As you are no doubt painfully aware, diesel and gasoline fuel prices are currently surging due to several factors, from pandemic-related supply chain issues to inflation to geopolitical unrest, and maybe even to a ratcheting back of U.S. domestic oil production. Back in 2008, we experienced a similar spike in fuel costs that threatened the profitability of small businesses that utilized work trucks and heavy equipment. 

As it was during the recession more than a decade ago, the recourse for businesses today is limited to: conserving as much as possible, absorbing the increase by realizing lower profits or passing along the cost to the customer.

When it comes to fuel costs, Americans are playing a big game of tag — or, more accurately, hot potato. If suppliers pass their fuel costs on to you, you can either pass them on to customers or be stuck with the hot potato. If you don’t want to suffer third-degree burns holding onto the potato, you have to develop a strategy to have your customers share the pain of the increasing fuel costs. Here’s how to do it as nicely as possible, so you’ll be able to stay in the game without driving customers away.

Make it temporary

It may not turn out to be temporary, but introduce a fuel surcharge to customers as a temporary emergency measure. Base it on the current price of fuel. This makes it easier for customers to swallow, but creates more work for you, since the charge will have to be recalculated regularly. 

Some businesses will opt for flat-fee surcharges, but unlike surcharges based on fluctuating fuel prices, even if the prices go down, the surcharge remains and the connection to actual fuel costs is unclear in the mind of the customer.

Determine base rate

To begin implementing a surcharge, start by figuring out the fuel price-point at which you want the charge to kick in. This is your base rate. Your base rate should be the rate you were paying for fuel at the time you set your current service prices. If you set your current prices in January 2020, the price of fuel that month should be your base rate. I am assuming that when you set current rates, you set them high enough to make a profit. The goal is to recoup some or all of those profits that spiking fuel prices are eating up.

Take the price of fuel in your area the week you performed the services you are billing for and subtract your base rate. You can get these figures from the Energy Information Administration, which is part of the U.S. Department of Energy. Average retail price information is collected regularly by the EIA and can be found here: https://www.eia.gov/petroleum/gasdiesel/

Two formulas

A poster on PRO social media during the last fuel crisis said a good formula for fuel surcharge calculation is to charge a 0.5% surcharge for each five cents fuel climbs above your base rate. Take the current fuel price and subtract your base rate from it. Divide the difference by $0.05 and multiply that amount by 0.005. This will provide the percentage to multiply your service rate by in order to determine a fuel surcharge. 

For example: If your base rate is $3 per gallon, and the price of fuel is $3.75 per gallon, take the difference of 0.75 and divide by 0.05. Next, multiply by 0.005 and you’ll get 0.075 or 7.5% — the amount you will increase your normal rate to implement the fuel surcharge.

Here’s another formula based on miles driven, not service rate. Gather these numbers: the total miles driven for the particular job being billed, say, 100 miles. Your truck’s average miles per gallon, say, 10 mpg. The average price of fuel for the day and the region where you pick up the load, say $3.50 per gallon.

Now do the math: 

a) Figure your increased fuel costs per gallon used: Take the average price of fuel for the day and region traveled in and subtract the benchmark fuel price: $3.10 - $1.10 = $2 — the increased cost of fuel per gallon. 

b) Figure the number of gallons you used: a 100-mile trip divided by 10 miles per gallon = 10 gallons used. 

c) Multiply the total fuel surcharge: 10 gallons used, multiplied by the $2 fuel surcharge per gallon equals your increased fuel costs and the total fuel surcharge you should charge for the trip: $20. 

Inform customers

While small business owners do not need to get government approval or file an application with Department of Transportation to implement a fuel surcharge, it’s good business etiquette to inform customers rather than slip the surcharge onto their next bill and hope they won’t notice. 

Send them a polite letter, email or postcard service reminder explaining the situation. Here is a sample notice:

Dear (Customer Name),

As you are no doubt aware, fuel prices have risen dramatically. (Portable Restroom Company Name) has resisted raising prices, but due to the critical nature of the current situation, we can no longer continue to absorb the increased cost on our own.

Therefore, effective (insert date here), we will be implementing a temporary fuel surcharge. The fuel surcharge will remain separate from our usual charges and be shown as a separate entry on your bill. The surcharge will be based on the price of fuel in our area at the time service was provided.

We appreciate your understanding of the dilemma we face as fuel costs increase. We hope that by sharing this burden we can maintain the high quality service you have come to expect from our company.

Respectfully,

Your Name
Your Company

And don’t just write to your customers. If you’ve had an experience — good or bad — when introducing a fuel surcharge to customers, please comment below and share your story.