Advice I received decades ago still serves me well... just like this phone which also served me well for decades .
Years ago, I happened to attend a conference in Kentucky when an executive asked me “how do you determine your rates for customers?” This is a complicated question as it really depends on the market you are servicing.
Before starting my trucking company, I asked someone this same question. I knew this particular man for quiet sometime and he lived in my hometown. He was greatly respected by me and throughout our community. He began his company with one truck and over the years grew to approximately 80 trucks. As a young man, I remember him speaking about his company and what it took to get established within the market. We talked one day about rates and operating costs. He explained to me that neither had anything to do with one another. I was a bit puzzled by his comment but was eager to listen. He spoke about how the market determined rates and we discussed supply and demand. I learned that sometimes rates exceed your operating costs and at other times, they can also be below operating costs. My question to him was “why would you ever operate at a loss?” I was surprised to find out that often it was the load at a loss that determined if the week would be a profitable one or not. For example, if you are transporting a load for $3.00 per mile and turn around and go back empty because you’re not willing to haul the freight for $1.00 per mile, that $3.00 per mile just became $1.50 per mile on all miles traveled for this trip. Now suppose you hauled the $1.00 per mile on the return, now you have earned $2.00 per mile on all miles traveled on the trip. The .50 increase equals $50,000.00 every 100,000 miles traveled. You really need to be thinking and calculating all miles traveled and not just the pay per load. I realize this is a simple example where other factors should be considered including out of route miles.
Here are some factors to consider when determining rates.
1. How much competition do you have going into a given area?
2. Does anyone else want to service the product/area you want to serve?
3. Are you serving a niche in the market?
4. Do you offer something for your customer that your competition cannot provide?
5. How much value do you bring to the table?
In closing, I remember asking my friend in the trucking business “how do you know if you are correct in your negotiated rate?” The answer he told me remains in my thoughts today as he said to me “you will know as if your phone rings a lot…your rate is too low and if it doesn’t ring enough, then your rate is too high.”