By Brian Kenney, VP TCL Division
As the leaves begin to fall and the temperatures to drop, many companies find themselves heading into the final quarter of their fiscal year—reviewing their 2011 budgets and planning for 2012. During this process, especially with transportation costs on a steady incline, many of these companies may also find themselves facing the unpleasant prospect of a smaller bottom line. However, by understanding their transportation costs as a percentage of their revenue and the negative impact this could potentially have on their bottom line, companies may be able minimize the impact in order to realize greater profits.
If you are looking to understand your transportation costs as a percentage of your revenue, it is important to first understand what is considered an acceptable range. Transportation costs should typically be between 3-8% of your revenue. If your freight spend is 3% or less, then you are doing a great job managing these costs. If you fall within the 5-8% range you are doing well, but you may still be able recognize additional savings. Anything over 8%, however, is a cause for concern. When your freight spend becomes such a significant percentage of your total revenue, it starts to have a negative impact on your bottom line. To put it in perspective, if you average $1million in annual sales, imagine the impact paying or saving an additional $10,000 a year in transportation could have on your bottom line.
In order to determine your transportation costs as a percentage of your revenue, you must first know what your transportation costs are. While this sounds relatively obvious, many factors could actually make this a rather complicated undertaking. For example, many companies rely on email and spreadsheets to manage their transportation so the ability to generate this type of reporting is pretty much nonexistent. In addition, some companies roll their transportation costs into the price of their product and have no way of separating this out within their current system. As a result, many companies are not sure how much they are spending on transportation.
Detailed reporting is required to truly determine how much you are spending on freight. If you cannot determine what percentage of your sales is being spent on transportation, then you may want to consider budgeting in a TMS or ERP system that can provide you with this type of functionality. The long-term benefits will far outweigh the initial upfront costs. Having detailed reporting will allow you to take the appropriate actions whether it is looking for efficiencies to offset the increases to your transportation costs or working with your sales people to sell your products at a higher price. Determining your true freight costs can drive actions that can have a major impact on your bottom line.
If you are not sure where to start or would like some help analyzing your costs send me an email at brian.kenney@trinitycustomized.com and I would be happy to work with you.
