by: Tim Brady
From investing to job opportunities to new relationships, we've all heard someone warn: "Don't put all your eggs in one basket."
And when it comes to your customers in the trucking industry, better advice would be hard to find. To ensure you remain profitable and viable in the long run, you shouldn't let a single customer represent any more than 20 to 25 percent of your total revenue or accounts receivable.
This principle of success is -- without question -- one of the most challenging for small business owners to observe and is even more challenging for the micro-motor carrier or single truck owner to face. In fact, many trucking companies get their start because the owner has an established relationship with one particular shipper. Often, this primary shipper represents 100 percent of the new carrier's outbound freight. And depending on the carrier's freight lane and number of legs within the lane, this shipper's freight can represent 40 percent 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 percent.
"How is this a problem?" some may ask. 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 service to one customer as a single truck operator. Aren't all of these conveniences seemingly good reasons for the "all eggs in one basket" approach?
Like so much of life, what seems too good to be true is.
Here's the catch: What happens if this single customer has a slowdown in freight? Any number of possibilities could impact your "guaranteed" freight: 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 available freight is suddenly reduced or worse, no longer available.
With 40 to 100 percent of revenue gone, how could you stay solvent?
Rather than relying on one major customer, the more shippers and specific freight brokers a truck owner has established, the more consistent and stable the trucking company's revenue will be.
Think in terms of the law of averages. Let's say you have:
- A primary outbound customer who represents 25 percent of your total annual revenue.
- A secondary outbound customer who represents 15 percent of that total.
- A freight broker you can rely on for another 15 percent.
- A couple of smaller brokers who provide another combined 15 percent.
- A quality load board that contributes another 15 percent for both outbound and inbound freight.
- Two additional brokers for inbound freight that represent the remaining 15 percent.
Finding and maintaining those baskets may be more work than relying on one large customer, but we all know freight availability can fluctuate wildly. By diversifying your customer base, you spread your risk over eight different entities. If any of these eight freight sources reduces the revenue or available loads, you have seven other established hauling relationships to find replacement freight and income.
Because, after all, if you want to carry lots of eggs, you're going to need plenty of baskets.
