Few activities in trucking can be as profitable as closely analyzing your rates per mile (RPM) and actively working to improve them. A thorough, data-driven approach to RPM helps you identify profitable customers, pinpoint areas for price increases, and ultimately increase your bottom line. Here’s a breakdown of how to use RPM reporting effectively and make the most of every mile.
RPM is a critical metric for understanding profitability by customer, lane, or order type. To get a truly accurate view, it’s essential to use a standardized RPM approach that considers all key factors, including fuel surcharges, mileage calculation, and order characteristics. The best way to achieve this is by calculating a 'normalized linehaul rate per mile,' which equals the billed linehaul rate plus the billed fuel surcharge, minus your company’s fuel surcharge in place at the time of the move, all divided by a consistent, practical mileage standard. This ensures you have a reliable benchmark to evaluate each order's revenue.
The Key Elements of Rate Per Mile Comparison
1. Loaded and Empty Miles: It’s crucial to consider both loaded and empty miles associated with each order. While loaded miles directly contribute to revenue, empty miles can impact profitability. By tracking both, you get a fuller picture of each trip's overall efficiency.
2. Order Velocity: Analyze the speed of each order by examining miles driven per hour. This metric helps you see which lanes and orders are moving quickly and where delays may be impacting overall productivity.
3. Number of Stops per Order: Each stop adds time and potential costs, affecting the overall RPM. Tracking stops gives a clearer view of orders with higher logistical demands.
4. Order Attributes: Consider these additional order characteristics to capture a fuller picture of your business:
- Geographic Markets
- Company Divisions
- Equipment Types
- Solo vs. Team Drivers
- In and Out of Network
- Customer Type: Brokers, direct customers, or facilities with unique requirements
- Contract Type: Comparing spot rates vs. contract rates can reveal stable and fluctuating pricing opportunities.
How to Use Rate Per Mile Reporting to Drive Profit
1. Rank and Review: Rank your normalized RPMs to quickly identify your most and least profitable customers and routes. This allows you to see which areas of the business are performing well and which need improvement.
2. Visualize Rate Distribution: Mapping out the distribution of normalized rates per mile across a lane helps reveal trends in market-moving rates.
3. Identify Pricing or Rating Errors: When reviewing data, keep an eye out for anomalies, such as zero-mile orders or extremely high or low RPMs. Correcting these errors can yield substantial profit and help resolve collections issues. These errors can also skew your analysis, so it’s essential to correct them for a clearer picture of your performance.
4. Find Opportunities for Price Improvement: The biggest gains come from identifying customers with rates below the median or average RPM in the same lane. These areas may indicate where rates can be renegotiated, and where additional data can be added to help justify a price increase.
Conclusion
Effective RPM reporting is a powerful tool for trucking businesses aiming to boost profits and streamline operations. By focusing on a consistent, normalized RPM approach, analyzing loaded and empty miles, and factoring in key order attributes, you can get a precise view of where your business stands and make informed decisions to improve profitability.
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