Andy Coates, water2business business development manager, talks about the obstacles that can sometimes put businesses off switching retailer and benefiting from the new market and shares tips for getting the best deal.

Andy Coates: You’d think that with market awareness thought to be as high as 89% of large businesses and 48% of micro businesses, more organisations would be taking the opportunity to switch.

But recent research by water industry regulator Ofwat revealed that only 2.9% of the 1.2 million eligible business customers have switched water retailer in the first year of the market.

When it comes to negotiating contracts for both existing and new customers, clarity and transparency is something that’s very important.

We often find there are a number of challenges when putting together proposals for new customers.

Of course, there are a variety of factors to consider, many may be satisfied with their current provision and happy to stay where they are. Others may be keeping an eye on the early days of the market before making their move and yet more may be apathetic about the value of switching or the perceived hassle involved.

The pressure is on for water retailers to make sure they’re doing enough to encourage switching. For retailers, this is a big opportunity to increase the visibility of their service so what’s holding them back?

Just one of those hurdles may be pricing in the new market which can be confusing for customers for a number of reasons.

Market data

The first hurdle retailers face when pricing an offer for customers is ensuring that the market data, and the data provided by the customer is as accurate as possible.

This includes:

• Meter size
• Return to sewer allowance
• Tariff codes
• Yearly volume estimate

The retailer can find this information by searching the postcode, meter serial number and customer name, however the most accurate way to find this information is by searching for a Supply Point ID (SPID).

Because of the quality of market data, often retailersfind that postcodes contain errors, meter serial numbers have digits missing or are hyphenated, and customer names can contain any number of errors. This makes it increasingly difficult to produce an accurate quote and means there could be variations between quotes from different retailers that are due to errors.

Charging structure

In the new market, water bills are structured differently. They’re split into wholesale and retail elements. The wholesale element is typically around 95% of the total bill which leaves an average of around 5% to cover the retailers’ costs and profit. All charges are regulated by Ofwat and MOSL, with retailers allowed to make a net margin of 2.5% however this does not mean that every customer has a 2.5% net margin on their bill, it can be averaged across tariffs.

As an example, if the water bill is £1,000 a year, an average £950 of this will be paid straight to the relevant wholesaler. From the remaining £50, the retailer will cover the costs of reading the meter, paying market fees, producing the bill, providing a point of contact for the customers and applying any discount as well as any potential profit.

Customers expecting to receive a 10-20% discount may be disappointed.

Receiving a quote

Customers who receive quotes from different retailers may notice that they look completely different. So, what should they look for?

Presentation

Quotes should be clear and transparent, showing the split between wholesaler and retailer charges. This will enable the customer to compare quotes on a like-for-like basis. If the customer has provided each retailer with the same data then each quote should come back with the same wholesaler fee setting a level playing field from which to compare the retail element.

Discounts

It’s important that any discount applied is comparable. Some retailers may present a discount as a percentage of the entire quote, including wholesaler charges, while others may only apply the discount to the retailer element. A £30 discount across an entire bill will appear as a much smaller percentage than if it just applies to the retail element so it’s important that customers aren’t confused by this lack of consistency.

Charges

There are a number of ways retailers can customise charging tariffs, the two most common being ‘Wholesale plus’ and ‘Retail minus’.

• Wholesale Plus – The customer is charged the wholesale amount with either a percentage or fixed fee inflation. For example, wholesale plus 3% would mean the customer would pay a 3% mark-up on the standard wholesale charges for their property. This charging structure removes the retail element completely and often benefits larger multi-site business.
• Retail minus – The most common way for retailers to charge is to apply a percentage or fixed amount discount to the tariff for the property. This charging structure is simple, straightforward and gives the customer a clear and transparent tariff.

So, how can you get an accurate quote as a business customer and ensure you’re getting a good deal? Here are some of my tips.

1. Provide your retailer with a Supply Point ID (SPID).

The SPID will be printed on your most recent bill or you can ask your existing retailer for it. All English SPIDs begin with a 3, are 13 characters long, with the 11th character showing a W for water or an S for sewerage.

2. Calculate your yearly volume estimate

Often market data is inconsistent so you can check retailers are using the same estimate by calculating it yourself. All bills will show your metered consumption and will often provide a daily average m3 consumption.

3. Manage your expectations

With the small margins currently available, retailers are unable to offer significant discounts so the emphasis should be on getting the best customer service, getting accurate and consistent bills and being able to get in touch with your retailer easily.

4. Understand how your quote is calculated

Wholesaler charges should be the same across different quotes if you have provided the same information to each retailer. This will create the level playing field for you to accurately compare each quote to see which offers your business the best value.

While this information may not be new to some, there are a number of customers and third-party consultancies/brokers (TPIs) that I’ve spoken to and shared these tips with.

It’s important that every business ensures they get the best deal, which is why at water2business we put clarity and transparency at the forefront of all our interactions.

If others took the same approach, I believe it would remove some of the obstacles that those switching sometimes have to face, and might result in more organisations benefiting from this relatively new market.