If you own or manage a trucking company, knowing the key performance indicators (KPIs) is crucial to the success of your organization. KPIs may differ per organization and certainly per industry, but for the most part trucking companies rely on a common set of metrics to evaluate performance. Identifying and tracking the KPIs that are appropriate to your company’s performance is comparable to using a compass and map to evaluate direction and progress toward your strategic goals.
Identifying the KPIs for your Trucking Company
Selecting the appropriate KPIs to monitor is the first step in aligning business metrics with your trucking company’s strategic goals. There are numerous KPIs to choose from that gage financial status, customer scorecards, process efficiencies and more. The best way to determine the KPIs relevant to your organization is to research and understand some of the most important metrics. To be effective, a KPI must:
- Be well defined and quantifiable
- Be crucial to achieving your strategic goals
- Be thoroughly embedded throughout your organization
One of the most important and fundamental rules of using KPIs is “less is definitely more”. KPIs are the metrics you want to track every day for an overview of your company’s performance. Too many are confusing to track and excessive information becomes hard to decipher.
Key Metric Categories
The most relevant KPIs commonly shared by the majority of trucking companies are grouped under four metric categories: financial, process, customer and people.
- Profit: No doubt, this is the most important performance indicator to measure the success of your company. Analyze both gross and net profit margins to determine how successful your business is at generating a desired return.
- Revenue vs Target: This is a comparison between projected revenue and actual revenue generated. Monitoring the discrepancies between these two numbers will help to identify how well your fleet is performing.
- Cost-per-Mile: Knowing what your operational costs are on a per-mile basis allows you to manage expenses efficiently and determine an appropriate per-mile rate to charge shippers. Determining your company’s cost-per-mile is a simple calculation if using a calculator designed for the purpose. The calculation should be performed often to best control expenses.
- Day Sales Outstanding (DSO): This is a measure of the average payment days of your customers. This important metric is vital in determining the state of your company’s cash flow and to help prevent unnecessary credit risks. Calculating DSO is a simple equation that should be assessed on an ongoing basis. It is well worth noting that a common financial strategy used by trucking companies to improve cash flow and gain immediate access to working capital is to utilize invoice factoring. Progressive trucking companies and growing fleets are readily adopting the use of freight factoring, a specialized form of invoice factoring designed specifically for the transportation industry.
- Freight Claim: Analysis of the number of claims filed, claims resolved and resolution time will enable you to monitor and improve customer service to build loyalty and command the best price for your service.
- Equipment Utilization: Efficiency is measured differently in every industry. For trucking, maximizing equipment utilization is the key to increased profitability. Measure your equipment’s usage verses idle time to determine productivity levels.
- Customer Lifetime Value (CLV): CLV is a prediction of the net profit attributed to the entire future relationship with a customer. Use this performance indicator when searching which channel helps acquire the best customers for the best price.
- Customer Acquisition Cost (CAC): Divide your total acquisition costs by the number of new customers in the time frame you’re examining. This will help determine the best channels for securing new business.
- Driver Turnover Rate (DTR): Determine your DTR by dividing the number of drivers who have departed the company by the average number of drivers in your pool. If you have a high DTR, spend some time examining your workplace culture, compensation packages and benefits.
- Employee Satisfaction: Happy employees work harder, more productively and remain on staff longer. Measure employee satisfaction through surveys and other metrics such as interviews and reviews.
Integrate KPIs throughout your trucking company
KPIs should match your company’s strategy and goals. Make sure to examine as many performance indicators as possible to determine the most appropriate KPIs for your unique operation. Once selected, integrate them throughout your organization and focus employee attention on the importance of maximizing performance.
Always remember that of all the KPIs, tracking cash flow ranks high as a critical metric. Without easy access to working capital, trucking companies are unable to sustain operations day in and day out. If your customers are slow to pay, bill payments are falling behind or your growth plans are hindered by the lack of financial resources, then freight factoring is the ideal financial strategy for your trucking company.