by Timothy D. Brady
“Don’t put all your eggs in one basket.” You shouldn’t let a single customer represent any more than 20% to 25% of your total revenue or accounts receivable.
When you only have one egg in your basket
This, without question, is one of the most difficult success principles to which a small business owner must adhere; even more challenging for the micro-motor carrier or single truck owner to face. Many trucking companies get their start because the owner has an established relationship with one particular shipper or broker. In many cases, this primary shipper/broker represents 100% of the outbound freight a new carrier has. This, depending on the carrier’s freight lane and the number of legs within the lane, can represent 40% or more of the trucking company’s total revenue. In some instances where the carrier is hauling both outbound and inbound for the same company, that percentage of revenue dependence can go all the way to 100%.
‘How is this a problem?’
You have consistent revenue and one company to invoice. You have the ease of dealing with fewer people and a better opportunity to provide the highest quality customer service to one customer as a single truck operator. All seemingly good reasons for the ‘all eggs in one basket’ approach. However, here’s the catch—What happens if this single customer has a slowdown in freight due to any number of possibilities? Labor disputes, a weather event (think Joplin or Tuscaloosa), a change in ownership that wants to bring in the brother-in-law’s trucking company to haul the freight. Or it might be something as subtle as a change in management strategy and the small carrier’s freight is suddenly reduced or worse, no longer available.
The more shippers and specific freight brokers a truck owner has established, the more consistent and stable the trucking company’s revenue.
Think in terms of the law of averages.
Say your primary outbound customer represents 25% of your total annual revenue. You have a secondary outbound customer who represents 15 % of that total, and a freight broker who you can rely on, for another 15%. In addition, a couple of smaller brokers provide another combined 15%. Add a quality load board to this entire mix for another 15% for both outbound and inbound freight, and 2 additional brokers for inbound freight representing the remaining 15%. Now you have spread your risk over eight different entities and if any of these eight freight sources reduces the revenue and or available loads, you have seven other established hauling relationships to find replacement freight and income.
The object here is to have established freight sources ready to fill a revenue void, regardless of the reason or cause leading to the loss of one.
Having multiple baskets instead of just lots of eggs is the key. You shouldn’t let a single customer represent any more than 20% to 25% of your total revenue.
Timothy D. Brady ©2020 all rights reserved
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