Strategic Pricing Starts with Knowing Your Real Costs

Price is one of the most sensitive parts of your propane business. Set it too low, and you might stay busy but barely cover your costs. Set it too high, and customers may walk away or never reach out. Most propane business owners don’t adjust pricing often enough. And when they do, they sometimes guess based on what competitors are doing instead of what actually makes sense for their operations.

Knowing whether you’re underpricing or overpricing your propane services starts with a hard look at your costs, margins, customers, and market. Pricing should be a tool, not a guess. Let’s examine how you can fine-tune this important consideration so you are pricing your products and services appropriately.

Start by Knowing Your True Costs
If you don’t know exactly what it costs you to deliver propane, you’re flying blind. You need to add up more than just the price of propane from your supplier. Think about labor, trucks, fuel, insurance, tank maintenance, marketing, customer service, safety inspections, and overhead expenses such as rent and office supplies. Break it down to what it costs you per gallon or delivery. This gives you a baseline number from which to work. If you’re charging close to or below that number, you’re definitely underpricing.

Check Your Gross Margin
Your gross margin is what’s left after you subtract your direct costs from your selling price. For propane delivery, many businesses target a margin that keeps them profitable while still staying competitive. If your gross margin is too thin, it won’t take much to put you in the red – one missed delivery, one emergency repair, or one tank swap that takes longer than planned. On the flip side, if your margin is unusually high and you’re losing clients or getting lots of pushback, you may be overpriced for your market.

Watch Customer Behavior
Your customers will tell you a lot without saying a word. If you rarely get price complaints, but your delivery schedule is packed, and your trucks are always behind, you may be underpricing. If customers often ask for quotes but few commit, that may be a sign you’re pricing too high. Tracking how many leads turn into sales and how many current customers renew or cancel helps you see whether your price matches your service level.

Compare with Local Competition
While you don’t want to chase the cheapest guy in town, you should know what others are charging. If your price is way above or below others in your area, ask yourself why. Are you offering better service? Do you include things others charge extra for? Are you carrying extra costs they don’t have? You don’t have to match them, but you do need to understand where you stand and why.

Test Price Changes Carefully
If you suspect you’re underpricing or overpricing, don’t make significant price changes all at once. Try small increases for new customers or a test group. Watch how it affects sales, profits, and feedback. You can also offer pricing tiers – essential delivery at one price and added services (like emergency fills or equipment checks) at a higher one. This lets you increase revenue without scaring off price-sensitive customers.

Use Pricing to Strengthen Your Brand
Pricing isn’t just a number; it tells customers what kind of service to expect. A price that’s too low might make your business seem unreliable. A price that’s too high without added value may seem unfair. A reasonable price, clearly explained, builds trust and loyalty. Be clear about exactly what your price includes and what makes you worth it. When potential customers understand what they are actually getting for their money, they are more likely to turn into genuine customers.

Pricing as a Long-Term Strategy
Your propane pricing isn’t something you set and forget. It’s a business tool that helps you stay profitable and competitive. When it’s established correctly with much thought and research, it supports growth, covers your costs, and gives you room to invest in your team, equipment, and overall customer experience. When it’s off, everything else becomes more burdensome. Take time to review it on a regular basis; this is a smart practice that will be worth the time it takes.

How Smart Pricing Strengthens Your Business
A well-thought-out price keeps your propane business healthy. It gives you breathing room during tough seasons and allows you to invest in better service during the good ones. When you price with purpose, you send the message that your business is stable, trustworthy, and ready to grow – something your customers will feel every time they choose you over someone else.