SMEs hold the key to significant margin growth for energy suppliers

Small and medium-sized enterprises (SMEs) are a cornerstone of the UK economy, comprising 99.9% of businesses, generating £2.75 trillion in annual turnover, and accounting for 52% of private sector revenue.

They’re also responsible for around one-third of the UK’s emissions.

Yet, they often find themselves in a difficult position within the energy sector - too large to be treated as residential customers, yet not large enough to benefit from the tailored deals typically reserved for industrial and commercial (I&C) businesses.

Despite this, SMEs account for a significant portion of the energy profitability pool, and their role is crucial in shaping a more sustainable, flexible, and resilient energy market.

Over the past 12 months, our clients have observed a reawakening in the SME energy market, following a period of relative stagnation after COVID-19 and the financial crisis. Switching is increasing, newer market entrants are experiencing strong growth, and third-party intermediaries (TPIs) remain key influencers - used by 42% of SMEs to accelerate decision-making (source: Citizens Advice/Yonder Data Solutions, March 2025). 

Alongside immediate commercial and operational pressures - such as operational efficiency, rising debt levels and increased complaints - our clients are also shifting their focus. They’re placing greater emphasis on developing future-oriented operating models, enhancing service offerings, and delivering innovative, practical solutions to meet the evolving needs of SMEs, including digitalisation.

BFY analysis has shown that average SME energy bills surged by ~142% from pre-energy crisis levels to 2024, and they’re expected to remain high through 2025. For suppliers, this creates both challenge and opportunity - those who can navigate the unique complexities of this segment and offer tailored, practical solutions stand to gain significant advantages.

In this article, we share our SME Energy Engagement Framework, to help you identify high-value segments, align with real business needs, and turn SME engagement into a clear commercial advantage.

Why Overlooking SMEs Could Derail Your Net Zero Strategy

To achieve a successful transition to a low-carbon future, all energy users must be engaged, including SMEs. While large businesses often have dedicated sustainability teams to optimise energy use, and households benefit from targeted government schemes, SMEs frequently fall through the cracks. They face unique barriers such as limited financing and operating from landlord-owned premises.

Nevertheless, around 53% of small businesses have already adopted or intend to adopt energy-efficient technologies, highlighting a clear opportunity, provided solutions are well-aligned with buyer mindsets.

More tailored solutions such as simplified access to energy efficiency schemes, demand flexibility options, and local energy initiatives could significantly help SMEs reduce costs and meet sustainability goals. In many cities and business hubs, SMEs represent the majority of commercial energy users and are vital to the local economy. Their participation is essential for effective local energy strategies.

Without direct resources to stay informed, SMEs often rely on indirect information sources to remain updated on policies. Our research shows that tailored guidance and streamlined, practical solutions – designed to address implementation challenges and the perception of limited individual impact - could drive meaningful progress in this segment.

Cracking the SME Code – Aligning Offers with Real Business Needs

SMEs are highly diverse, ranging from micro-enterprises to medium-sized businesses, each with distinct needs. Historically, suppliers have relied on Ofgem’s Microbusiness definition to guide internal segmentation, helping ensure compliance with licence conditions. More recently, Ofgem introduced the broader ‘Small Business’ classification, extending protections and support to a wider range of small enterprises.

However, what qualifies as an SME often varies internally between suppliers. This lack of a consistent definition presents a strategic challenge, especially when designing operating models and customer strategies.

Despite these differences, our clients often face related questions and challenges around optimising their offerings and segmentation, particularly in developing cost-effective, digitised solutions tailored to the varying needs of the SME sector.

To achieve this, understanding the diverse buyer mindsets across SME segments is essential. This insight, combined with knowledge of the profitability of key segments, enables the development of relevant pricing, propositions, and services with a view to fostering longer-term trust and partnership.

