Higher oil prices mean lost profits

[Beth n Rod]

Higher oil prices mean lost profits

Higher oil prices mean lost profits
Rising cost of gas could force area business owners to raise prices, lose customers

By J.C. O'Connell
The Aurora Sentinel

AURORA | Increasing oil prices mean a loss of profit for some local business owners who say they could be forced to raise prices and lose customers if the trend continues.

With oil prices earlier this month touching $100 per barrel, analysts are forecasting higher oil bills in future months.

Keri Stivers and her husband own Dry Cleaning Valets, and spend their working hours driving throughout the metro area to pick up and drop off dry cleaning orders.

Stivers said she recently reviewed last year's budget, and the price of gas took a heavy toll on the business' profit margin.

"Even though we had an increase (in business) this year ... with gas prices it has affected our income greatly. It's been a hardship," Stivers said.

Charging for pick up and delivery service could make the business less competitive, so Stivers said she is more likely to cut back on advertising, which would prevent her business from growing, but not anger her current customers.

"We kind of feel like all of our customers are in the same boat as we are with everything on the rise," Stivers said.

The average price of gasoline in the metro area Jan. 14 was $2.814 and expected to rise, according to the price tracking web site GasBuddy.com - Find Low Gas Prices in the USA and Canada.

Kraig Baade, manager of Chem-Dry of Aurora, a company that specializes in cleaning carpets and floors, said he's tried to pass the cost of higher fuel prices onto his customers.

Chem-Dry spends between $5,000 and $6,000 a month on fuel, and as prices began to climb 18 months ago, the company added a $7 per trip charge to help offset the price hike, Baade said.

But he thinks the sluggish economy is more to blame for slow business than gas prices, because customers with less disposable aren't likely to have their floors professionally cleaned.

"It's kind of a gloomy sentiment out about the economy," Baade said.

Diane Cemer, vice president of Balco Landscaping Incorporated in east Aurora, said the company had to start charging customers an additional three percent on each project to try and make up for the additional expense of gas.

"People don't want to pay for the increase. We've tried to (increase prices) but it's a very competitive market," Cemer said.

Striking the right balance is especially difficult for companies like Balco, that not only drive to the locations where work is performed but also pay more for petroleum-based materials such as plastic landscaping materials, she added.

Even with the three percent price increase, the cost of gas is still cutting into the company's profit margin.

"We're losing money. As gas goes up its hard to compete ... It's very competitive and its going to push the small businesses out," Cemer said.

In addition to the fear that gas prices could rise, Cemer said she's concerned that taxes on a gallon of gasoline could be increased by 13 cents in Colorado.

Last year, Gov. Bill Ritter formed the Transportation Finance and Implementation Panel to examine how the state should meet its growing transportation needs.

In November, the panel came back with funding recommendations to raise $1.5 billion to help repair and expand the state's roadways and transportation networks. The recommendations included adding a 13-cent per gallon motor fuel tax that could raise $351 million a year.

Ernest Rakotovao puts $900 a month into the gas tanks of his fleet of three vehicles.

"It's very hard because we do transportation. We have shuttles and taxis and limousines, so it's very hard to make a profit. What I want to do is raise the wage we charge our clients," said Rakotovao, president of ER Express Incorporated, a valet service based near Iliff Avenue and Troy Street.

But Rakotovao worries about keeping his business competitive.

When he tried raising rates last year to cover the higher cost of gas, his customers complained.

"We're just trying not to lose the clients," he said.

But if gas prices rise again, Rakotovao said he'll be forced to pass the cost onto those clients.

"Hopefully not going to go up more than it is now. If it is going to go up then we have to go up a little bit,"he said.

Large fleet companies have also been affected by the rising price of gas.

David Patterson, division general manager for Rural Metro, the ambulance company that serves Aurora, said the company's fleet drove more than 1 million miles in the metro area last year while watching its fuel costs rise 17 percent.

"It does make a difference because we certainly try to absorb the cost of (the increase)," Patterson said.

And this isn't the first year the company has had to increase its fuel budget.

"It's been challenging," Patterson said.

The Associated Press contributed to this story.

[PressurePros]

I don't understand how it cuts into profit margins. You do like UPS does. You tack on an increase and blame the Arab nations and Katrina. If you are smart, you either raise your prices by 3% every year for COL and inflation or you increase efficiency. Prices go up. I fuel the economy by giving jobs and spending as a consumer. Its not my obligation to eat increases in expenses.

