It’s time for an example.
Let’s say you are a homeowner with a 150 gallon tank of heating oil. You know another homeowner—we’ll call him “Hipe O. Thetical”—who has the same tank. You live next door to one another, for the ease of this example.
You decide early in the season to lock in your oil price at $3 per gallon. If it was that low, so would I. Your neighbor, meanwhile, ignores the predictions that oil prices will jump before the end of the winter and continues to buy 50 or 100 gallons at a time. At the end of the winter, your neighbor is living in a cardboard box under the freeway, while your house is now sided with gold.
Okay, I may have exaggerated the impact there. But the fact of the matter is that locking in can quite often save you money, with the caveat that you must have some idea of what the market is going to do.
Why Lock In Prices?
It’s the uncertainty that gets you in business. If you carefully budget out the cost of your supplies and equipment and expect to spend exactly that amount, you are invariably going to get pummeled by a capricious market.
The greatest fear for many small businesses is that they will settle on a price and see the floor drop out, meaning they’re stuck paying more than they would have otherwise. This is a legitimate concern, and one of the many reasons I advocate doing a little research before you lock in. But there are huge advantages to paying fixed fees, most of which come when prices suddenly ramp up. For things like paper, printer ink and energy, that’s the most likely outcome.
Locking in at lower prices also ensures you know what you’re spending every month, which is a huge plus for a business trying to budget.
At Direct Capital, we offer fixed fee financing programs. If you’re intersted, feel free to check them out, but the larger point here is that fixed costs can really save you money over the long haul…in general.
Do you lock in your prices? Let us know!