One of the most common challenges facing businesses that send freight is recovering outbound delivery costs. Until 3D printing and nanotechnology replace the need for physical distribution, physical items need to be moved and someone needs to pay for it to happen.
Customers often tell me they don’t have a freight cost problem – the rates are fine – but they have a freight recovery problem. Their sales people won’t charge freight for fear of losing the sale, a competitor with a local warehouse can use a local carrier or the items are just too big and ugly to do anything about it.
Freight therefore ends up going on the bottom line, eating into margins that are already being squeezed by general market forces. The advantage of pursuing freight cost recovery is that even a small percentage recovered can have a big effect profits. Additional revenue to cover a cost you were always going to have? Sounds a great idea.
Perhaps one of the solutions suggested below or a mix of several can help alleviate the problem for your business.
1) Charge for freight.
This can be called “handling” or “postage and packing” if you are concerned about freight. When charging for freight it is important to encourage customers to compare the other quotes – is your competitor offering “free” freight, but really just charging extra to cover the cost?
There are various ways of providing freight cost simply to sales people, order takers or in your shopping cart:
· An online link to your freight management system
· A ready reckoner – perhaps by postcode or region
· A flat fee that recognises the overall cost of freight to your business.
2) Provide staff incentives for freight recovery.
In many businesses it is the sales people who refuse to recover freight. They’re afraid of losing the sale or feel uncomfortable adding more cost once a sale has been negotiated. Measuring freight cost recovery by salesperson and then providing a regular, generous bonus can work wonders. All that is required is to set a % goal of freight recovery and then award bonuses when that figure is exceeded. As with all bonuses, they need to be achievable and rewarded within a short time period. Quarterly or annual bonuses are too distant and esoteric to have any real effect on behaviour.
3) Increase all prices and absorb the freight cost.
It’s a brute force attack but I have seen it work. If freight is 4% of sales, increase all prices by 4% and freight recovery now = 100%. There are risks. You are now 4% more expensive than previously, and whilst your regional and remote customers are getting a great deal, the customer next store is now paying well over what he used to.
4) Free freight for large orders.
With this option, smart sales and freight combine. Incentivise your customers to order more, less often. Rather than daily $1000 orders, perhaps offering free freight for orders $5000 and over. You will charge freight on the smaller orders, but here the receiver is making the decision on whether or not to pay freight. This option will either reduce your overall freight bill, increase cost recovery, or perhaps both!
5) Only charge for premium delivery services.
So sales has resisted in charging freight as a standard business rule. By charging for premium services (e.g. – overnight or same day) but offering road or general as a free option you will reduce your freight cost, stop the sales team from putting every order on airfreight and recover those big one off costs that your customer is prepared to pay when the order is genuinely urgent.
My suggestion with all these options is to trial on a small basis first. Think lean and don’t jump in with both feet. Perhaps a customer group, a geographic region or a product line may be a good start.
Feel free to comment below if you have a great idea I’ve missed. I’m interested in hearing your results if you try one of these methods.
Marshall Hughes has over 18 years’ experience in the Australian freight industry. As Chief Operating Officer of Poste-Haste Freight Management Systems he has overseen four fold growth over the last 10 years.
His key areas of strength are freight management, carrier rate negotiation, customer service, sales and IT.
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