Do you have one shipper that represents over 25% of your business? Are you what the music industry would call a “one-hit wonder”, someone who has one shipper that represents 100% of your business? Perhaps you have been extremely successful handling this one shipper, and they love you. You may also think you are too busy handling their freight to prospect for new shippers.
But what if your main contact gets downsized? What if the company gets bought out? What if you have one load that goes bad, really bad by no fault of your own, and the higher ups tell your contact he/she can never use you again? (One of our one hit wonder agents had a close call where he feared this would happen, luckily for him it didn’t, but it was a good “wake up call”.) What if their warehouse burns down? (Yes, this actually happened to one of our agents who never recovered.) If your book of business is largely dependent on one shipper, anything can happen that is totally out of your control and your livelihood could evaporate from one day to the next. What you do about this in advance is in your control. This is why we are strong advocates of diversifying your book of business and want to share a process on how to do this in parallel with your current model.
So when you are so devoted to your current customer base, how do you find time to diversify? Here are six simple steps:
- Assess Your Current Book of Business: If you have several shippers, list them and the revenue you generated with each shipper over the past year in one column and the past six months in another column. Calculate what percentage of your business each shipper represents by dividing their revenue by the total revenue number for each period. If you have any shippers that represent more than 25% of your book of business, you need to diversify. When we ran a trucking company, we once had a customer that represented 40% of our business. Then the Great Recession hit, and no one needed their steel anymore. As their business dwindled down to nothing, ours would have as well if we didn’t diversify. We used to get so excited when we landed a huge account, but then the next question was always where was the next one to balance out the concentration?
- Select Diversification Strategy: Our strategy as the housing market collapsed was to seek out new customers who were not related to construction at all, as most of our business was construction-related flatbed work. Instead we sought out recession-proof necessities that shipped in dry vans to balance out our portfolio. If you are an expert in handling loads for a shipper in a certain industry that is healthy, you can diversify by targeting competitive shippers in that same industry and offering your expertise. If you are finding your margins are shrinking because transportation is a commodity in one industry, identify a more desirable industry that values the care and attention you can provide as a freight agent so you can command the margins that accompany that level of attention.
- Start in Parallel: Here is where you decide to devote a certain percentage of your time, for example 20-25%, to pursuing your strategy. We identified more recession-proof industries that handled necessities and pursued new accounts in those areas, while still servicing our bread and butter accounts until they dried up. Resolve to spend 2 hours per day on developing your new shipper base. The research of new shippers or new industries can be done via the Internet at the end of the day, with the prospecting and cold-calling during your “Power Hour” from 11-12 in the morning, once all your trucks are on the road for your existing customers.
- Run Each Side as If Your Future Depended on It: It does. In their Harvard Business Review article “Two Roads to Resilience”*, Gilbert, Eyring, and Foster share examples on how companies have achieved this. One example is how Barnes and Noble repositioned its stores to attract families with children while launching the Nook in parallel while Borders went bankrupt. By just adding one or two new accounts, you will be protecting yourself from the potentially catastrophic effects of losing your #1 (or only) account.
- Evaluate the Profitability: of your original and new shippers to decide where to focus your attention. This will give you the opportunity weed out less profitable business and focus on the more profitable business, or potentially hire help you to manage both your new and existing customers’ loads from cradle to grave. Also consider if you have any toxic shippers who take up way too much time and effort for what they are paying you. When we had our own accounts before we pursued the agent model, we fired several shippers who were not profitable, who did not pay us on time, or who did not respect us as human beings. Having a diversified portfolio of business enabled us to have the luxury of doing this.
Diversification takes discipline. It’s not easy at first, but if you are able to put your mind to it, your book of business will be much healthier for years to come. You will also be much healthier, as you will not have to endure the stress or worry about what happens if you lose that main account.
In my next blog, I will address how you can build on your strengths and delegate your weaknesses or things you just don’t like doing.
– By Cheryl Biron, President
* “Two Routes to Resilience”, Harvard Business Review December 2012 by Clark Gilbert, Matthew Eyrigh, and Richard N. Foster HBR Reprint: R1212D. Click through for full references on books that inspired us: http://onehorn.com/agents/get-inspired