As consumers, when we talk about “discounts,” we’re almost always talking about a reduction of the retail price of an item. We might say “I got a 10-cent discount off the retail price!” When we talk that way, we’re really referring to what’s called a “retail-minus discount.” That means that the final price we pay is the retail price minus a flat amount or a percentage.
But that isn’t the only way to calculate a discount. Truck stops often use another structure called a “cost-plus discount” instead. This discount is calculated by adding an amount on top of the cost of getting diesel fuel into the truck stop’s tanks and ready to sell.
As long as the cost and the additional amount add up to less than the retail price posted on the sign, the final price serves as a discount to customers.
It’s frequently the case that the difference between cost and retail price is 20-30 cents, though that varies widely, especially by region. So a cost-plus discount is often cost plus an amount less than 30 cents.
For example, if it costs me $2 per gallon to get diesel into my truck stop, and I want to offer to sell fuel to some customers at a cost plus 10 cent discount, I’ll be selling to them for $2.10/gallon. If my retail price for a gallon of diesel is $2.25, they perceive the discount as 15 cents off per gallon.
A major element of cost-plus pricing to be aware of is that your identified “cost” may not be exactly equal to the real cost of getting your fuel to sell. Standard practice is to base cost on the average wholesale price of diesel in the marketplace.
This price is rarely a perfect correlation with what you actually pay to buy diesel for your truck stop. The “cost” is simply a market indicator of how much it costs to procure diesel in this part of the supply chain.
This means that if you are able to find a better-than-average price for the diesel to sell at your truck stop, you can make extra profit both on retail sales and on cost-plus discounts.
Let’s revise our previous example: Say I am able to buy diesel for $1.95 a gallon, even though the average cost in the market is $2/gallon. That means I can consider $2 to be “cost” even though I paid less. If I offer my cost plus 10 cent discount, my customers are still saving 15 cents/gallon, but I am now making 15 cents/gallon instead of 10 cents/gallon. The cheaper I can get the diesel, the bigger my gain.
The trucking market is heading rapidly toward this kind of pricing; in fact, larger trucking companies are now likely to require it to even consider doing business with a truck stop. Independent truck drivers also increasingly expect to get access to a cost-plus pricing structure.
So truck stops should really get on board with cost-plus pricing, but it can be intimidating. It’s complex; there are a lot of moving pieces. But moving to cost-plus is worth it, as the shift can increase your volume of fuel sales substantially.
And Roady’s can help you through the process of putting it in place.
Our team can explain how the structure works and monitor your deals with fleets. We have data and processing power to figure out how much volume you’re selling and what your margins are at the end of each month with total precision. Many trucks stops think of margin very loosely, but sticking a finger in the wind isn’t enough if you want to sell big volume to large fleets. To compete in that marketplace, you need to get comfortable with very tight margins and know specifically what your margins are.
With Roady’s help in setting up cost-plus pricing, you can start playing in the big leagues: Advantageous deals, large fleets, high volumes.
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