Are Gas Costs Pinching Your Profits?
 By Amanda C. Garrett

If the cost of energy is eating away at your profits, don’t feel alone. Big businesses and small businesses alike are spending more on gasoline.

But, a recent report from the Office of Advocacy of the U.S. Small Business Administration showed that small firms are hardest hit by rising energy costs. The small manufacturing and small commercial sectors top the list of burdened industries.

The report found that for 10 of 17 manufacturing sectors for which data were available, small firms spent considerably more for energy than large firms did, on a per value of industry shipments basis. The report also found that in 26 of 31 commercial industries studied, small firms have higher energy expenditures on a cost per dollar of sales basis.

In an April poll by Discover Small Business Watch, 75 percent of small-business owners said that rising gasoline prices have an effect on the profitability of their business. Among this group, 86 percent are affected negatively.

“Rising gas prices hurt small-business owners because gasoline costs comprise a bigger portion of their expenses compared to larger companies,” says Sastry Rachakonda, director of Discover’s business credit card. “Because gas is more a part of operating costs than materials, it is not an easy pass-through expense for people like contractors, landscapers and others who do a lot of driving.”

From manufacturing companies to home-based businesses, all small firms are feeling the pinch from rising gasoline prices. Whether you’re making products or delivering services, you’re spending more to keep your business running.

In late May, it was reported that the cost of gasoline was averaging $3.93 for a gallon of regular unleaded and $4.77 for a gallon of diesel. The prices keep ticking up and are expected to go higher over the summer.

So what can you do to mitigate those skyrocketing energy costs? Here are some actions you can take that might benefit your bottom line.

Driving Lessons
To save gas, try these driving tips from the From U.S. Department of Energy.

• Observe the speed limit. Gas mileage usually decreases at speeds above 60 mph. As a rule of thumb, figure that each 5 mph you drive over 60 mph is like paying an additional 20 cents per gallon of gas.
• Remove excess weight in your vehicle. An extra 100 pounds in your trunk or cargo area could reduce your miles per gallon by up to 2 percent. And the smaller your vehicle, the more it’s affected by extra weight. The U.S. Department of Energy reports that you could save from 4 to 7 cents per gallon by driving light.
• Don’t drive like a maniac. Speeding, rapid acceleration and braking all waste gas. By driving like an old fogy, you could save from 18 cents to $1.16 per gallon.

Of course, cutting down on the number of business miles you drive will save gas, too. Some tips:

• Avoid rush hour. Stagger your office hours (and those of your employees) to avoid high-traffic times that often leave you idling in a jam.
• Plan your trips. Group customers into mileage-saving delivery areas. Landscapers, for instance, could service customers in a single neighborhood on the same day to reduce driving.
• Shop online. Office supplies, stamps, even many inventory items can be purchased online and delivered to your door, saving you a trip. Avoid trips to the bank by handling transactions online.

Price Check
Raising your prices can help defray some of the expense of gasoline.

Your customers – whether they’re individuals or other businesses – are feeling the effects of higher gas prices, too. It won’t come as a surprise to your customers if you raise prices to cover some of your cost for gasoline.

In the April poll by Discover Small Business Watch, 58 percent of consumers who responded said that the small businesses they patronize charge more for their services when gasoline prices rise.

Be upfront with customers about why you’re increasing your prices. And emphasize that the price hikes aren’t padding your profits – they’re covering higher gasoline costs.



(Posted June 2008)

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