Moving Words – Friend or Foe?

Timothy Brady

“Trust not yourself, but your defects, make use of every friend and every foe.” – Alexander Pope”

Many Van Operators have difficulty understanding the complexities of the different discounts in the HHG industry. This causes many of us to distrust discounts.

Although household movers no longer use across-the-industry tariffs, each van line now establishes its own rates. Discounting is still a tool used to sell moves. And while it’d be nice to constantly receive the full tariff rate for a shipment, that likelihood is very slim, considering the competitive market of the industry (the old supply and demand thing). Plus corporate clients and individual shippers have become accustomed to a particular pricing strategy, one that began in the early 1980’s just after deregulation of the ICC (Interstate Commerce Commission). Trying to put this over-40-year-old Genie back into the bottle isn’t going to happen.

So how does a Van Operator go from having discounts be a Foe to having them be … well, at least at arm’s length – a Friend?

Having been in the industry as a van operator for nearly a quarter of a century, I learned it’s not the percentage of the discount that you should look at, but what the overall revenue is once the discount and all other income fees have been applied to the revenue of a shipment. In other words, look at total discounted revenue and ignore the discount levels, because discounts can be all over the board. One shipment could be at a 35% discount from 2007 rates and be a lower revenue than a 70% discount from the current rates of today. The salespeople within the HHG industry have gotten very creative in order to land a long-term corporate contract. But to allow yourself to get angry over a seemingly high discount is nothing but a needless blood pressure increase. I learned to ignore the percentages and look at the actual post-discounted revenue. This saves a lot of headaches and arguments with dispatch and the sales department. And I found focusing on revenue simplified the yes/no on a shipment.

The other factor often ignored is not every shipment is going to be a profit generator. It’s the combination of revenue over time that determines profitability. In other words, it’s a mix of revenues; some low, some medium, and a few high-paying ones that determine the profitability of a household van operator. It’s maximizing revenue over time that determines your profitability, and setting specific revenue goals.

Here’s my solution to the problem, one that worked successfully for many years.

Establish an annual revenue goal for your operation. This needs to take into account your fixed expenses which include a monthly salary for you, along with the typical insurance, truck payments and other expenses that have to be paid even when the truck is parked for a period of time.

A capitalization amount (profit margin) that allows you to set money back for the slow times creates a savings account for future equipment replacement, and establishes a path so you can pay yourself quarterly bonuses while retaining the funds for setback accounts.

Finally, this annual revenue goal takes into account what’s needed to operate your truck for the next year: fuel, tire replacement, maintenance on equipment, potential repairs; pack, load and unload labor, etc.

Next establish minimum and maximum monthly revenue goals which will work with the cyclic nature of the industry. We typically have four months a year when revenue is the highest, and the other eight months challenge us to maintain an even cash flow to keep our heads above water. Look at the revenue you produce in the four-month moving season and subtract that from your Annual Revenue goal. Take the resulting total and divide by eight to determine your minimum necessary revenue goals for the other eight months of the year.

The object of all this is to focus on the maximum revenue goal every month of the year, but be willing to accept the minimum during slower periods.

The point is, you have a choice in how you play the HHG Discount Game. You can play it like you’re trying to play basketball with a ping-pong ball and a Solo® cup on a regulation basketball court, by micro-managing your revenue through discount percentages. Or, play the game with a regulation basketball and basket, meaning you’re focusing on the bigger target (your revenue goals) that you’ll more likely hit – instead of chasing a ping-pong ball all over the court (focusing on the discount).

“An open foe may prove a curse, but a pretend friend is worse.” – John Gay