Fuel Increases Affect SMEs

Fuel Increases Affect SMEs

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The recent fuel and electricity price increases, and the planned levy on petrol and diesel, may force business owners back to the drawing board and present an opportunity to review their operational efficiencies, says Kobus Engelbrecht, marketing head of Sanlam Business Market.

The fuel price increased by 20 cents a litre this month, and the Road Accident Fund levy by 8 cents a litre, with further increases likely to follow, whereas Eskom tariffs will increase by 16% – not quite the 25,9% hike that was originally expected.

The impact of this will be felt by consumers and business owners alike, says Engelbrecht, and presents both a need and an opportunity for overburdened SMEs to take a good look at the nuts and bolts of costs in their business and consider ways to achieve increased efficiencies.

Operating in an uncertain environment

While the Eskom tariff increase is not necessarily as high as expected, it is never possible for business owners to predict fuel and electricity increases, as these are linked to economic and political factors beyond their control.

The way to operate in an uncertain environment, says Engelbrecht, is to ensure that you have a thorough understanding of your operational costs at all times, and to considering sensible ways to possibly reduce those costs.

“Business owners are mostly acutely aware of what happens in the economy and while they cannot control it, there is a risk to accepting and absorbing cost increases without critically stopping the bus and reviewing the way you do business.”

There are a number of operational issues which business owners may want to review when faced with the need to reflect on cost efficiency in their businesses.

These can include improved route planning, making cost-effective changes to a vehicle fleet or carefully considering the costs of utilizing postal services or courier services on certain delivery routes. “In some instances, business relocation may even be an option to reduce costs and build greater efficiency into operations.”

Engelbrecht says business owners, like consumers, often find it less stressful to continue business as usual than to make tough changes that require them to apply their minds to the detail.

Becoming a leaner organisation

The upside of going through this exercise, however, may surprise many. “The option of passing on fuel and electricity increases to clients should always be reviewed against what the business believes clients are prepared to pay for a product or service. Increasing your prices always means that clients will re-evaluate your value offering.”

Revised costings

He says businesses, particularly those that offer transportation or delivery services, may well avoid raising their prices due to higher fuel prices by charging their clients a fuel surcharge. The advantage of such a fee is that it makes it clear to customers that the fuel prices, not greed, are responsible for their having to pay more. The downside is that customers are still paying more. Only the business owner who thoroughly knows his or her clients will be able to judge whether such a tactic will work or not.

“First prize is probably to avoid passing costs on to your clients, and to consider ways in which to differentiate yourself based on price. Then again, a business has to carefully consider the impact of offering goods and services at such a discounted rate that clients may pull away based on their perceptions of inferior quality. It’s a challenging dilemma and one that requires careful consideration.”

Business owners, however, will forever be faced with the reality of unexpected price increases. Engelbrecht says the successful ones will be those who really know and understand the detail of their business, and have the ability to turn adversity into opportunity.

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