What to Consider When Becoming a Propane Fuel Source

The final installment in a five-part Propane Dealer Pro series: Offering propane fuel to your new propane mower customers.

Propane tank at Smitty's Lawn & Garden Equipment in Olathe, KS.
Propane tank at Smitty's Lawn & Garden Equipment in Olathe, KS.

When I made the decision to take on propane I knew I wanted to be a one-stop shop for my customers. That is why I offer the conversions, maintenance and fuel. I want my customers to feel comfortable taking on propane, and knowing where to go for the fuel is a big part of that.

Not all dealers decide they want to take on the fuel source. If you think you are going to get rich selling propane, then it is probably not the right move. It’s not about looking for another area in your business to earn a large profit, it’s a means to attract customers to your other propane products or services.
When you have a shift like the one to propane, the ability to convince a customer that they will not have supply issues is what will give them peace of mind. The more dealers that get into offering the fuel over time, the more availability there will be for customers. If you are going to offer propane on-site to your customers, there are a few things to consider.

Choosing a supplier

When choosing a propane supplier, you want to be sure they are offering a fuel grade that is good enough for your customers. You should choose a wholesaler who is providing is HD5, the highest-quality propane that is available (other, lower-grades are HD10 and commercial).

Another way to protect your customer’s equipment investment is by partnering with a supplier who filters out any contaminants in the fuel either before it goes into the company truck, or as it comes out of the truck and into your tank. If your customer is using propane that is a lower grade than HD5, or is carrying contaminants, they will run into trouble with their equipment. If you have contaminated fuel, a tar-like substance will clog the regulator.

Purchasing agreement

Once you have worked out the fuel details with your supplier, talk to them about your purchasing agreement options. There are two ways you can purchase propane from you supplier:

Fixed contract – You name a number gallons (for example, 10,000) you would like to purchase in the year at an agreed-upon flat rate that you lock in. If you need more fuel after the original amount purchased, you get it for the market price at that time.  

Open market - The other option is to buy on the open market. Each time you fill up, whatever the price is at the time is what you are going to pay. You won’t have to buy more fuel than you need, but the gamble is that you are always at the mercy of the market.

Bottle and tanks  

When carrying propane you may choose to offer bottles, have a large tank on site, or both. What you decide will likely depend on your customer base. You may only have a few customers to start with, and bottles might be the best option. If you have larger customers with propane mowers and trucks in their fleet, the tank would better serve them.

If you are filling larger tanks like those on trucks, you may want an accelerated pump instead of gravity fed. An accelerated pump is pressure-fed instead of gravity-fed and can fill 20 gallons in just 3-4 minutes. The same pump can be used with smaller tanks. It doesn’t inhibit you from filling anything, it just allows you to fill faster in large quantities.

Lost customers

Some dealers will chooses to offer propane delivery to their customer through their own propane distributor. The distributor will visit the contractor’s facility, fill their tanks and bill the dealer. The dealer can then bill the contractor. In some cases, the contractor will end up being the direct customer to the distributor. That is a common pattern for dealers offering propane to customers.

When you start small with one machine at a time, propane is not a revenue stream. Selling propane to large customers is going to be difficult after they grow to a certain size. The larger it gets, your customer becomes the propane distributor’s customer. The propane distributors and wholesalers will naturally work with them to save them money.

While you are losing that propane customer, the opportunity still remains. Our goal as a dealer is to ensure the availability of propane fuel for our customers, not get rich off propane.

Dave Wood of Smitty's Lawn & Garden in Olathe, KS, is a stakeholder in a company called Tech Services Incorporated. Tech Services has partnered with EnviroGard to become its exclusive sales and marketing arm with worldwide rights for EnviroGard EPA-certified propane conversion kits.