AboutGary Bell Expertise I have an MBA and 25 years of executive business experience. I can answer questions about negotiation tactics, proposals and general business issues. I am particularly interested in small business planning.
Experience I am a career healthcare business professional with many years of execcutive experience.
Expert: Gary Bell Date: 11/8/2007 Subject: contract
Question I have to explain my business before I ask the question. I will soon operate a bio-diesel plant that produces 1 million gallons of fuel per year. An average freight truck runs approx. 200000 miles per year at 6mpg, this amounts to roughly 30000 gallons per year. I am able to service about 30 Freight trucks or 3-4 small fleets. How do I create a fuel contract with these fleets and independent truckers? I was thinking stating that I will sell the fuel at 20% below market value of the current diesel fuel price at that time. This would then beocme a variable cost to them rather than a fixed cost contract that they are used to. What do you suggest I do? Do I give them a fixed cost contract or a variable cost contract?
Thanks
Answer Tom,
I think you need to base your price upon what it costs you to produce the fuel, rather than tracking the market price and offering a 20% discount. If your costs are fairly stable, you can offer a competitive price that will be predictable to your customer(s). Your customer(s) may well be accepting of the possibility that, at times, they may pay a premium to the market. Most small and medium-sized businesses are very concerned about price stability. If I'm right, you'll also have the same stability advantage.
