Have you taken the time to determine the true cost of getting equipment to/from your customers? Costs have skyrocketed over the past few years, due largely to the cost of fuel, insurance costs, and equipment maintenance. This is an excellent time to review your policy for charging for freight and delivery/pick up and see if it makes sense to evaluate an advanced delivery routing system. While you are at it, you may want to look at your policy related to freight charged for special order parts.
Delivery/Pick up Charges
Almost every rental company charges something for the delivery and pick up of equipment, but are you charging enough to cover the costs AND make a reasonable profit on the service? When was the last time you reviewed and updated your delivery policy? If you are like 82% of the rental companies in the U.S., you haven’t increased your delivery fees in over five (5) years and yet, delivery costs have gone through the roof.
- According to the web source, gasbuddy.com, U.S. fuel costs have risen from $1.97 in 2006 to over $3.60 per gallon today.
- Steel shortages and other market driven factors have forced the price of repair and maintenance parts to increase in cost significantly faster than standard inflation.
- While labor rates have been fairly stagnant, the burden costs of your labor force have continued to rise through the last five years due to increases in health insurance costs, governmental regulation, etc.
- Equipment Insurance continues to rise at a rate slightly higher than the national inflation rate.
According to our research, $1 in freight/delivery costs in 2006 cost $2.39 today. That extra $1.39 is coming directly off your bottom line profit! If you are one of those companies that has not raised your delivery rates in recent years, it is time!
When a customer asks you to ship parts or equipment to them, you should be offsetting the fees charged by shipping companies such as UPS, Fedx, USPS, and others. Many software offer integration to on-line freight rating systems that allow you to capture these costs in your quotes and shipping invoices. Accurate calculation of freight during the quoting process can save you hundreds or thousands of dollars each month.
Many distributors treat freight charges as a potential profit center by marking up the cost of shipping by a percentage or by a price per box. This profit will offset the cost of labor and materials used in the shipping price. When determining your markup method and amount, make sure that you take into consideration the burdened cost of shipping (labor, materials, space, etc.).
Freight Charges for Special Order products
When a customer asks you to special order an item(s) for him, you should always consider what it costs you to get the item delivered to you or directly to the customer. That shipping cost (and related profit) should be added to the special order invoice. Depending on the size and weight of the item, the freight costs could exceed the profit available on a specific item.
Do it Today!
Many of our customers are struggling to bring an extra 2-3% profit to their bottom line. Managing your freight/delivery costs carefully and asking your customers to pay a fair price for the delivery and/or pickup of equipment will give you the needed profit – and then some. The longer you put off reviewing these costs, the more money you will let slip through your hands. Stop procrastinating and start charging!