[Littlefield]

Nobody seems to be absorbing the cost of products to me, and I haven't been able to change to anyone else to buy Mineral spirits that went from 2.77/gal a few years ago to 7/gal now, everyone is facing the same thing, I don't see how they think it affects their ability to be competitive. With who?!? Your competitor pays more for gas now, too....

[steve choate]

Here in washington we have the 2 highest gas price i n the country. Today i flled up at 3.25 gl..
Yesterday the news said they are trying to pass a 1 dollar gas tax per gl on top of that for old 99 highway (viaduct )and 520 floating bridge) !!! plus a 7 dollar toll on on the bridge!

[Paul Kassander]

You can recover some of the cost of the fuel by filing a 8849 and 8849 schedule 1 fuel tax form, or the annual 4136 which is taken off as a deduction on your taxes (federal). Be sure to file the state tax forms as well in many cases they are higher than the federal (look under excise tax on your state website).

All of the fuel that is used in your pressure washers is exempt from road tax since it is all off road usage.

The following web addresses can be used to get the forms to file for a fuel tax refund. Remember it is for fuel used in off road applications only, not your vehicles.


Form 8849 schedule 1 http://www.irs.gov/pub/irs-pdf/f8849s1.pdf

Form 8849 http://www.irs.gov/pub/irs-pdf/f8849.pdf

Form 4136 annual fuel tax http://www.irs.gov/pub/irs-pdf/f4136.pdf

[jamison_tilne]

I can imagine the difficulty of running a business that requires fuel for driving. If operating costs are up 17% (they would be for your competitors also); however, the new competition lies in absorbing as little of the cost as possible but still maintain a competitive advantage over the others. If your competitors are absorbing 100% of the increase, then you will either have to concede or find an alternate means of pushing competition. Through something like quality of service, or efficiency.

[Beth n Rod]

Welcome Jamison -
Please fill in your profile and your signature.
Enjoy the forums.
Beth

[Tmrrptr]

If you are not bound by a contract at a fixed price, there is no better time than IMMEDIATELY to pass on cost increases to the client. They know, same as you, where the money goes.

If it is not profitable for you to conduct business, it's time to do something else. THAT, would be an even greater loss for your clients.

[814jeffw]

I always say, " I don't buy my gas, my customers do"
Just gotta charge or you'll be going backwards.
Jeff

[Beth n Rod]

Keep it coming guys...
This is a hot topic.
Did you raise your prices last year based upon fuel costs? Will you this year? How are consumers in your area reacting to increases in services?

Beth

[Tmrrptr]

Originally Posted by Beth n Rod

Keep it coming guys...
This is a hot topic.
Did you raise your prices last year based upon fuel costs? Will you this year? How are consumers in your area reacting to increases in services?

Beth

Yes we had to raise prices last year! To keep ahead of the bills.

This year?

This year the amigos have got most all the work at very low rates.
They don't pay many fees or taxes, y'know...

Did an interior wall repair 3weeks ago, and a good sized PW job 4 weeks before that.

Economy is pretty slo.

[PressurePros]

Originally Posted by 814jeffw

I always say, " I don't buy my gas, my customers do"
Just gotta charge or you'll be going backwards.
Jeff

UPS has absolutely no problem with that philosophy.

[Beth n Rod]

As we approach $4.00 per gallon, are there other thoughts? Is anyone limiting or changing the "free estimates" or limiting or re-focusing their service area? Are you finding that rising fuel costs are affecting your bottom line? Is the phone ringing less? Any increase in hesitancy in consumers to purchase services?

Beth

[Greg R]

We're pumping more advertising dollars into a tighter service area for sure. Diesel here is pennys under $4 right now.

We started "including" a fuel charge on every bid. Included IN the bid it doesn't mean anything. As a seperate charge on the bid it seems to take on a different meaning with customers.

I'm afraid charging for your estimates would yield more harm than the gas prices

[Beth n Rod]

Originally Posted by Greg R

We started "including" a fuel charge on every bid. Included IN the bid it doesn't mean anything. As a seperate charge on the bid it seems to take on a different meaning with customers.

Greg, thank you so much. Can you elaborate further on this particular point?
Beth