Many companies that have been affected by rising fuel prices are adding energy surcharges to their customers’ bills. Businesses need to monitor and track these surcharges to decide how it is affecting them, whether they need to respond, and how best to do that.
We take a look at energy surcharges in more detail and explain how an agile business IT system can help you tackle them.
What are Energy Surcharges?
Manufacturers and suppliers could not have predicted how much the current energy price hikes would affect them.At first, some companies absorbed these increased costs, in order to honour existing pricing agreements or to avoid alienating their customers.
Eventually, however, the increases became so great that companies had no choice but to take action by adding energy surcharges. The surcharges aren’t being imposed to extend their margins, but to cover their spiralling costs. They need to make up the shortfalls they are experiencing or risk going out of business.
No-one knows how long the energy crisis will last and it may only be temporary. So, by adding these emergency energy surcharges, companies can later remove them in the event that the price of energy stabilises again. In this way, they haven’t permanently increased their prices; just added a temporary surcharge.
Which Companies are Charging Energy Surcharges?
This practice of levying energy surcharges has become prevalent among manufacturers and in industries that use substantial amounts of energy to process raw materials, for example companies that supply gases, metals, plastics, paper and glass.
Other energy-intensive industries like transport logistics are also at the mercy of high fuel costs. This means that transporting goods, whether by road, rail freight or air cargo, is subject to surcharges. If you are a distributor, regardless of what you sell, there’s a chance that some of your suppliers may be adding fuel surcharges to your invoices soon.
In fact, as more and more manufacturers and suppliers add the surcharges, this is spreading through the supply chain, across all industries, impacting everyone and affecting the costs of all goods.
With energy prices skyrocketing – in some cases by 700% – even restaurants and hospitality outlets are considering adding energy surcharges to customer bills.
Business Agility to Tackle Energy Surcharges
If you are faced with additional energy fees, you have a few choices.
As well as limiting your expenditure, your choices are to absorb the costs, raise your own prices, or even institute your own surcharges.
But you need to monitor and track surcharges to be able to do that. You can then analyse what effect it is having on your profit margins and can model future scenarios. In this way, you can see the likely outcomes and therefore decide on the best action to take.
The ability to respond rapidly to situations like this is what makes a business agile, and what can ensure it remains competitive.
Agile business systems like NetSuite ERP can assist here with analytics and modelling scenarios. These will show you what business you might miss out on by upping your prices, how your margins might be squeezed if you absorb the increased costs, or what your churn and retention rates will be if you add your own surcharges.
It might be that you are able to absorb additional costs and take the hit to profitability for a while. But only by modelling and analysis can you get a clear picture of how energy surcharges might affect your performance.
If your analysis shows you can’t survive, then you can model the point at which you will need to pass the costs onto your own customers by increasing your prices or reducing expenditure. You can even run scenarios that show differing results according to the amount of the price increase.
If your business is impacted to the point that you decide to levy your own energy surcharges, then an agile ERP can help you dynamically calculate and add the fees.
Your system can automatically calculate the amount to be added – according to energy prices – and can apply a certain fee or percentage amount to all your customers or only selected ones.
For more information, read how else an agile system can help you adapt to rapid changes or get in touch for a demonstration or tailored quote to implement NetSuite ERP in your business.