Moving Words – Eggs
Timothy Brady
“A wise man does not trust all his eggs to one basket” – Miguel de Cervantes
In this blog we’re going to discuss a fundamental topic from business 100, however, when the going gets tough during an inflationary or recessionary period we sometimes need to be reminded of practices that can potential derail our progress. Just a nudge not to fall into this financial trap.
“Don’t put all your eggs in one basket.” You shouldn’t let a single customer represent any more than 20% to 25% of your total revenue or accounts receivable.
Many moving companies get their start because the owner has an established relationship with one particular client . In many cases, this primary customer represents 100% of the outbound shipments a new mover has. This, depending on the movers area of service, where these outbound shipments are headed and number of drops within this lane, can represent 40% or more of the moving company’s total revenue. In some instances where the mover is hauling both outbound and inbound for the same customer, that percentage of revenue dependence can go all the way to 100%. As a side note hauling 100% COD customer’s shipments can be grouped into placing your eggs into a single basket. Now while it’s understandable for a new moving company or agent to start with too high a percentage of shipments coming from a single source, it’s inexcusable for established movers to revert to such a practice.
‘How is this a problem?’ some may ask. You have consistent revenue and one customer to invoice. You have the ease of dealing with fewer people and a better opportunity to provide the highest quality customer service to one customer. All seemingly good reasons for the ‘all eggs in one basket’ approach. However, here’s the catch—What happens if this single customer has a slowdown in shipments due to any number of possibilities? Labor disputes, a weather event (think Joplin or Tuscaloosa), a change in ownership that wants to bring in the brother-in-law’s trucking company to haul their shipments. Or it might be something as subtle as a change in management strategy or economic downturn and the number of shipments are suddenly reduced or worse, no longer available.
The combination of COD, specific corporate customers, relationships with other moving companies and agents, the more consistent and stable the moving company’s revenue.
Think in terms of the law of averages. Say your primary outbound customer represents 25% of your total annual revenue. You have a secondary outbound customer who represents 15 % of that total, and COD shippers who you can rely on, for another 15%. In addition, a couple of another mover or agent provide another combined 15%. Add a quality relationship with a van line to this entire mix for another 15% for both outbound and inbound freight, and 2 additional movers or agents for inbound freight representing the remaining 15%. Now you have spread your risk over eight different entities and if any of these eight revenue sources reduces the revenue and or available shipments, you have seven other established hauling relationships to find replacement revenue.
The object here is to have established business sources ready to fill a revenue void, regardless of the reason or cause leading to the loss of one.
Having multiple baskets instead of just lots of eggs is the key.
Just a quick reminder of information you already know.
“I mean if you put all of your eggs in one basket, boy and that thing blows up you’ve got a real problem.” – Jerry Bruckheimer
