Okay,
There is one term that some members keep using over and over and that is the term "PROFITABILITY"
We are told that you must know your every expense in order to be able to determine at what exact rate you can run a load.
One member even claims to know their expenses and profitabilty to the "penny".
Of course, that is impossible because every business owner knows that there are variable expenses. These expenses can only be estimated and averaged out over a period of time.
It is not impossible at all if you track every penny you take in and spend. You are right to draw the distinction between fixed and variable costs. Fixed costs are easy. You know what they will be each month (at least until a price increase on something like Qualcomm fees or insurance is announced).
Variable costs require judgement but knowing your variable costs numbers is not impossible. And the better your judgement, the more accurate your price point can be.
Consider tires, a variable cost. When we bought our truck new in 2006, we had no idea how long the rear tires (8 tires, tandem axles) would last. The cost of the first set of tires was included in the price of the truck. Having now replaced those 8 tires, we have a pretty good idea of how many miles we can expect from them. By looking at the now-known miles number, the number of miles we expect to drive and the time period over which the tires can be expected to last, we know that those 8 tires add $x per mile to our variable costs of running the truck.
We do not know how many miles we will run next month or next year. But for the purposes seting our price point and determining profitability, we have sufficient information to make load-acceptance decisions today.
Note that our price point is not fixed. It changes as our costs change. As fuel came down in price over the last several months, so did our price point. As substantial fuel card discounts became available through our carrier, our price point went down. Out ability to buy tires at a HUGE discount through a carrier discount program enables us to build our low tire cost into our price point.
I noticed in another post that TeamCaffee considers the difference in costs for running on the East Cost versus places where open road driving enhances fuel economy and minimizes tolls. We do not factor regions into our price point as they do, but their doing it shows yet another way in which variable costs can be known and used to set your price point.
The readers of these posts are led to believe that you can determine your expenses to the penny. Then you can translate that to a rate per run. Then you can either accept an offer that meets or exceeds that amount, or you should sit and live off of your cash reserves until the right offer comes in.
The recession offically began in December, 2008. In no month since then have we had to dip into our cash reserves. That day may lie ahead but so far, our cash reserves remain untouched. Freight has slowed. It has not stopped. Our ace in the hole is
the debt-free, property-free life we live.
The most recent data on employment, sales, manufacturing and housing show that the recession is not only getting worse but getting worse at a faster rate. More than one respected economist is saying the economy is in free fall.
The day may come that freight slows to the point where we must tap into our reserves to meet current expenses. If that happens, how long will we stay in a money-losing endeavor? One month? Three? Twelve? That is a question each expediter must answer for him or her self.
Question: If your magic number is $1.50 (just for example sake) and the offer comes in at $1.30. You refuse because if they don't pay you don't play. Well,then you sit there for 24 more hours while your expenses continue to accrue. Is this really the best system???
I don't know. It is the system we use and it works for us.
If you accept this load at $1.30 and move to better freight area and your next run is $1.80 per mile then you are money ahead.
You are correct, IF that next $1.80 pe mile run is there waiting for you in the better area and there are no trucks ahead of you to take it. Your comment goes to individual load acceptance decisions, made every time you deliver and look ahead to the next run. Some would say the decision is made before you accept the run that takes you to a slow area.
We have taken a reduced-profit load for the very reasons you describe. Three times in five years we have taken money-losing loads; once to get home, once to get to our carrier headquarters for training, and once to accept the carrier's pay to relocate to a different express center.
Every now and then, but not often, we take a low-profit run instead of a full-profit run to relocate to a better area. But such runs are not readily available. When sitting in western Kansas, it's not like you you see three low-profit runs going to Chicago and a full-profit run going someplace else.
Even if our carrier's Home Run program was expanded to allow us to broker outside loads to relocate, there is a disadvantage to doing that. Read
my reply to Texpres's point number 3 above, in which I talk about the extended range a fully-equipped truck has.
