I have a dispute with a company that delivered heating oil to us – they delivered despite us cancelling the order 5 days before. I am negotiating a deal with them, and they are claiming that their gross profit on over £600 worth of oil is only £40. Any ideas if this is about right?

sounds about right

sounds far fetched, I'd play hardball and tell them if they want it back they can come and collect it. Then escalate it saying if they dont collect it you will charge XX in rental of your container. Then get a court order, 'sieze' the oil, and use it.

nickc – difficult to believe gross profit is that low

TINAS, I was going to go down that route if they came back with a stupid offer which they have. After all I can still use the oil

Come on guys and girls – help me out here please

Just make them a final 'take it or leave it' offer

I worked for 10 years for British Fuels (now CPL) and 2 years of those as an oil rep, selling oil to farmers, road haulage and domestics. If they were originally quoting you cash on delivery from a spot phone call, then that small mark up does not sound particularly far fetched, it's a very competative market and they are all selling exactly the same thing afterall. If you are a customer who just phones an order and doesn't ask the price, they may take advantage!! and the mark up might be higher. BTW It pays to phone round on the spot market, and pay COD.

Depends on how sneaky they are being with their definition of 'gross profit'. Traditionally gross profit is revenue minus the cost of goods sold. On that basis, it would be impossible to run a business with a gross profit of 6.7% (£40 on £600), especially one that has to deliver a heavy product like oil to a customer.

Operating profit (can also end up being referred to as PBIT – Profit before interest & tax or simply Net Profit, although these terms can often get differentiated), which is gross profit minus operating expenses, might be 6.7%.

To illustrate if you look at all industries and calculate the avereage gross profit margins for all businesses the figure is 9%. Obviously the spreak is pretty big, anything from 1-2% for supermarkets all the way up to 25%+ for some specialist consulting firms.

I would say Gross Profit should be something more like 25-30% but don't forget that they will be thinking operating profit as they've already delivered it to you and therefore will be looking to recoup that cost.

Thanks guys. We did ring around before placing the order. Reckon they have their terms mixed up as they admitted that the £40 was the profit on the delivery after driver and vehicle costs were taken into account, therefore net profit.
I'll see what they come back with

nickc – difficult to believe gross profit is that low

Well, how many loads of oil like that do they deliver in a day? If it takes I dunno, 20 mins to make a delivery and an half an hour to drive, they could make maybe 10 of those in a day if they plan their routes.. that's £400 or £200 each if there's two of them – reasonable take-home for a business I suppsoe.