Marina Dock Age, January/February 2008

How decision-making can make or break your business
by Dennis P. Kissman

Successfully managing a business requires an ability to make some tough decisions. The decisions a marina owner makes can affect the business beyond what he had originally intended, even in cases where he spends time giving serious consideration to a particular decision. Others may rush to a decision based on what their gut instinct tells them without regard to any negative consequences a decision could have on them. One thing is certain: it is easier to change a strategy before implementing it, than it is to backtrack once a change is made.

Here are two examples involving different marinas in different parts of the country that illustrate this point.

The first example took place about four years ago. This particular marina had negotiated a very good fuel purchase contract with a local fuel supplier that allowed the marina to purchase fuel at a lower price than any other marina in the marketplace. Four other marine fuel providers shared this market, but this marina already enjoyed the bulk of the fuel sales — it had a very respectable gross profit of more than 75 cents per gallon at the time. The marina’s policy was to adjust fuel prices every Monday based on the well-respected Platts Energy Market Data index. This was the same index the marina used to negotiate its purchase of fuel from its supplier.

Then greed took over. The marina’s management made the decision to capture all the fuel sales in the local market. To achieve total market share, they lowered their profit by 25 cents per gallon. Management implemented and followed this policy for the next year. At the end of that year, they were pleased with their results — a 40 percent increase in the volume of fuel sold. They captured the balance of the fuel sales in the marketplace. Upon further analysis, however, it turned out that the marina’s total year’s gross profit on fuel sales was actually about $40,000 less than the total profit during the prior year — when they actually sold less fuel! This is a classic example of what happens when the focus is put on a single objective without regard to thinking through all the effects that a decision might have on a business.

Where did they miscalculate? One, they already had the best fuel prices in the marketplace because they negotiated a good deal to purchase fuel. Two, there was no reason to think that they would lose existing market share. Three, and probably the most important, they underestimated the total market. They already had the bulk of the fuel sales in the marketplace and did not realize it. By cutting their profit by 25 cents a gallon on the existing volume of sales, it cost the marina about $200,000 in gross profit. The increase in sales volume could not make up this loss.   Continue »

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