Essential Fuel Supplier Agreement Elements: Quality Control/Training, Marketing Support and Credit Card Processing

Detailing the 10 Essential Elements of a Favorable Fuel Supplier Agreement, Part 3

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

Publisher’s note: Our bloggers, John Enticknap and Ron Jackson will be discussing these topics and others affecting the FBO Industry at the next NATA FBO Success Seminar, March 8-9, New Orleans.

Previously, we talked about six of the 10 essential elements of a favorable fuel supplier agreement: Term of agreement, pricing methodology,  transportation and delivery, terminal locations, credit terms and taxes. A favorable fuel supplier agreement is one of the six intangibles that can build equity in your FBO.

For this blog post, we'll break down three additional elements of the favorable fuel supplier agreement and provide insight and tips to help you protect your business while adding intrinsic value.

Quality Control and Training

Putting safety first is paramount in developing a good relationship with your fuel supplier. Often your fuel supplier will have resources to help you train your employees in all aspects of the fuel delivery process to help insure not only safety but the quality of the product as well. Your fuel supplier agreement should detail what type of training program they will provide. It may include their own program or supplement your own in-house safety and quality assurance program such as NATA Safety 1^st. Determine during your fuel contract negotiations what quality program your fuel supplier will provide. For example, will they come to your facility for training or just conduct an audit? Will they complete quality assurance seminars and at whose expense — yours or theirs?

Marketing Support

Many fuel suppliers offer support for marketing your facility and their brand of fuel. This support often comes  in the form of a co-op program that creates a marketing fund based on your fuel volume. Like many parts of your fuel agreement, the terms or percentage of fuel sales put into these funds by the fuel supplier is somewhat negotiable. We suggest you have a well thought-out marketing program in place to help your negotiations.

Credit card processing

If you want to have a real impact on your bottom line, watching your credit card processing fees is a very important factor. Here are a few tips to keep in mind when you come to this part of your fuel agreement:

1. These fees are negotiable.
2. Do your research on what your fees are prior to negotiating with your fuel supplier or local bank.
3. Train your CSR staff to ask for the no-fee card or card with the lowest fee.

Keep in mind that there are many factors and nuances, and we will not be able to expound on all of them in the framework of a blog. Therefore, we encourage you to attend our next NATA FBO Success Seminar, March 8-9 in New Orleans, where we spend additional time and discussion on these important topics as well as others.

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About the bloggers:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience. 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. Visit the biography page or absggroup.com for more background.

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Is Your Cost of ‘Plastic’ out of Control?

Get a Grip on Credit and Debit Card Fees!

"The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic." – Peter Drucker

One of our more popular courses at our FBO Success Seminar is Maximizing Your Credit Card Transactions. We discuss in detail the credit /debit card processing system and how it affects your FBO business. Needless to say, the cost of this vital service is substantial and increasing.

Debit Card Update

First, let’s take a look at the use of debit cards. In the process of updating our seminar course materials, I’ve been researching the recently enacted regulations by the Federal Reserve to reduce debit card interchange fees. Here’s a little background information.

The new laws are still being written and are scheduled to be completed by April 21 with an implementation date of July 21. The laws change the fees from percentages to fixed fees. Some efforts in Congress may further delay the implementation or change the regulations.

Currently, debit card swipe fees average $0.44 per swipe. The new requirements reduce them to $0.07 to $0.12 per swipe. The banking and credit card industries are not in favor of the new requirements because they stand to lose some $12 billion in fees; therefore, they are lobbying Congress and others for changes.

As an example of the impact this would have on a retailer, look at The Home Depot’s operations. If the debit card fees are reduced as planned; The Home Depot will see a reduction of $35 million in debit cards costs. Obviously, the average FBO doesn’t have the volume of debit card transactions of a large box retailer, but we’re talking about potential savings over the long term and revenue to your bottom line.

A Look at Credit Card Fees

Regarding credit card fees, each transaction fee in the FBO business varies greatly. The fee can be zero for your branded oil company card to a high of four percent of the transaction. During the classes we teach at the FBO Success Seminar, we provide a detailed analysis of fees, but for now, here’s a look at an example of an average transaction:

First of all, the current national average cost of Jet A is $5.38 per gallon. Based on the Platts index, this average is an increase of more than 92 cents per gallon in only the last six months. For the FBO operator, this adds up to an increased credit card transaction charge of just over $0.02 per gallon or a total of $0.11836 per gallon, assuming the average fee is 2.2 percent. Under this scenario, a 500 gallon sale would result in credit card fees totaling $59.18, which includes an increase of $10.02 in extra charges resulting from the rise in fuel costs over the past six months.

We would venture to say that credit card fees are a bigger portion of your costs than you imagined!

If you are selling 1.5 million gallons a year at $5.38 per gallon, your annual credit fees will be $177,540. In this scenario, your credit card fees have gone up approximately $30,360 per year, based on recent fuel price increases.

Bottom Line

Here is the bottom line: The credit card processors are profiting during this crazy volatile spike in fuel prices, and the FBO is not! So what do we do?

The first step is to look at your processing fee costs and where the fees are being generated. Start by analyzing your sales and payment history:

• Retail sales and payment by what credit card or debit card?
• Factor out no-fee cards such as oil company cards.
• Factor out contract fuel sales. (By the way, are you getting paid promptly by the contract supplier?)
• Take a look at based customers vs. transient customer sales and payments.

Once you have completed your research, look at changing customer buying/payment habits, — not an easy task!

• You should want all your base customers paying with a no-fee oil company card. If they don’t, figure out an incentive to make this happen.
• For your transient customers, you should train your CSRs to ask for no-fee cards for payment.
• Make sure your contract fuel suppliers are paying you quickly and within contract terms. If they are late paying or otherwise, you need to rethink your contract fuel supplier relationships.

As your business changes with all the turbulence in today’s marketplace, you need to analyze all of your cost structure. Credit card fees are sometimes a cost we think we cannot manage. Not true!

With the tools and ideas we have presented here, these costs can be reduced. As Peter Drucker indicates in his quote, new thinking is most important in business, not only for this issue, but for all your business management concerns.

Let us know your thoughts on this issue or any of our FBO Connection blogs. Please contact me at jenticknap@bellsouth.net.

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.