What is your chosen ROI?

[Dreamer]

Forgive the length of this post, but it's something that's been on my mind for a while. I'd appreciate your honest answers, as I'd like to use the responses to possiby write an article.

What is your ROI?

Several times lately on the forums here on Expediters Online, I’ve seen the term “ROI” or “Return On Investment” discussed. It seems many people have different ideas on what that means. Now, in simplest terms, I go by what I was taught in college… ROI is the ratio expressed as DI/DO, or “Dollars In/Dollars Out”. In other words, for each dollar you invest in your business, stock portfolio, etc…. how many dollars do you get out? In most minds, I would venture to say, for it to be a good investment; you must get more dollars out than you put in. Otherwise, why would you continue investing?

For instance, the simplest investment is a savings account. Usually if you have a savings account, you want interest…. Therefore, that 2 or 3% is your ROI. It would be a pretty bad deal if you put in money, and at the end of the year, you had less than you started with. It’s the same deal with stocks. If I invest $10K in a company, and at the end of the year I have $8K, my ROI was negative. Seems to me I made a bad investment.

In applying these principles to any business, the key to its success is a positive ROI. If I’m not making money, why would I stay in the business?

Now, it appears from what I’ve read, in Expediting, people have different ideas on what a positive ROI is. For some, it’s pure business…if it doesn’t make good business sense, they don’t do it. They spec their truck as a business tool, with profitability in mind, and personal comfort secondary. If it doesn’t make money, it’s a luxury, and they’re willing to give up that luxury for a higher bank account in the end. Their positive ROI is very high, because their initial investment is low, compared to the income that truck generates.

At the opposite end of the spectrum are those who spec very comfortable trucks, which may not at first, appear as profitable when you figure a pure DI vs DO scenario. Their trucks require a much higher initial investment. Though they may have the same or even higher income level as those who chose they cheaper truck, their percentage of profit is lower, simply because of their higher cost.

As I look at these scenarios, it occurs to me, that perhaps those who choose the second route, are looking at a different kind of ROI. Could it be that they measure their return not in terms of cash flow, but in personal satisfaction in their business, or simply a love for the lifestyle? Therefore, if they say they have a good ROI ratio, they are not talking purely financial?

I would say most people fall somewhere between those two categories. They spec with a compromise of comfort vs. profitability. They try to find that delicate balance where they are as comfortable as possible, without negatively affecting their bottom line greatly. They are willing to give up a little in each area, to find the best of both worlds.

So I put forth this question to those currently in the business. What is your chosen “Return On Investment”? Is your priority a monetary return, a lifestyle return, or some combination of the two?

What keeps you here? Why do you do this?

Thanks in advance for your answers!

Dale

 

[terryandrene]

ROI, as it applies to expediting, often means Realm Of Insanity, for many of us seem to remain in this business because we suffer from that malady.

For Rene' and me, our ROI, as Dreamer defines it, is exactly as he suggests. We certanly have gotten a fair return on our modest monetary investment during the past 18 1/2 years, but the modest return paled in comparison with the personal benefits we've enjoyed.

After many months at a time of military travel, I was able to spend some years of quality time with Rene'. We satisfied our wanderlust and enjoyed the opportunity work on a flexible, independent schedule on our own terms. We enjoyed many years of tax deductable travel to visit family and friends, all the while earning enough money to cover all our overhead and other travel expenses. We were also able to pay down a 30 year mortgage in 15 years.

I'd also say our investment has been returned many-fold in the pleasure we've each received in our association with the staff and membership of EO. Assisting in the EO booths at several MATS events, all of the Expediter Expos and a few Expedite Workshops has enriched our lives in ways that cannot be measured in dollars and cents.

 

[davekc]

I agree that you have to have a healthy balance. You have to enjoy what you are doing especially in this business. This industry offers so much that others don't outside of the financial gain.
One does have to take the financial picture into account. If one can't produce a return on their investment it would make more sense to just buy an RV and travel that way.
So....return on investment is as important in expediting as it would be in any other business venture.

 

[ATeam]

Thank you, Dreamer for explaining ROI in true investment terms. What you describe is absolutely valid when applied to something like a bank deposit or investment in common stock.

When applied to a truck, ROI becomes problematic to the point of becoming a meaningless measure that can be construed to produce most any result you wish.

Say I pay cash for a $100,000 truck, and I also invest $100,000 in five-year U.S. Treasury bonds that pay 2.75% (today's rate). Since the Treasury bond is guaranteed by the U.S. government, the ROI can be known in advance. It is 2.75%. This is an appropriate and proper use of ROI as a performance measure.

In the case of a common stock, the rate of return is not known in advance. In a hypothetical investment of $100,000 in common stock that is held for five years and sold at $200,000, your ROI would be $100.000 or 100% for the five year period, or 14.87% annualized. This too is an appropriate and proper use of ROI as a performance measure.

