Believe it or not, it's almost time for the leaves to fall and the temperatures to drop. The final quarter of the year is approaching, and many companies will find themselves reviewing their 2013 budgets and planning for 2014. During this process, especially with transportation costs on a steady incline, many 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 comprehending the negative impact this could potentially have on their bottom line, companies may be able minimize the impact in order to realize greater profits.
Understanding Your Transportation Costs
If you are looking to understand your transportation costs as a percentage of your revenue, it's important to first understand what is considered an acceptable range. Transportation costs should run consistently in line with your company's sales. As you grow, so should transportation costs. However, it's important to review your pattern of freight spend in relation to sales in order to set your benchmark. Above average increases in transportation costs could indicate your expenses are cutting into your bottom line. When your freight spend becomes a significant percentage of your total revenue, it starts to have a negative impact. To put it in perspective, if you average $1 million in annual sales, imagine the impact paying or saving an additional $10,000 a year in transportation could have on your bottom line.
What are your costs?
In order to understand your transportation costs as a percentage of your revenue, you first have to understand what your transportation costs actually are. While this sounds really 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 may be non-existent. 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 access to detailed reporting will allow you to take the appropriate action, whether it's looking for efficiencies to offset the increases to your transportation costs, or working with your salespeople 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're not sure where to start or would like some help analyzing your costs, we would be happy to work with you. Sign up for a free, no-hassle freight consultation.