Moving Words – Profit

Timothy Brady

“Profitability is coming from productivity, efficiency, management, austerity, and the way to manage the business.” – Carlos Slim

Did it really pay for itself? is not the question you, as a frugal and wise business owner, should ask himself or herself. Because if all it did was pay for itself, it means you’ve covered expenses, but where’s the profit? Just ‘covering costs’ only keeps you mired in the mud and doesn’t let you set up your future sustainability and growth.

It’s true that every shipment doesn’t generate the revenue to make a profit; a few will even be below the cost of running that particular load, but it’s important for a carrier owner/manager to be realistic about the results so you don’t get your company into deeper financial mud. Misunderstanding (or fooling yourself) about what it means to break even has both micro and macro implications on the monetary health of your moving company.

Thinking Points: Number One is knowing your costs; i.e., that Break-even Point. Number Two is knowing what you need in capital to sustain and grow your company. From these, establish a rate range that can meet those definitive revenue goals. Knowing your numbers and having an established rate range is really the only way you can be assured you’re getting your best pricing on shipments you haul.

Why would a mover want to enter into a hauling arrangement that’s just covering costs? Without a target range that’s profitable, your load planners can do this unwittingly. Having a rate range which covers from Break-even Point (BeP) to full capitalization provides your carrier with a target area. Now, while the market does determine rates to some extent, other things establish the range of a rate. Level of customer service is one such determining factor which can either raise or lower a rate. There are also truck-to-load ratios in the lanes being considered. So the next step is understanding the market in which you’re hauling to and from.

Also, knowing your capital needs gives your company the ability to pick and choose the most profitable lanes. If you’re looking at a particular lane and your rates are too high, then you need to cut costs, take a lower profit margin, or not haul those shipments. But without that rate range it’s impossible to make those decisions.

The objective is to be in the mid- to high portion of a rate range when all shipments in a load are calculated together. In other words, some shipments may not meet the low end of the rate range–may even be below the BeP–but when averaged into all the shipments your company and its van operators haul, you’ll see a profit at the end of the month, quarter and year.

Know your rate range first and then look at the market. Don’t jump into a market and try to match rates to the market instead of doing a market analysis with competitors’ rates in hand to determine if it’s the correct market (lane) in which to be operating.

“Profitability is a shallow goal if it doesn’t have a real purpose, and the purpose has to be to share the profits with others.” – Howard Schultz