Now, back to the truck. If I buy that $100,000 truck and let it set in my driveway for five years, what will my ROI be? In one sense, zero, since it produced no money. But if you factor in the decline in the truck's value over that time, the ROI will be a negative number. This too is an appropriate and proper use of ROI as a performance measure. In this case, it clearly indicates that no-risk (except purchasing power risk) Treasury bond investment would be the better course.

Of course, trucks are not intended to be purchased, parked in the driveway, and sold five years later. A truck is intended to be an income-producing business asset. So, what can I do to make it such? Well, I could rent it out to someone, or put a solo driver in it, put a team in it, drive it myself, or drive it as a codrive with my wife or someone else.

Say I put a team in it and lease the truck to an expedite carrier. What will my ROI be after five years of doing that? As with common stocks, we will not know until the five years are complete. The ROI will depend on a host of choices I make, like putting a very good team in it or putting an unproductive team in it, paying good rates for truck maintenance or overpaying, spec'ing the truck for good or bad fuel economy (if I pay fuel), establishing the payment terms for the team and me, choosing a carrier and/or freight type that the truck will be involved with - and thus the revenue potential of the truck.

But notice what is going on here. We are no longer talking about an investment. We are talking about a host of business management decisions and other variables that determine the income and expenses, not of the truck but of the BUSINESS. The truck is not a passive investment like Treasury bonds or common stocks. The truck is an ASSET in a business enterprise.

Because so many other factors determine the business asset's performance, those factors are not appropriately and properly expressed as ROI. In a written business plan, those factors are listed separately and described in other ways.

An asset like a truck does nothing by itself. It is only when combined with labor and decisions made by the truck's owner and/or drivers that wealth is produced (or not produced if bad decisions are made).

Now, I will thank Dreamer for tolerating the digression. If I read his post correctly, his true question is the question he closed his message with, which is, "What keeps you out here? Why do you do this?"

This is easy for Diane and me to answer since we asked ourselves exactly that before we began in August, 2003. We set five goals to achieve. As long as we were achieving them or reasonably on our way to do so, we would continue as expediters.

The goals were (and continue to be): (1) increase our income, (2) simplify our lives, (3) spend more time together, (4) share in a business project, and (5) see the country.

Note that only one of the goals was financial. The rest are lifestyle goals. From the first day in the business we tracked these goals. 4.5 years later, we continue to track these goals, and that, Mr. Dreamer, is what keeps us in the business.

Once we concluded we were in expediting for the long haul, we set additional and more specific financial goals that are not mentioned above. We are tracking those nicely as well.

To those who seem troubled that we spent so much money on the custom-built truck we did, I don't know what to say, except, get over it. If we had it to do over again, we would do the exact same thing.

This truck is PERFECT for us. It is a good money maker that enables us to easily achieve goal 1. It is also, by design, the most comfortable truck we have ever driven, which provides our desired quality of life on the road and helps us achieve goals 2-5. If you want to apply ROI to that (which would be an inappropriate use of that performance measure), our ROI is One Gazallion Percent!

What keeps us out here? Why do we do this?

We love the life and work, and we are doing better finanacially than we have ever done before.

 

[greg334]

Dreamer,

I honestly think that the question is valid but it may dilute a serious issue for many. I read all the opinions here and on other posts in the past and one thing that strike me as really bad many seem to ignore the real world need to get professionals involved.

Many newbies listen to the experts and the old timers who have been just lucky to enter the field at the right time and make a good run of things. Not demeaning their contribution to helping others but quite honestly in the past, many were not concern with running things as a business because it was a different world, even just 5 years ago. The industry was moving along, the money was flowing and many establish themselves by following basic patterns – put fuel in the truck, pay the truck payment and keep taking offers.

Now a days, we are faced with a really serious political issue on the environmental front, we are facing more taxes and tolls and as T-Hawk is so correctly apt to point out, we face a structural change in the way freight is handled. More so, now we have more companies involved, we have favoritism in some companies to keep the high investment people rolling and we have a few companies that don’t know when to leverage their size to grow further.

All of these things were not really here 10 years ago, or even 5.

When I started into this business, I met a lot of people who could not tell me how much mileage their truck (van) got, some could not even figure out what their insurance cost was or that they were supposed to get riders on equipment and these were people making good money, and still are. They know what it takes to run their business but for the people who never did this anything like this before or rather never have had a business like this before, this type of attitude is a path to failure.

I took a harder path to follow, I bought a van was doing good until the company changed tactics and then bought a truck. My truck should have been making the same amount of money that others were making but I wasn’t. I didn’t refuse runs, I didn’t sit in far away places but I was proactive and so were others. The difference is I ran it cheaply; my return on my investment was made back within 6 months of the time I purchase the truck. I wasn’t the exception either.

What many don’t understand is that a truck is a tool – yes I am repeating myself. A truck should not cost more than your home, my didn’t and my next one won’t either but I know of one that cost 4 times as much as my home and that truck does the same thing mine does, except it has no reefer.

