Someone once told me, “If they are not paying you, they are not a customer.” During my days owning an asset-based carrier, I wasted lots of time doing collection calls. I once had a customer who owed us a lot of money and who wanted a truck to pick up some steel. I actually drove two hours to pick up a check myself, and soon thereafter we fired the “customer”, because like my friend said they were not really a customer if they were not paying.
“Welcome to entrepreneurship,” I told my former corporate self. When we restructured One Horn from an asset-based carrier to a brokerage, we evaluated the profitability of and time spent handling all of our customers. Pareto’s Principal, otherwise known as the 80-20 rule, again proved to be close to true. Eighty percent of our profits were from twenty percent of our customers, and the same went for problems. So we did a big cleanout.
Freight agents, too, can systematically list all their customers and see from whom their profits are coming, building the relationships with profitable customers and prospecting new customers with similar freight and firing customers that just don’t make sense to service anymore.
Here are five tips on how to increase the profitability of your book of business:
- Identify Low Margin Customers: Make a list of all you customers in an Excel spreadsheet, rank them by average percent margin, but also list annual revenue. Reconsider relationships where the margin is low for one-off loads where there is no relationship. Your time is better spent on higher margin customers.
- Identify High Maintenance Customers: Rate each customer by the amount of time you spend covering their loads. Fire the customers for whom it takes hours to cover a load and you end up making $100 on the load.Your time is better spent prospecting or building relationships with customers who value your services.
- Identify Slow Payers: Rate them on their time to pay, and if they seem to make a profit center of not paying within 30 days or by short-paying invoices, fire them. You are not a bank. We once had a customer with over $100 million in sales who thought we were their bank. We had to repeatedly call their CFO to put them on a shipping hiatus and payment plan to get their balance down, and then we fired them.
- Identify Losing Propositions: How do your shippers assign their loads? Are you a trusted partner or one of 200 on a mass email list and you only get the load when you underbid? That was the case for us once. We had a customer who sent mass emails and whenever we won the bid, we lost money. So we fired the customer and stopped bidding. There was no relationship there, so it was not worth our time and energy.
- Identify and Leverage Your Strengths: To end the list on a more positive note, look at the high margin customers, the shippers who are profitable and do high volumes with you, those who do pay on time, those whose businesses you understand and where you could easily service their competitors as well. Create your prospect list based on shippers who have a commonality with those you have identified, so you can leverage your strengths in terms of knowledge and service. With technology and communications, geography no longer matters. Focus only on opportunities that fit your target.
The keys to profitability are identifying and cultivating shippers that make sense and having the courage to walk away from business that doesn’t make sense.
In my next blog, I will write about how freight agents can grow to become agencies by working “On” their business not “In” it.
– By Cheryl Biron, President