If you run a business where you are responsible for contracting with an energy supplier, how many calls do you get from energy brokers per day?
1...2....6?
Businesses owners often find themselves inundated with calls from brokers looking to negotiate energy contracts on their behalf.
But how much “negotiation” is actually taking place?
There are many brokers out in the market that will offer rates and suppliers not because it is the right price and contract for the business, but what is right for them.
Most brokers will charge a business via a “commission uplift”.
How does this work.
They add a pence per kilowatt hour uplift to the price offered by a supplier. Nothing wrong in that and the model has worked for decades. However, some brokers are adding up to 4ppkWh as an uplift. And they may have a commission structure that incentivises them to want to place your business with a particular energy supplier.
A few commissions structures with suppliers allow them to receive up to 80% of the total commission value for the contract on placement of that contract – even if the contract doesn’t start for 2-years.
Let’s do the maths on this.
If your business uses, say. 300,000kWh of electricity per year. The broker is charging you 4ppkWh commission – that’s £12,000 per year.
Broker places you on a 4-year contract – so that’s now £48,000 over the term of the contract – and they may receive £38,400 upfront even if your contract won't start for another 2 years.
And that’s simply for offering a few contract solutions and nothing else.
You can see why they are desperate for you to sign.
Pressure selling, misleading statements about the state of the market and incentivisation of placing business by some suppliers has led to a position where UK businesses are being forced to make decisions that are not in their interests and create a financial stress that isn’t welcome.
This behaviour is now under review and OFGEM have now been appointed as regulator to the Broker (or TPI) industry. This process isn't fully complete but by 2027/28 all TPIs will have to to be allowed by OFGEM to operate
Regulating third-party intermediaries (TPIs) in the retail energy market: government response (accessible webpage) - GOV.UK
If you use an energy broker or if you are considering using one, make sure you are aware of what they want to charge you and how much will this cost over the 1st year and over the term of the contract.
Consider what service or services they are offering – is it contract placement only? Invoice Validation? Full Account and Relationship Management?
Not all brokers are the same - and - picking the right advisor for your business is essential to protecting your business from undue financial risk and stress - so please make sure that whoever you work with you're fully aware of what's being delivered and how much you are paying for that service.
If you would like to discuss how your energy broker is working for you and to get a sense check on fees being charged, please by all means let me know for an informal chat - no strings attached.
I founded Stratagem after having worked with energy suppliers and consultants for 20 years that I wanted to build something different.
