Most transport companies know how much revenue they make on a given day. They know how much they quoted for every job, how many deliveries were completed and how much revenue is generated at the end of the day. But what few companies actually know for certain is which of those jobs were actually profitable.
That seems simple enough. You quote a certain price, complete the delivery, get paid. Profitable, right? Not for transportation operations. Transportation operations are not that clean. It’s not just a matter of quoting a price and getting paid; it’s about all of the hidden factors that contribute to an operation besides the delivery destination.
From fuel consumption to driver hours to wear and tear on vehicles to time spent waiting at docks, none of which is billed, there are myriad variables not tracked unless systems are implemented to help track them. Instead, companies assume based on gut instinct.
Yet the margin between assumed profitability and actual profitability is significant. A delivery path that seems good on paper could actually be a money loser, while a job that seems not worth it could be generating healthy margins. Companies operating this way are busy making money, but struggling to see that money in their accounts.
The Costs Companies Forget About
No delivery comes without cost, even if it isn’t presented on the final quote. For example, a typical urban delivery run is quoted based on distance, time and fuel; a reasonable assumption. But how about if the company had to circle around for parking for 20 minutes? How about an additional five dollars’ worth of fuel from sitting in unexpected traffic? What about the time it took to drive back with an empty vehicle? The administrative costs to book the job and process paperwork?
These costs become compounded fast. Let’s say a job is quoted for $150. That includes $40 worth of fuel (optimally routed), $50 worth of allocated driver time (two hours), $20 worth of wear and tear on a vehicle, and therefore $40 would be classified as profit.
However, if the route took longer than expected due to road work or if parking took three times as long than budgeted, and if it turns out that fuel consumption was $60 for that route due to inefficiency, then all of a sudden, that profit margin is gone. When this happens across dozens of deliveries, companies work harder to simply keep their heads above water.
Yet now, modern day management seeks solutions to this problem. An integrated transportation management system track what costs are compared to quotes given versus quotes completed. The software tracks actual fuel used, actual time, actual vehicle applied, and little extras that contribute to helpful or harmful margins, and businesses can see what completed jobs actually cost.
What Factors Consume Profit Margins
Some factors that reduce profits make sense. Fuel costs change day by day; toll roads increase depending on what path is taken; driver costs are usually straightforward. Yet other profit stealers lurk behind the scenes.
A primary factor includes vehicle utilization. If one truck can complete five deliveries in a day because they are short journeys that generate revenue five separate times, a truck that only does two deliveries to different ends of town costs the same to drive but diminishes revenue from the owner. Jobs that leave vehicles standing still or create inefficient routing diminish potential profitability even when perceived potential income from each job seems fine.
Empty driving is pure expense without any revenue gained. Why do transport companies accept jobs with long empty drives back? Because they believe it’s worth the effort to get one load out there, but it’s not always true; especially when more robust jobs could be covered during this time.
Based on time alone, efficiency is costly more often than people think. Drivers are paid by the hour; vehicles depreciate whether driving or sitting; costs associated with insurance levels do not stabilize when vehicles are at a standstill. Any time it takes beyond budgeted creates less profit for everyone involved. In addition, when jobs take longer than expected consistently, pricing expectations have to shift.
The Flaw with Average Costs
Companies use average costs as justification for pricing jobs. They take an average of how much fuel they generally use, how many hours drivers typically spend on jobs, how often they pay for tolls, and apply these averages to everyone they quote.
It’s simple.
It’s inaccurate.
Averages keep extremes hidden from perception. Some jobs operate consistently below expectations but some consistently above; by using averages, other profitable jobs subsidize non-profitable ones without owners realizing that about 50% of their work is losing money.
Different types of jobs mean different types of costing. An urban job with lots of stops has more start-and-stop traffic wear and tear than load turnover in five hours on a highway drive, and that’s different again for an extensive job that includes empty driving for 30 minutes back, as opposed to expected expenditures made in filling one truck up, keeping the door shut for most of the time and ensuring consistent speed rather than volume.
Implementing software that tracks these findings by type of job, route and vehicle shows patterns where adjustments are needed through effective pricing. Companies can only see where money losers exist versus companies generating money better than expected once prices shift from based-on-averaged costs to actual.
When Customer Relationships Complicate Realities
Transport companies have longstanding customer relationships, customers who provide consistent business and transport operations want these relationships to flourish instead of worrying about profitability.
For example, a longstanding customer might book a particular route consistently; the transport company has always charged a specific rate but fuel has shifted higher in price, driver hours are now more expensive, so what was once a profitable route is now unprofitable due to shifted costs of goods, yet the transport company refuses to adjust pricing out of fear of losing them.
Companies don’t know real operating costs unless visibility occurs and they cannot determine whether loss-leading investments in customers is ever worth it or if they’ve simply lost too much profitability already until someone brings them back into focus through systems who show numbers-based realities beyond emotional sentiments.
Customer-based profitability versus reality hinges on specific routes operated for customers at specific price points due to whether patterns exist that make it worthwhile or not—, nd over time, approaches can give insights through practical steps versus emotional responses.
The Delivery Route Efficiency Factor
Two deliveries to two similar destinations may not be priced the same, as one can be added onto another route already established while one will require its own trip, and bring significant additional per-delivery pricing.
Delivery efficiency impacts profitability without people realizing it, for example, if someone has an unprofitable job as a stand-alone effort it may become much more fruitful when put with other like deliveries along the same route, however it becomes negative when it messes up delivery efficiency along the way.
Software that combines routes can anticipate these decisions beforehand and allow businesses an opportunity to justify acting one way over another based on potential information resources gathered through theoretical efforts.
Therefore, companies now quote based on whether this is added-on or standalone because some companies justify advantages for themselves only when they’ve developed them predictively based on informed factors over time from other businesses who’ve only made these mistakes along the way.
Better Decisions Through Better Tracking
Companies with proper tracking make better decisions than those operating under guesswork, they recognize where best margins lie and which cities operate this over another; which customers provide more ongoing job work and which types should be pursued, meaning which should be avoided or where prices need reassessing.
These companies find issues early on when previously profitable routes become lost either through traffic patterns; redirected road work; whatever it takes and the data shows it quickly so people can adjust before severe losses take hold.
New avenues also appear, routes no one previously believed would generate substantial quality turn out greater-than-expected margins and more focus should pay attention there instead.
The line between profitable transport companies and unprofitable ones lies largely in visibility; companies that know what really goes into their prices make decisions all along the chain easier from pricing expectations, safe assumption when new businesses approach them in good faith or optimal routing with best allocation possible. Those who guess based on averages work harder for less return.
Transportation operations generate thousands of data points every day accumulated over systems turn information into actionable profitability insights showing how every job operated presents a learning opportunity daily with every single route based upon valued reality instead of guesswork over time.
Such visibility changes what true transport companies do for a living, they stop fighting battles on the ground floor and proactively support their delivery efforts as professionals learn on high level insights exist in places they never anticipated before. Those who know their costs consistently don’t just survive; they build competitive advantages over others struggling from debt stemming from ignorance where easy solutions live instead.