The Benefits Of Utilizing A Broker For Commercial Electricity Procurement
by Joe Quenet on 04/08/13
Energy is Energy.
Nobody sells electricity that will make your
computers run better or your lights burn brighter. It really makes no
difference who you buy your power from. When you flip the light
switch—the lights will turn on. So, if the only real difference
is the price, why would your company ever pay more than it has to?
Whether it's the energy industry, the insurance industry, or the banking industry, brokers provide a valuable service to the marketplace by generating competition that can reduce prices to the end user while also offering suppliers the opportunity to bid on customer business they may not have seen otherwise. In fact, in the case of the energy industry, energy suppliers consider brokers to be a valuable channel to the retail energy markets, allowing suppliers to have smaller in-house sales and marketing groups. This saves them the overhead costs associated with maintaining these employees as well as the marketing cost associated with acquiring customers. In fact, brokers can account for almost 75% of the volume of some energy suppliers.
When energy suppliers are forced to compete for your
business, you save money. It’s just human nature that whenever somebody
is selling a product, their offer price is usually driven lower by the
prospect of competition. If they feel that they have no competition…..the price
offered will be higher. It’s just a fact that a knowledgeable and experienced
broker can increase competition. Many suppliers will offer a lower price
to a broker as compared to giving a customer a price directly, simply
because they know they have an experienced broker involved in the negotiations
and now have to compete harder for the business. This
added competition can serve to drive the suppliers margin, as well
as your final price, downward.
Another reason that suppliers are more likely to give a
broker a better price than that of an individual company going directly to the
supplier for pricing is due in large part to the fact that an experienced
broker can place many large customers with a supplier over
the course of time. As a result, the supplier is much
more likely to give a more competitive price to the broker, not only because
they know they are competing for the business, but also because they know
competitive pricing through a broker will get them the opportunity to
compete for more of the brokers future business . When a customer goes directly
to a supplier, this "volume discount" is not usually realized by the
customer. The supplier doesn't necessarily feel the need to price as
aggressively because the customer's one contract may come up for renewal only
once every year or two. Compare this to brokers giving them the opportunity to
bid on dozens of customers per month. So, who do you think is more likely to
get the better price?
Some brokers can also offer consulting services that go far
beyond the scope of what a supplier can offer. Most suppliers are only
interested in giving a price to supply electricity, which is their core
business. They simply don't have the time or experienced salespeople that can
provide the market knowledge or strategy suggestions that can
reduce your costs. If your company's situation in “non-standard” in any
way, experienced brokers can help you structure and request quotes
on unique product offerings that most suppliers usually reserve for
only the largest and most sophisticated clients.
When faced with the prospect of shopping for electricity on
their own, most companies would be hard pressed to name more than two or three
electricity suppliers to solicit pricing from. An experienced broker
can solicit bids from a dozen or more suppliers, increasing the
probability of lower, more competitive pricing for you.
Reason #5
Unless you follow the energy markets daily like we do, it
can be difficult for customers to properly and effectively compare the
results of bids received from multiple suppliers. A suppliers bid is
based in large part upon market prices for electricity which change by the
minute. So a price received from a supplier on one day, is not directly
comparable to a price received from a second supplier on another day. This
makes comparing results very difficult. Furthermore, the contract terms
and conditions for each supplier are usually different. As an educated
buyer for your company, you need to understand the subtle differences between
the contracts. Some differences can materially affect what you pay. An
experienced broker will have extensive experience with contract language,
maintaining and reviewing all supplier contracts on a regular basis.
Not all pricing components might be included in the “all-in”
price you receive from a supplier. This will make their price appear
lower than it really is. For example, some suppliers will quote prices which do
not include certain taxes or ancillary fees. Some will add monthly fees for
each meter served, while most will impose bandwidth
restrictions or a material change clause that can have a huge
impact on your overall costs. An experienced broker will review all
supplier offers for all pricing components, making sure all items are
included so that the price you see is truly an “ all-in” price.
Finally, so who pays the broker for their service?
The broker is paid a small fee by the supplier in return
for the business that they bring to the supplier. This is similar to the
fees paid to car dealers by banks for having the customer finance their car
with a particular bank. It is also very similar to the way you purchase
insurance. In the vast majority of instances, even with a fee added, the total
cost you pay for your energy service is still lower than anything you might
have received by dealing directly with a supplier. The fee paid to the broker
for the business is reflective of the fact that the supplier is avoiding the
employee overhead and marketing expenses normally associated with acquiring the
customer through their own in-house sales force. In essence, the broker is
simply being compensated for the marketing and employee expenses associated
with customer acquisition for the supplier.