Missing the Moment – How Energy Companies Can Actually Connect with SMEs

SMEs have a critical role to play in the UK’s transition to Net Zero. Yet, the path to improving energy efficiency, reducing costs, and driving decarbonisation is not straightforward. This is largely due to the wide variation across SME segments and the complexities arising from landlord-owned or multi-occupancy premises.

Several key factors influence an SME’s likelihood of adopting energy-efficient solutions:

• Timing of Support – Aligning engagement with key business moments such as relocation, expansion, or planned equipment upgrades can significantly increase receptiveness. Exploring how these events can be identified through broader utility channels, such as new connections or metering activity, could unlock new touchpoints for timely engagement.
• Owner and Manager Mindset – Insights from BFY Carbon Strategies show that SMEs with entrepreneurial leadership, or those in professional services, tend to be more open to sustainability initiatives. Similarly, businesses that embed sustainability into their core strategy show a much greater readiness to act.
• Peer Networks – SMEs that actively participate in trade bodies or professional networks often benefit from best-practice sharing, up-to-date industry insights, and increased awareness of available support. All of these factors help to accelerate the adoption of energy-efficient technologies.

To unlock the potential of SMEs in the Net Zero transition, energy companies must collaborate with trade bodies, local authorities, and industry groups. Grounding strategies in customer insight and sector expertise will ensure they are practical, targeted, and commercially viable.

Introducing the SME Energy Engagement Framework

As the complexities surrounding SME engagement continue to grow, there’s a clear need for a structured, repeatable approach. The SME Energy Engagement Framework provides a practical model for energy providers to better understand, support, and partner with this vital customer base.

1. Understand – Segment Beyond Size

Move beyond basic size and industry classifications to segment SMEs by buyer mindset, decision-making style, and operational priorities. Whether a business is cost-focused, sustainability-driven, or innovation-led will determine how and when it engages with energy solutions. This understanding enables more effective prioritisation, targeted propositions, and ultimately stronger commercial outcomes.

2. Enable – Design for Simplicity, Speed, and Timing

Tailor offerings to match the real-world pressures SMEs face. Use digital-first tools, simplified journeys, and modular services that align with key business moments - such as relocations, new tenancies, or equipment investments. Reduce friction and offer clear value at precisely the right time.

3. Partner – Build Ecosystems of Trust and Scale

SMEs often turn to trusted intermediaries, whether that’s local councils, trade bodies, or industry associations. Partnering with these groups not only boosts credibility but helps scale engagement in ways that feel relevant and sector specific. This collaborative approach also supports wider local energy ambitions and community-based Net Zero initiatives.

A New Commercial Playbook – Turning SME Engagement into Market Advantage

As the SME market continues to evolve, utilities have a unique opportunity to reposition themselves as strategic partners rather than just service providers. By offering flexible pricing models, scalable services, and targeted energy-efficient solutions, energy companies can better meet the nuanced needs of SMEs.

Investment in digital transformation tools, linking to smart metering, usage analytics, and self-service platforms, can help SMEs optimise operations, reduce costs, and gain greater control over their energy use.

There’s also a growing opportunity to collaborate on sustainability initiatives, including digital integration and local energy schemes such as peer-to-peer trading or community renewables.

Taking an even broader view, utilities can strengthen relationships with SMEs by embedding supportive company-wide policies such as prompt payment commitments and growth investment schemes. This positions them as enablers of growth within a resilient and mutually beneficial ecosystem.

As profitability pressures mount and the push toward Net Zero accelerates, suppliers that move beyond one-size-fits-all approaches to truly understand the diversity, needs, and mindsets of SME customers will be best placed to lead. This means investing in digital innovation, creating sector-specific propositions, and embracing an outside-in approach rooted in partnership, data, and lived customer experience.

By doing so, utilities can unlock a segment with untapped commercial potential and play a pivotal role in accelerating a more sustainable and inclusive energy future.

For more on how to rewire your SME operating model for speed, flexibility, and impact, contact Hannah Sword.