give the customer a fair value.

If you have had success in pleasing a customer, please let me know the particulars by emailing me at Ron@TheJacksonGroup.biz.

Ron Jackson

Ron Jackson is co-founder of ABSG and president of The Jackson Group, a public relations agency specializing in aviation and FBO marketing. He has held management positions with Cessna Aircraft and Bozell Advertising and is the author of Mission Marketing: Creating Brand Value and co-author of Don’t Forget the Cheese!, the Ultimate FBO Customer Service Experience.

Reeling in Customers: Either Fish, or Cut Bait

I have returned from a much needed vacation to the Canadian outback where I enjoyed a week of fishing with no phone, TV or newspaper.

Every year, I travel to the far western reaches of Ontario for our annual fish camp outing that has been a part of my family tradition since 1961, when my father first went with his buddies to the same waters we fish today. I started going with my dad in 1984, and now his 16-year-old great-grandson, my grand nephew, is representing the fourth generation to wet a line in these great Northern waters.

On this most recent outing, I started to think about writing a blog post based on the similarities between fishing for dinner and casting a net for new FBO customers.

Planning the Trip

As many times as I have gone on this fishing trip, there is still a fair amount of planning to do. Same goes for developing a sound marketing plan to increase your FBO business.

Blogger Ron Jackson and 16-year-old grand nephew Chas holding a 20-inch Walleye on a Canadian fishing trip.As author Stephen Covey says in his book The Seven Habits of Highly Effective People, you have to begin with the end in mind. Because I’ve been on this trip before and have had success in hauling in some nice fish, I can visualize my goal: A 29-inch, 10-pound Walleye!

Same goes for the FBO business. You know the type of valued customer you want to attract, so you should visualize reaching your goal, whether it’s five more new customers or 50. And you should be updating these goals annually.

Research shows that a business can lose up to 30 percent of its customer base annually due to attrition or churn in the marketplace. Factors include companies downsizing and selling their aircraft; companies going out of business; mergers and acquisitions; new flight destinations; and the worst case scenario, defection — losing a valued customer to a competing FBO.

New customers are paramount to keeping a healthy balance sheet.

Fish or Cut Bait

You have set your goals, you have written your business and marketing plan, and you have followed your map to your destination. Now you have to ask yourself, “Are you going to fish or cut bait?”

Sometimes we can take planning and strategizing too far. We can call too many meetings and second-guess our way to being highly ineffective. As one of my bosses at a Fortune 500 company years ago said, “If you don’t get started, you’ll never finish.”

And so it is with catching fish or a new customer. If you don’t get your pole in the water, nothing will happen.

Years ago, I read a book titled Bunkhouse Logic by Ben Stein. The premise was about the same. You can’t win at anything unless you first get started. You’ve got to start the cattle drive and you’ve got to finish the cattle drive, point A to point B. Also, if you want to win at poker, you first have to get yourself to the table. In other words, you have to get your feet wet and sometimes force yourself to get started.

Using the Right Bait

Catching a good customer on your terms is a far better scenario than catching a customer on his or her terms. Remember the blog I wrote titled Building Long-Term Profitable Customer Relationships, Part 2: Do You Feel Lucky?

In this post, we discussed the danger of attracting the wrong customer by subjectively lowering the price of fuel. Remember, you have to use the right bait in attracting the right profitable customers if you want to keep them for the long-term.

You have to give them a reason for choosing your FBO by providing them with a sense of delivering a real customer value proposition (CVP). For instance, done properly, the CVP can be the right combination of clean and attractive facilities, fair fuel prices and a knock your socks off customer service experience.

Now that is baiting your hook with something more than corn from a can. 

Keeping Your Fish Healthy and Happy

When a person goes to a fish camp in Canada, he is there for primarily one reason: catching fish. So the fisherman is up at the crack of dawn and fishes all morning and then from late afternoon until sunset, which is usually after 9:30 p.m. this far North.

Therefore, having a live well in the boat is a great asset so the fish stay fresh.

So it is with attracting new customers to your facility and keeping them. You have to figure out a way to keep them happy and satisfied while they are in your facility.

In my post Building Long-term Customer Relationships, Part 3: Don’t Forget the Cheese! I talk about delivering a memorable customer service experience that will keep your customers coming back for more. Here is a recap:

The use of Cheese in our proprietary customer service training course serves as a key reminder to CSRs, as well as other employees, to practice exceptional customer service. A few fundamentals of great customer service are:

• Smile. Remember to say, “Cheese,” to yourself, as if someone were taking your photo. Even when answering the phone, put on a smile, and the customer on the other end will sense they are talking to a happy person.
• Add a little extra when delivering customer service. Cheese represents the added touch, the little extra that puts a smile on the customer’s face and makes them keep coming back.
• Remember a customer’s name. In the FBO environment, adding cheese can be as simple as remembering a customer’s name. Most people react positively to being called by their name and are impressed when you remember. Are you the restaurant owner?
• Go the extra mile. Going the extra mile could be something as simple as showing the customer where the pilot lounge is located instead of pointing in the general direction.

If you’ve had success in casting your net for customers, I’d like to hear from you. Please email me at Ron@thejacksongroup.biz.

