Turnover v Profit- The Percentage game
An interesting topic highlighted week in and week out by those entrepreneurs collectively known as the Dragons from Dragons Den. Yet again i’ve witnessed someone turn down an offer from one of the Dragons because she felt the %age they wanted was too high. I’m the first to shake my head when this happens because they’ve missed the point. If you only plan to give away 15% of, let’s face it something that isn’t yet a business, and you get an offer but they want 40% you’ve let your emotions get in the way. You’re just not doing the maths.
It’s purely a numbers game.
What they bring to the table is the probability that with them, you’ll turnover bundles, and without them you won’t. So what would you rather have, 100% of nothing, or 60% of something?
Using the same analogy in my world, sameday couriers, you would probably expect me to be on the “charge less but get lots of it” side of the fence. However, you’d be wrong.
The simple facts are that big volume for small profit just doesn’t work in the sameday market. Quality of Service does, and that comes at a price.
There are some that do make it work, but generally at the cost to both the customer, and the courier being asked to collect and deliver whatever it is the customer has for them.
For example If i charge £1.25 per mile for a small van, and I can get it covered for 75p per mile, then I have a margin of 40%. If i only turnover £250,000 then i have a profit of £100,000 (Less costs) Not bad
However, if i reduce my charge to 90p per mile and still get it covered for 75p per mile, i now have a margin of just 16.67%, but i’ve trebled my turnover to £750,000, giving me a slightly higher profit of £125,000. But i’ve had to recruit more office help to do it, because it’s too much for one person to do, thereby lessening my profit.
What tends to happen in this scenario is, the courier is expected to cover the work for less. Much less. In some cases as low as 48p per mile!
If we redo the figures so that the courier gets 54p per mile, we’re back to a margin of 40% and a much healthier profit of £300,000. Ok more office bods to help, but still very worthwhile i think you’ll agree.
So by reducing my charge by almost 30% I treble my turnover and my profit. So what’s stopping me?
What’s stopping me is the 54p per mile i’m asking a courier to cover the job for. It’s not enough.
At this level you are opening yourself up to drivers who are uninsured, drivers who are co-loaded, and/or drivers who don’t care. And why should they. You clearly don’t care about them, so why should they care about you? Your service level drops, your customer complaints increase, so much so, you start losing them. In the short-term you may get away with it, but if you’re in this for the long haul, it’s a mistake.
Real customers know the difference.
I’m in business to make money, but i also have ethics, and i want every single job we do, to be done properly, by a professional courier, who understands what it is we do.
In my view it’s a partnership, I get the work, and the courier carries it out for me. I ask no-one to do something that i wouldn’t be prepared to do myself.
Can you all say the same?