Understanding Energy Buying Practices of Middle-Market Companies

September 4, 2013

An expanding array of competitive energy suppliers and alternative solution providers are stimulating and rewarding mid-market companies to pay closer attention to their energy expenditures and options. In July 2012, independent consulting firm APPI Energy surveyed 383 middle-market companies to analyze three questions regarding energy practices:

  1. How frequently do middle-market companies assess their energy costs and explore alternatives?
  2. Who makes and impacts the energy buying decision?
  3. What factors drive the buying decision?

The survey results evaluate how middle-market companies make buying decisions associated with energy solutions, and define best practices that middle-market decision makers can implement to reduce energy costs and consumption.

How frequently do middle-market companies assess their energy costs and explore alternatives?

When asked how often their organization reviews its energy expenditures, two thirds of middle-market companies report that they review their energy expenditures at least annually. Almost one quarter (22%) of middle-market companies said their evaluation is ongoing. Combined, that means three quarters of the middle market evaluates their energy costs on a regular and frequent basis.

Best Practices

In deregulated energy markets, it’s prudent for middle-market companies to consistently and frequently review energy costs. Energy prices are volatile and change every hour, every day. “Mid-market companies are evaluating their energy supply expenditures and selecting competitive pricing that lowers costs on an ongoing basis,” explained Walter Moore, President/CEO of APPI Energy. “The potential for savings is thousands of dollars, which has a major impact on middle-market operating budgets.”

Even if your business location is currently locked into a contract with a competitive energy supplier, you can lock in today’s low pricing in a contract that begins when your current contract ends. Reviewing each bill to verify the accuracy of the price and contract terms and conditions is also imperative. The bottom line is that tracking energy prices, products, and services is an ongoing and necessary effort.

Who makes and impacts the energy buying decision?

Four out of every five CEOs/Owners of middle-market companies either make the decision to acquire energy services (62%) or significantly influence those decisions (17%). Likewise, a clear majority of CFOs (75%) and COOs (63%) are centrally involved in determining the energy solutions and suppliers their companies select.

Relatively few middle-market companies (less than 13%) have identified an employee as an “Energy Executive” with the primary responsibility of evaluating energy solutions/suppliers. Likewise, few middle-market Facility Managers or Office Managers drive the selection of energy solutions or suppliers. While the significance of energy expenditures varies by industry and other factors, it is clear that most middle-market companies consider energy-related decisions to be a senior executive (C-level) responsibility.

Best Practices

“Developing an energy management strategy may be a daunting task for busy executives, but is vital to reducing operating costs,” commented Michael S. Payne, JD, LLM, Executive Vice President & Corporate Counsel for APPI Energy. “Just like other buying decisions, executives must vet the supplier community, negotiate contract terms and conditions, and verify the accuracy of bills after the supplier contract is implemented.”

Monitoring the energy markets is an ongoing, time-consuming task. Many executives and business owners rely on an independent agent, broker, or consultant to manage their energy strategy.

What factors drive the buying decision?

Seventeen years of APPI Energy’s business-to-business consulting experience has clarified the fact that most middle-market companies recognize price as a major differentiator between competitive suppliers. However, price is not the only factor impacting the buying decision. It appears that demonstrating an advantage in certain other factors, such as service reliability, billing accuracy, or contract terms & conditions, may offset pricing gaps between different competitive suppliers.

Best Practices

While these factors are clearly important to decision makers, their influence is limited by the absence of compelling information from a trusted provider. “When vetting competitive energy suppliers, middle-market buyers must identify meaningful differences in billing options, contract terms & conditions, and customer service availability,” said Jeff Sherman, Director of Consulting for APPI Energy.

The Pennsylvania Public Utility Commission (PUC) lists a series of questions on its website for middle-market executives to ask competitive suppliers before making a buying decision. For example, is the supplier licensed by the PUC? What is the length of the agreement? When factual information regarding service reliability, billing accuracy, or contractual factors is credibly presented to decision makers, selection becomes much less dependent on price.

Bottom Line

  • Most middle-market companies (64%) review their energy expenditures at least annually, while almost one quarter (22%) evaluate costs on an ongoing basis.
  • The decision maker in these companies is typically a C-level executive, most often the CEO/Owner or CFO/Financial Executive.
  • Service reliability, billing accuracy, and contract terms/conditions significantly impact energy buying decisions.

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