How Does Knowing The Difference Between SME, Micro & Non-Micro, Help My Business?
The intent of this article is not to give advice but rather to inform of the definitions and differences. I’ll give a brief piece of advice as to why you should know this;
A good Business Energy Broker should know these details of the industry, which will allow them to save their client’s money. As a Business Owner or someone who’s in charge of the Utilities, then knowing this will prevent them from overpaying for their energy or being tied into conditions, which they shouldn’t be in.
If you’re a Micro-business, you should not be getting bespoke prices. The standing charges will be higher and the unit rate saving, won’t be worth it. As a non-Micro business, you should certainly be getting bespoke Corporate prices.
For more information, send me an email and I’ll be happy to explain in more detail.
Now to the actual definitions;
SME & Micro / Non-Micro Business Definitions
The energy market uses the same definition that other sectors use, to define which type of business you are. These are set by the European Commission.
The EU defines SME as;
“The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euro.”
Micro & Non-Micro
SME is the category that most businesses come into. All of my clients are Small to Medium Enterprises. So if you’re not sure whether you’re a SME or not, you probably are. Here’s where Ofgem confuse it all. Ofgem has made suppliers in the UK split those SME’s between Micro & Non-Micro. If your business uses more than a certain amount of gas or electricity then you are classed as a Non-Micro Business. If you use less, you’re a Micro Business.
A non-domestic consumer is defined as a micro business if they meet one of the following criteria:
- employs fewer than 10 employees (or their full time equivalent) and has an annual turnover or balance sheet no greater than €2 million; or
- uses no more than 100,000 kWh of electricity per year; or
- uses no more than 293,000 kWh of gas per year.
What’s That In Expenditure?
Typically you are looking at an annual energy bill of over £12,000 if you’re using more than the above-mentioned kWh’s.
In order to make things easier for both Customer & Supplier, the Suppliers have broken themselves up generally into two or three Businesses or Departments. Some suppliers don’t supply energy to Non-Micro business consumers. The high volumes of energy as well as the high level of service needed for these consumers, means many suppliers are not able to cope with supplying energy to these businesses. The suppliers that can cope with the high demand of Non-Micro businesses, usually create a separate business/department known as Corporate.
Which Energy Supplier Department Deals With What?
Domestic – Any domestic property where the energy is not being used for commercial purposes.
SME – Any SME business not using more than 100,000 kWh of electricity or 293,000 kWh of gas.
Corporate – Any business using more than 100,000 kWh of electricity or 293,000 kWh of gas. All meters on half-hourly meter reads, also known as Half Hour demand will need to be in suppliers Corporate department as well. Some suppliers require IGT meters to be quoted as part of the Corporate process as well.
Are The Prices Different?
Yes. Hugely. Prices differ massively between Domestic, SME and Corporate. Likewise, whether you are a Micro Business or a Non-Micro Business, makes a difference to your prices and contract.
How Pricing Works
Domestic – Suppliers make little profit or loss on these meters are the usages are usually low. The gain is low and so is the risk. As such suppliers simply bundle households into so-called tariffs. These tariffs are usually fixed prices, based on postcodes. Usually, these rates involve low unit rates and high standing charges. Suppliers do however make huge profit margins on customers on standard variable tariffs.
SME – Suppliers can make a good profit on these businesses as the prices are based on estimates of what the Suppliers think prices will be for the following month. Usually, suppliers release price books, once a month, with the prices they think wholesale costs will be on average for that month. The highest profit margins with SME’s come from their renewals. The majority of suppliers offer good introductory rates and then look to renew customers on higher prices the following year. There is some risk for suppliers here as they could guess the prices for that month to be lower than what they actually are and then possibly make a loss on that customer.
Corporate – Suppliers can make huge profits on these meters as they can use, in many cases, millions of kWh’s in just one meter. As such, many suppliers offer fantastically competitive prices, with small profit margins, sometimes very close to the wholesale price, in order to attract big business. Just as the profit margins are huge, likewise so is the risk. If a supplier was to offer a contract to a customer at 2% profit on a £250,000 a year bill, and then the prices rose by 4%, that supplier could lose £5000 in an instant. To combat this, prices are only valid for the day they were offered and the supplier reserves the right to void those prices if there’s a price change that day.
What To Do With What You Now Know?
Now you know the system, you can use it to your advantage. Although this is the case that there are red lines, these are often crossed many times. The contracts done by the Supplier should be based on the Company they are doing the contract with. In reality, this is not the case. Most suppliers do the contract with the meter in mind, not the Company. This means that even if a Non-Micro Business has a small office that doesn’t use as much as it’s other meters, that meter can be priced at SME prices. For a meter using 35,000 kWh’s per annum, it’s definitely cheaper and better to be on SME prices, but many Non-Micro Businesses just put that small meter onto Corporate prices, on high standard charges. Which is just easy money for the supplier.
If you’re a small business, with one or two large usage meters, but have some small meters, make sure each meter is in it’s correct department. If you’re not sure, send me an email and I can have a look for you.
Similarly to the last point, many suppliers actually allow meters that use well over 100,000 kWh of electricity or 293,000 kWh of gas, to be priced on their SME team. Now although this is usually a negative thing for the person in charge of the utilities to let this large meter go on SME prices, it can sometimes be a good thing. Many times throughout the year, unexpected things happen, like; storms, disasters, breakdowns – which cause the wholesale prices to shoot through the roof. If this happens, Corporate pricing teams will react straight away, while SME teams might just let their monthly prices continue and will think to take action next month. In this case, your large meter can get a bargain on SME prices.
For more articles like this keep checking my blog. If you have any questions drop me an email or get in touch with me via the various social channels.