ENERGY CASE STUDY
THE CHALLENGE
In Spring 2009, an independent industrial laundry company decided they were tired of struggling to anticipate the costs of gasoline, electricity and natural gas that continually swung dramatically from high to low and back again. Like many textile rental services companies, they charged their customers a fee to cover energy costs but could not keep up with market changes. When energy costs soared, the Company wondered if they were billing enough to cover the costs for their two locations. Then, when energy costs dropped, they were uncomfortable with the integrity issue raised by potentially overcharging their customers. The Company wanted a fair way to charge their customers that they could stand behind and be proud of, while enabling it to react quickly to changes in the market.
THE SOLUTION
The Company contacted Performance Matters after being referred by another client and soon learned that their Market Based Energy program was based on software specifically created to deal with these challenges. The program took into account their specific energy expenditures and calibrated national energy costs to tell the Company exactly how much they should be charging their customers on a weekly basis. In addition, the program allowed for an energy fee modifier to be added to account for other petroleum-based material cost increases, regional allowances and/or additional revenue generation (which some clients used to cover the cost of the program itself.).
Initially, Performance Matters ran a simulation to show the Company the difference between their actual billings and what they would have made over a one-year period had they used the Market Based Energy program. Having seen the dramatic results, the Company engaged Performance Matters in May 2009 and integrated the software program with their route accounting system to create a seamless billing system for their customers. Performance Matters provided guidance on how to roll the new program out to their customers, who were pleased to know a fair system had been put into place. In addition, the system sent out regular emails letting the company know their monthly fee and the specific changes to account for the difference – whether positive or negative. In turn, the Company posted the results on their Intranet and made it accessible by their customers.
THE RESULTS
After more than a year of instituting Market Based Energy, the Company reported positive results not only from a financial standpoint but also from their customers. The Company continues to maintain its margins and receive feedback from its customers on how much they like being able to understand the charges and appreciate the fairness of the billing.
A computer simulation that utilizes the Company’s revenue and expenses related to energy in 2008 demonstrated how the $17,938 loss the company saw would have been a $17,154 gain if the company had utilized the Market Based Energy program, a $35,092 difference. “Our results so far have proven the validity of the simulation that helped convince us to utilize this new method,” said the Company’s president.
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