Propane Buying Groups
Many propane consumers have formed propane buying groups within their community to achieve lower pricing by purchasing their entire volume of propane through one supplier. It is a great opportunity for propane suppliers to increase their customer count and efficiently deliver a high volume of propane within a smaller geographical area. While propane buying groups have the common goal of lower pricing, the structure of buying groups can be very different. In many cases, the buying group will have an informal management organization that will charge each member a small annual administrative fee to cover administrative costs including negotiating the best propane price for the group.
A propane buyers groups' pricing can vary widely depending on many factors, including the geography, the volume of propane purchased by the group and the number of propane suppliers competing for customers in the immediate area.
The initial steps involve identifying the propane consumers in your community that may be interested in joining a propane buyers group. A homeowners association may place a notice in the community newsletter requesting member feedback regarding the idea of forming a community propane buyers group. It is also important to make contact with the propane suppliers in your area to assess their level of interest in providing service to a buyers group. If propane suppliers in the area are not capable of servicing all proposed members or they fail to show interest in servicing a buyers group, the propane buyers group idea should be cancelled.
After identifying the count of the potential members for the buyers group, a list of potential members with contact information should be assembled with a note of the customer tank sizes, volume purchased during the past 12-months and details regarding leased vs. owned propane tanks.
Supplier proposals may include a variable pricing program or a fixed pricing program. The variable pricing program may include a "cost plus margin" formula. This means the supplier will be charging a fixed margin over their current refinery fuel cost. The buyer's group members price will typically adjust in step, up or down, as the propane supplier's refinery cost changes. The margin and refinery cost can vary significantly in different parts of the country. If a fixed price is proposed, the price will typically remain the same for the duration of the service agreement. Each propane supplier representative should be given the opportunity to make a personal presentation of their propane service proposal, including a detailed explanation of their proposed propane pricing formula.
The other items that may be disclosed in each suppliers proposal include the cost to replace any competitor leased propane tanks (if applicable), the timing to complete the leased tank replacements and the annual rental fee for leased propane tanks by tank size (if applicable). The suppliers proposals should also include the hourly labor rate for propane system repairs and maintenance (if applicable) during the term of the agreement.
The term of the service agreement is typically negotiated between the buyers group representatives and the propane supplier that provides the service. A typical service agreement will last between one and five years.
It is important to make sure each proposal is contingent upon verifying the service capabilities of the final supplier candidates. Make sure your future propane group supplier provides both great pricing and great service. Current and past customers of a propane supplier are an excellent source of information on supplier service capabilities.
The best time to consider forming a propane buyers group is generally during the summer months. This gives homeowners the ability to easily identify their annual propane consumption from the recent winter. In addition, the winning bid propane supplier will have the ability to install leased tanks before the challenge of winter weather.
The following links will access the websites of example propane buyers groups:
LS Fuel Co-op (Based in Newport, NH)
Our Town Energy Alliance (Based in Barnstead, NH)
Please tell us about your propane buying group. We will review your website and consider adding a link to your website to the example list above. E-Mail Us
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