No matter what size operation you have, if you’re not reaching a 10% margin (or better), now is the time to set things on the right course for 2017. If you’re not there, don’t panic — you are far from being alone. In fact, if you are at 10% or above, congratulations! You might well be in the slim minority of companies operating at that level.
What happened to our margins?
Let’s go back to 2009 when the recession hit and the economy took a nose dive. We all went into a fast and furious two years of cost-cutting and fleet and staff downsizing. Then things leveled off. We tight-fisted our businesses and were extremely cautious about fleet utilization and overhead.
Finally, it felt safe to enter the waters of rebuilding our business with new vehicles, better (and more expensive) employees, and new technologies. All the while, as we have reinvested in our infrastructure, what have we done to pricing? Unbundled packages, removed surcharges, and…well? You can fill in the rest of the blanks.
How do we build back our net profit margin?
It’s easier than you think. First, get control of your overhead. I spoke to Dan Goff, a very bright operator, last week. He happens to be a CPA and a speaker at the International LCT Show next spring. We agreed that too many operators do not understand their true operating costs per vehicle. Knowing that is a crucial first step in regaining cost control. A focus should be on maximizing utility, and one growth area you should consider is “dead legs” and filling that capacity.
Second, revise your accounts receivable program. Jim Luff, former operator and now a staff editor for LCT, agrees. He told me a small-fleet operation he recently visited with a total of under $500,000 in gross revenues had over $70,000 in A/Rs lingering on his books. That is a huge drain.
Third, market smarter. Instead of looking for ways to increase sales by, say 15%, look for opportunities to decrease the cost per customer acquisition by that same 15%. Focus on upselling your top 10 customers instead of trying to find new ones. It’s more effective and less expensive.
Fourth and finally, train your employees to increase productivity. Too many operators make excuses for not earmarking the time to train and re-train staff. I can’t stress enough the importance of disciplining yourself to do so. Time is money. If you added up all the costs of mistakes and human error, you would be shocked. It pays in dividends to have a well-oiled machine and to hold your team accountable for excellence — but they must understand what that is and be reminded often.
The writing staff at LCT has been tasked with giving pricing and profiting topics top priority in the coming months. If you’ve got some ideas on how to help operators make more money, or better yet, keep it, please reach out to any one of us here. Good luck!
Keywords
bottom line building your clientele business growth finance financial planning LCT Publisher profits revenue growth Sara Eastwood-Richardson
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