A deeper discount? Better hold onto your shirt
By Timothy Brady
Under the current economic atmosphere, large segments of the trucking industry have fallen into the trap of “Volume Discounting.” The greater volume a customer has to ship, the lower his shipping cost. While this works to a point, beyond that point lies the eventual collapse of the trucking company.
Let me recommend an excellent volume for your business reading list: The Profitmover’s Guide to Business Success by James B. Larsen. While his book is focused on the moving and relocation services part of the transportation industry, still a lot of his observations hold true for us all. Here’s a quote that resonates with any business, especially a small business: : “In a typical scenario, the company informs its salespeople that they can sell at a certain price or discount up to a certain percent to get the order … . What this really means is that salespeople are being allowed to set price without knowledge of what the actual COST is for the product or service they are selling. Does this make good business sense?”
No, frankly, it doesn’t. So don’t do it. There will always be a (usually new and inexperienced) trucking company that figures the best way to line up shipping contracts fast is to undercut every other motor carrier out there. It’s sad, but they’ll be holding an auction to sell off tractors and desks before they realize they didn’t run their numbers to know their costs and have a business plan in place to take the company beyond the first round of paychecks.
On the other hand, you know the numbers you deal with, day in and day out, that determine the profitability of your company and whether it grows or stagnates. You know the drill: you’ve got to know the Fixed, Operational and Load-Specific Costs on every piece of equipment that moves under your company name.
And to get ahead, you’ve got to remember to figure a salary for yourself and your office staff into Fixed Costs while placing the volatile fuel cost into the Load-Specific Costs. (Fuel, by the way, is going up again. No surprise there. And the only way to handle the cost of fueling every shipment is to know exactly how much that transport of goods is costing your company.) Profits are set back to grow the company, whether in two years or five.
Most shippers understand ROI and other costs. Actually, if you took the time to sit down with your ‘old reliable’ shippers and showed them exactly how you arrive at your shipping costs on their invoices, my bet is they’d be impressed. You’d show them that not only do you know how to keep your stock rolling and get their products where they need to be on time and in perfect condition, but you also understand the dynamics of the entire logistics chain.
Maybe your pitch to shippers needs to be a short background lesson on how you figure your prices. Invite them into your motor carrier’s office for a short business meeting. Set up a white board, show them your figures, and see there’s a fresh pot of coffee and maybe some doughnuts for the meeting too.
Your shippers won’t be left scratching their heads and wondering why their shipping rates went up when they’ve been with you for a year already. You can show them why the customer service you provide them has gotten a little costlier, and also let them know you want their company to succeed just as much as they do.
You won’t lose many shippers to new competitors. Isn’t that worth an hour of your time and a box of doughnuts?
Good loads and good roads, everyone.
Timothy Brady © 2011
Contact Brady through www.timothybrady.com