Ron Jackson

Ron Jackson is co-founder of ABSG and president of The Jackson Group, a public relations agency specializing in aviation and FBO marketing. He has held management positions with Cessna Aircraft and Bozell Advertising and is the author of Mission Marketing: Creating Brand Value and co-author of Don’t Forget the Cheese!, the Ultimate FBO Customer Service Experience.

Building Long-Term Profitable Customer Relationships, Part 2: Do You Feel Lucky?

While my business partner, John Enticknap, reveals in his blog posts the methods and tools used in building a more profitable FBO, I’ll be writing about the often overlooked but equally important process of building long-term profitable customer relationships.

My first blog on this subject, Part 1: Are You the Restaurant Owner? was published on Feb. 10.

The following is the second installment:

Part 2: Do You Feel Lucky?

We’ve all seen Clint Eastwood’s Dirty Harry scene when he aims his seemingly empty .44 Magnum, “the most powerful handgun in the world,” in the face of the bank robber and taunts, “You’ve got to ask yourself one question: ‘Do I feel lucky?’ Well do ya, punk?”

FBOs shouldn’t have to feel lucky when putting together their marketing plans to attract new customers, yet during our NATA FBO Success Seminars, I often sense the frustration FBO owners and operators verbalize when we discuss this very subject.  

Over the years, FBOs have tried all sorts of things to attract customers. Wine, steaks, bobblehead dolls, free this and free that. Sometimes they get lucky, but mostly they’re just shooting blanks!

Many FBOs, when facing seemingly stiff competition, have done the unthinkable to attract customers. They resort to lowering their price of fuel beyond reason. Yikes! 

To be sure, an FBO should always manage its fuel price in order to be competitive and as a component to provide a customer value proposition (CVP). However, nothing good happens when you subjectively lower the price of fuel just to attract customers.

Attracting the Wrong Customer

Besides messing up your profit margin when you arbitrarily lower your price of fuel, you ultimately attract the wrong customer.

Are there really wrong customers in this trusty world of general and business aviation? You bet your .44 Magnum there are.

In my first blog, I wrote that the lifeblood of any FBO is building loyal customer relationships. The success of these relationships can be measured in two ways:

1. Are they long-term, and
2. Are they profitable?

When you randomly lower fuel prices you get neither long-term customers, nor profitable customers. What you get are bottom feeders, looking for the deal of the day. They tend to flit from one deal to the next. Sure, you may increase your fuel volume for a short period of time, but over the long haul, you’ll be scratching your head, wondering where these newfound customers went.

If you divide your available customer base into thirds, you’ll probably find the following:

• Upper third: Extremely loyal, likes your FBO, knows a good value and pays a fair price for fuel.
• Middle third: Although loyal, is value-conscious, wants a good deal and keeps you on your toes to make sure this value is received.
• Lower third: Bottom feeders. Price is everything. Complains about everything. Flits from one FBO to the next. Famous catch phrase: “What have you done for me lately?”

So where should your focus be? Which piece of the pie do you want?

First of all, getting Loyal customers to leave their present FBO is probably not going to happen in the short term. You may flirt with them a little, but getting a loyal customer to try something new is very difficult. An FBO competitor would have to stub its toe pretty hard to get a loyal customer to leave.

(Note: If you currently have a core of loyal customers, make sure you don’t lose them. Remember why they came to your FBO in the first place, and do everything you can to take care of their needs, wants and desires. Be the restaurant owner.)

Second, more than likely, you’ll get most of your customers from the Somewhat Loyal group. If you are looking to expand your loyal customer base, go fishing in the green pond, not the Bottom Feeder pond.

The Customer Value Proposition (CVP)

So how do you attract these Somewhat Loyal customers to your FBO? Give them a sense of delivering a real customer value proposition (CVP). Done properly, the CVP is the right combination of clean and attractive facilities, fair fuel prices/fees, and good old-fashioned knock-your-socks-off customer service. (We’ll further explore the CVP in another blog post.)

Lastly, it’s critical you get the word out about your CVP. And the way to do that is to deliver it consistently to every customer with whom you have contact. Let them soak it up and remember it, and they will faithfully spread the word.

The general aviation industry is relatively small compared to other industries. Word-of-mouth is a very strong channel of communications, and if you are “lucky” enough to have a customer recommend your FBO to another potential customer, you’re on your way.

Someone once told me you create your own luck, that luck is really the result of working hard, of doing something right consistently over the long haul.

I think that’s pretty good advice.

Next Blog: Building Long-Term Profitable Customer Relationships, Part 3: Don't Forget the Cheese!

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 CSR training. He is the author of Mission Marketing: Creating Brand Value and co-author of Don’t Forget the Cheese!, the ultimate FBO Customer Service Experience.

FBO Fuel Pricing: Seeking a Silver Bullet

Ever since the Lone Ranger first loaded his trusty six-shooter with silver bullets, I’ve been intrigued with the idea of formulating a single straightforward solution for pricing fuel at FBO operations I’ve managed over the years.

