By the numbers: Becoming gross margin focused
Establishing a strategy for growth is the foundation for any sustainable business and for a culture of continuous improvement. In trucking, regrettably, many companies start and end their strategy with ‘truck count’.
The truck count is, unfortunately, the primary measure of success in this industry – at least on the surface. When I speak to many executives about benchmarking, inevitably the conversation leads to a statement something like “Yes, but I only want to compare myself against carriers with X number of trucks. I have nothing in common with the smaller carriers”. This statement, in my opinion, is misguided. Sure, there are economies of scale to be gained based on size (e.g. buying power, capacity, etc.). However, based on the data we collect from 207 (and growing) trucking company profiles in North America, there is no direct correlation between size and profitability.
Changing the focus from truck count to profitability will not only change the economics of individual trucking enterprises, but it will also have a beneficial effect on the supply/demand balance (which as you are all well aware, has caused a roller coaster on rates in the last 24 months). Becoming profit or gross margin focused takes discipline and creates many more ‘tough decisions’ for the executives in those businesses. To reinforce this statement, a public example of profit-focused trucking business is Heartland Express. Despite, a significant acquisition in the last twenty-four months, Heartland’s truck count actually declined over that period – when you read their sec filings, it is clear to the reader that truck count is not a primary focus. Heartland is willing to sacrifice “subpar revenue” for higher net returns. This week, we will focus on the foundational Key Performance Indicators of Profit-focused trucking companies – Gross Margin.