I get a kick out of people who buy a truck with cash without understanding that they can actually make more money investing part of the money. If you think about buying a $70k truck, go buy something less expensive like $45, live with the quirks of the truck and the sacrifice and take the balance and invest it.

Also just to throw this in, in another thread, there was a COE for say on eBay for $18k. It had a million miles on it (close enough) but it was worth maybe $12k. The problem I see, especially with Sprinters is that people expect to get their money back or sell the idea that they are expensive used because it is a rare truck. I have run across T2000s, t800 and a bunch of FL for almost nothing and to put a box on them is just really not much money. I was looking at buying one a few weeks ago and ran across a 2002 sprinter with 300K on it for $23k, but this vehicle should be in the $12 to $15k price range for the mileage and use it has endured, remember it is a tool.

Many get watery eyes looking at these apartments on wheels, many think that they can buy one (look I mean finance one) and make money but forget that there is a price tag attached to them. A lot of people look at the comfort as being part of the business but forget this is a business that is not like anything else, it is dangerous and sometimes you can lose everything in a second. Not like an auto worker who has the security of their work station or an IT guy with his little cubical where the big bad world can invade, a truck is pretty much an open place for someone to live. I think that many look at an apartment on wheels as the only way to feel secure and nothing else. But before Phil writes a ten page rebuttal, the apartment on wheels has a place for mature owners who have built up their business, who have for the most part saved and planned. So this is where I look at things as an emotional ROI.

I stress that one who wants to make an investment into the equipment to do this work or enter this business, to get two things, a lawyer and an accountant. I have a lot of reasons why but one thing that I have said that the accountant will help you through the BS of opinions of what an ROI is, risk mitigation and all that mess. I however do in part agree with Leo’s point that the accountant has to have a trucking back ground but I have yet seen any evidence from the accountants themselves why. I feel and advise that you need to get one first, build the relationship with them and then if they do not fill your needs, find someone who can. The important step is getting used to working with professionals who you pay to advise you, not to have someone watch over every dime you make. The other thing that comes to mind about accountants is a few in this industry are arrogant and won’t answer basic questions. They feel that they are too important but again I am trying to figure out what exactly do they do that my former accountant didn’t. Right now I am looking because mine retired and I am dealing with his last second in charge and she is rather dim-witted – she still can’t get the idea what a straight truck. I had one trucking accountant get mad at me when I started to ask questions and hung up the phone. I won’t post who that is but I know that he was highly recommended for some reason.

Many of us cringe when the question is asked “What keeps you here?”

Many of us have to, we have to pay the bills. Many don’t even consider ROI when we look at things with an attitude that trucks are tools, not toys and the business is a serious one, not a paid tourist gig.

Why do you do this?”
To answer that, many of us have to, we have no choice in vocations at this point until things improve.


So I guess in one regards, the ROI for me is that I don’t have to lose my home and stuff.

 

[ATeam]

But before Phil writes a ten page rebuttal, the apartment on wheels has a place for mature owners who have built up their business, who have for the most part saved and planned.

Thank you, Sir.

 

[CharlesD]

I like to have some sort of balance, within reason. Something about all work and no play and what it does to Jack. What I try to do is save a little time here or there if I'm heading into an area where there might be something interesting to do there, but if there is a hot good paying load available, then all tourist activities get put on hold. I try to run steady but take advantage of those little opportunities that present themselves occasionally. One day back in the summer I had a load going to Albany and I wasn't going to be able to deliver it until the next morning. It was a nice day, I was passing through Buffalo, and it wouldn't do me any good to go straight through to Albany since the place was closing early and I couldn't deliver anyway. So I went up to Niagara Falls and spent about three hours walking around there before going on to Albany. Sometimes you get those chances like that where you can take the time to do something nice but it doesn't interfere with your work. Those are the opportunities I keep my eyes open for, the chance to go to a nice park or a historical site, or even to grab a bag of charcoal and some meat and go somewhere with a picnic area and grills. I run as hard as I can, but I take some leisure when I can, just to keep my sanity.

 

[dhalltoyo]

Ditto!

A just balance is my goal.

The stuff stays here after I am gone. You can't take it with you.

The more I chased the money, the less time I had for family and friends.

Last week I delivered in Charleston, SC on Friday at 5:20am. I didn't get another offer so I called friends in Beaufort, SC. I drove 70 miles to spend the weekend at their house. I worshipped at a church that I dearly love, walked along the shoreline, ate some great seafood, sat in coffee shop at The Beaufort Waterfront Park and fired up the laptop, fellowshipped with my friends and enjoyed the sunny, warm weather.

 

[Dreamer]

Thanks to everyone who has replied so far! This is exactly what I was looking for, and I hope others will post their views also!

Even if you don't want to elaborate with a post, please take the poll.

Thanks,

Dale