The effect of rising fuel prices

George Osborne's 1p cut to fuel duty in his Budget may have been a welcome announcement, but doesn't alleviate the fact that fuel prices have risen dramatically in the last year and remain a significant variable cost in your profit and loss.

Transportation providers may add fuel surcharges which, if you deliver for free, then impact on your gross margin. Distributors may look to recover more of their delivery charges by adding a contribution to their overheads. If you're incurring charges and not passing them through to the customer, then it impacts on your margin. If you have a field sales force, then your monthly fuel card charge will have gone up as the cost of miles and customer visits increase.

Some quick tips to address this are to carry out a review of your field-based sales territories to reduce mileage, switching to a diesel-based or electric fleet to optimise your cost per mile, evaluating whether items go post or courier to minimise cost and aiming to fix bills from transportation companies over longer periods to avoid fuel surcharges.

Resellers can look to recover as many delivery costs as possible from customers by offering a tiered pricing system for delivery. Encouraging customers to increase minimum order quantities can also mean better discounts from couriers.

It's little known that a one per cent increase in selling price can lead to an overall impact on profit before tax of up to 18 per cent, due to the way fixed costs work in business. So, it's worth evaluating the impact that fuel prices have had on your business and seeing what you can do to mitigate them.

Phil Jones is sales and marketing director at Brother UK