Propane Buying Groups

Many residential propane service consumers have formed propane buying groups within their community with the goal of achieving lower pricing by purchasing their entire annual volume of propane through one supplier.   It is a great opportunity for propane suppliers to increase their customer count while efficiently delivering a high volume of propane within a smaller defined 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 propane buying group will have an informal management organization that may charge each member a small annual administrative fee to cover administrative costs including negotiating the best propane price program for the group. When considering a propane buying group it is important to assess the true goal of the individuals that formed the group.  If the individuals that started the group are more interested in collecting participant fees than negotiating the best propane deal on behalf of the members, it makes sense to avoid that group and start you own propane buying group.

Important: Before signing-up with any propane buying group, be sure to check on the reputation and credibility of the person or persons that operate a specific buyers group with all of the local propane suppliers that offer service in the area.  You want to make sure that you are not signing up with a shady, unethical buyers group operator.  Make a telephone call to all local propane suppliers and find out local propane supplier opinions of the operator regarding business practices and his or her reputation for being a fair, honest business person.  Let the propane supplier know about the proposal that the propane buying group operator is proposing BEFORE you sign-up with the propane buying group. You may find out that the buyers group operator has unethical and questionable business practices in the opinion of some local propane suppliers and you risk receiving poor propane service being associated with that specific propane buyers group operator.  It is also possible that one or more of the propane suppliers that you contacted regarding a specific propane buyer groups reputation may decide to match the buyers group propane service proposal to avoid the need to sign-up with any local propane buyers group. 

Consumers also have the option to form their own local propane buying groups.  As noted below, the process of starting propane buying groups around your area is relatively simple, especially if one of the managers has extensive contacts in a neighborhood and/or homeowners association.

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 the same customers in the immediate area. Propane buying groups can range in size depending on the general size of the local propane market to how many people within local propane buying groups encourage friends, family and neighbors to join.

The initial steps involve identifying the residential propane service customers 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 if all local suppliers fail to show interest in servicing a buyers group, the propane buyers group idea should be dismissed.

After identifying the count of the potential residential service customers for the buyers group, a list of potential members with contact information should be assembled with a note of the customer propane tank sizes, volume purchased during the past 12-months and details regarding leased vs. owned propane tanks.

Supplier proposals may include a variable propane pricing program or a fixed propane 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 an in person 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 residential propane service group representatives and the propane supplier that provides the service.   A typical service agreement may 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 sources of information on supplier service capabilities.

Propane buying groups are typically formed during the summer months. This gives potential members the ability to easily identify their annual propane consumption from the recent winter season. In addition, the winning bid propane supplier will have the ability to install leased tanks before the challenge of winter weather.

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