A while ago, we were in Tucson on Friday night and a bunch of White Glove trucks were stacked up ahead of us. Tucson is not a busy freight area. A weekend load would be unlikely. A Monday load would be unlikely because the other trucks would receive the offers ahead of us. Decision: Deadhead to Los Angeles where our freight prospects would be better.
Now, if we put self-brokered freight on the truck to get from Tucson to Los Angeles (assuming freight can be found that would immediately take us from where we were to where we wanted to be), that takes our truck out of service and off the board. The minute we left Tucson, we were closer to LA than all the trucks we left behind. If there was a load that reached out from LA, we would be more likely to get it than them, because we would be closer to the pickup. We would also get into LA before the Monday inbound trucks arrived and have more dwell time than them in the dispatch order ... as long as we were in service and available. Putting self-brokered freight on our truck (even if FedEx allowed it) commits our truck to that freight and not to positioning ourselves for the next full-profit load.
The deadhead costs of moving from Tucson to LA must of course be considered. And they are. Every penny we spend on the truck is factored into our cost per mile to operate the truck, including deadheading to better freight areas. Those costs are part of our annual costs and show up in our daily costs by dividing the annual by 365. Naturally, we try to decrease deadhead costs by deadheading as little as possible.
The theory above is almost like saying: If we can't make a profit in our store today I am just going to close it down.
Exactly! And that is one of the great things about an expedite business. You don't have to keep a store open to keep hundreds or thousands of customers in the habbit of coming in. If you need or want to shut down for a day, week or month, you are totally free to do so and your carrier will understand. Carriers also understand that people decline loads for all sorts of reasons. That's why they give awards (Four Star) if you say "no" less than 30% of the time. How many other jobs do you know where you can tell "the boss" no 30% of the time and win an award, or say no 40% of the time and still be valued as a team player?
Should we not look at things over a longer time period. When I look at some of our good months, there may be what some refer to as cheap freight thrown in there; however, the overall monthly revenue is increased. A yearly picture may even give a better perspective.
Absolutely. Our daily costs are determined by dividing our annual costs by 365. Our monthly costs are determined by dividing our annual costs by 12. The exception is fuel. In determining our price point to run the next load, we look at our daily costs and the specific price per gallon we paid for the fuel that is now in the tank. By the day, and to the penny, as fuel rises and falls, so does our price to run.
Also, what are these teams using as their "profitable" amount? One penny over expenses can be deemed profit. Are they including all home expenses, savings and retirement?
I am not going to state our decided-upon profit margin here, but do understand that I am not using the word "profitable" to mean one penny above breakeven. Our carrier runs its business on a healthy profit margin. So do we.
Different people take different approaches to including or not including personal expenses in their business expenses. For example, if you want to pay yourself $10,000 a year for retirement benefits and put that money in a retirement plan each year, do you factor that $10,000 in as a business expense? Or do you wait to see what your business profits are, consider retirement savings a personal expense and put the $10,000 away out of your profits, and after all business expenses are paid?
There is a lot to think about here. If you include the $10,000 as a business expense, your cost per mile will be higher than that of an expediter who has no reitirement plan, and you may price yourself out of the market. If you exclude the $10,000 from your business expenses, you may not have enough profit to put $10,000 into your plan at all.
The answer depends on many things, like whether you are running your business as a corporation and pay yourself as an employee and the corporation has a retirement plan set up for its employees (you), or whether you are just out here because the alternative is to have a boss you could not stand, and if you can put some money away for retirement after expenses are paid, that would be nice.
Whether you are operating your business as a sole proprietor, partnership, corporation or LLC, it is up to you to provide "employee" benefits or not. Do you count the cost of your health insurance as a business expense or as a personal expense paid from business profits?
Questions like that are most easily answered if you have specific business and personal goals set down in writing, and then discussed with the team of people you gather to support you in your business (insurance agents, accountants, lawyers, etc.).
Sorry to be picking at details, but this thread must be confusing for the "Newbies" that are just looking into this business and trying to develope some type of business plan.
Developing a business plan is no small task. You are asking good questions and making good points.