This search for the silver bullet is a subject we discuss at our FBO Success Seminars, and FBO managers in attendance often voice their concerns about how to effectively price fuel. On one hand, they’re concerned about the bottom line. On the other hand, they don’t want to price themselves out of the market and lose valuable customers in the process.

Indeed, it’s a two-edge sword. The trick is to maximize both cutting edges. Let me explain.

Maximize Your Customer Value Proposition

FBO managers are no different than any other business manager that sells a service or product. The same rules apply. Every FBO sells fuel — both Jet A and 100LL are the same specifications from all the manufacturers — so trying to differentiate your business on product is almost impossible. Same goes for quality control: Either it’s done well, or you’re going to be out of business.

What you need to look at is maximizing your Customer Value Proposition (CVP) — the facilities, the delivery (customer service) and the selling price. We’ll discuss the delivery aspect in future blogs. For now, let’s concentrate on the one factor many managers forget, or do not consider enough, and that’s the pricing equation, which requires putting some effort into research and calculations.

So let’s do the math. There are generally four types of pricing:

• Cost-Plus pricing
• Demand pricing
• Competitive pricing
• Mark-up pricing

Before we decide which type of pricing methodology we use, we need to determine our costs. We need to know what it costs to get the fuel truck with clean fuel to an aircraft on our ramp with a trained line service technician. (Let’s not get into a discussion here on fixed and variable costs. That’s another blog.)

Next, let’s look at our fuel cost from our supplier, including mark-ups over Platts (or rack price), plus transportation, plus fed taxes, plus flowage fees, plus state fees (not sales tax) and any other local fees. In today’s marketplace, that number is greater than $3 per gallon for Jet A.

Now we need to look at your cost of labor and overhead and covert the number to a per gallon rate.

After that exercise, let’s say we have our fuel cost at $3.10 and our cost of labor and overhead of $0.55 per gallon. So our cost is $3.65/gallon. (This example is for Jet A.)

But before we start talking about which pricing method to use, we need to do some research on your FBO marketplace. If we look at various publications and web sites, like acufuel.com, we can determine local and national fuel selling prices.

One current survey for national and regional pricing shows the following:

• Average high selling price: $6.66/gal. (range of over $7 to just under $6)
• Average low selling price: $3.64/gal. (range of over $5.40 to a low of $3.16)

This translates to a national average selling price of $5.05. In addition, find out what the local posted fuel pricing is at your competitor FBO and within a 50-mile radius of your base.

The other research question you need to tackle is: What are the contract fuel selling prices in your local area? Once you have this data, then we can look how we put a retail price on the fuel.

Maximize Your Profit Position

One of the most important tasks we must keep in mind is maximizing our profit position.  Profit is our friend. Profit is our goal.

In order to maximize our profit position, we rely on a standardized fuel pricing method. We think it is fair to say most FBOs use either cost-plus pricing or mark-up pricing. Cost-plus means you want to make a certain “plus” above your cost. For example, your cost is $3.65, and you want to make $1.00 per gallon. Selling price would be $4.65; a profit of 21.5 percent on sales.

Mark-up pricing, on the other hand, says you want to make $0.90 per gallon. Your selling price would be $4.55 or just short of a 25 percent mark-up on cost.

Both of these methods are common in the manufacturing business arena. The difference in these two methods lies in the difference in margin and mark-up. This can be a lengthy discussion, but suffice it to say, a thorough understanding of your costs of operation to include labor, facilities, other income, overhead, etc. affects what margin you use to show a profit, which in turn, allows you to calculate what mark-up percentage you must use to get to the intended profit level.

Demand Pricing

We might suggest a demand pricing method. Service industries use this pricing methodology consisting of:

1. Labor & Material
2. Overhead and
3. Profit.

You start by knowing what goal you have for gallon sales for the month. Establish your competitive average sale price within the range of the market of, say, 50-100 miles. Look at your fuel sales, each day, each week, and adjust your pricing on a daily, monthly or discount-per-individual-sale basis to meet your goals at the end of the month. Keep in mind, of course, what your financial break-even point is so you don’t end up selling for below cost. Demand pricing models are very complex and are used by firms such as airlines, cruise lines, freight carriers and others who sell perishable services.

Competitive Pricing

Competitive pricing comes into play with the contract fuel market. This trend has accelerated in the last couple of years. It has led to decreased margins on fuel sales. Has it increased your fuel sales to make up for the lost margin? That is always the claim from the contract fuel suppliers, which now include the major retail suppliers — a building dilemma for the FBO. At the FBO Success Seminars, we have a complete class on this important issue.

What’s Your Silver Bullet?

In the end, the Lone Ranger always prevailed and got his man. He did his homework, scouted the trail and, of course, he had his trusty six-shooter loaded with silver bullets.

For the FBO owner and manager, the silver bullet is knowledge. Know your customers, and know your business. It’s a thorough and detailed understanding of your FBO cost structure.

John Enticknap

John Enticknap founded Aviation Business Strategies Group in 2006 following a distinguished career in aviation fueling and FBO management, including as president of Mercury Air Centers. He is the author of 10 Steps to Building a Profitable FBO and developed NATA’s acclaimed FBO Success Seminar Series.