Seth Godin writes:
In a competitive market, if you do the work to lower your price by 10%, your market share grows.
If you dig in deep, analyze, reengineer and make thoughtful changes, you can lower your price another 10%. This leads to an even bigger jump in market share.
The third time (or maybe the fourth, or even before then), you only achieve a 10% savings by cutting safety, or quality, or reliability. You cut corners, certainly.
The last 10% costs your workers the chance to make a decent living, it costs your suppliers the opportunity to treat their people with dignity, and it costs you your reputation.
The last 10% isn't worth it. 
We're not going to remember how cheap you were. We're going to remember that you let us down.
 
Seth produces a blog each day that I receive in my in box and I have read several of his books with my favorite being Tribes. Often what he writes about makes me stop and think.
 
This blog on the last 10% started my thinking about big box stores and other businesses we deal with who have the philosophy of cutting prices no matter the consequences.   As business owners we are constantly looking for ways to cut our costs without going so far as to hurt our core operation. 
 
One example is our MPG and if we lean to far in the direction of saving fuel we could lose out on a great load opportunity if only we could have delivered a few minutes earlier.  There are times when running the speed limit can increase our income
 
Another example is devaluing our time. We have to choose what we choose to do ourselves or what we hire others to perform for us.  I enjoy keeping all of the records for the truck, but I do not enjoy doing taxes so our business has an accountant.  Bob enjoys working on the truck and he is good at it, over the years though he has figured out what he enjoys working on and the rest we hire done. 
 
The great irony of all of this value is that we want to purchase at the lowest price possible and then many have the saying "Just say NO to Cheap Freight" when our customers are also looking for best value at the cheapest price.
 
Our time is valuable and if we stretch ourselves to thin we are down around that last 10% and the quality of our work suffers.

Comments (5)

Linda Caffee

Bob and Linda started their driver careers after their children left home for college in 2000. Bob started as a driver for a large motor carrier with Linda as a rider. They decided to enter the Expedite industry as team drivers in 2005 and purchased their first Freightliner. Both, Bob and Linda have had their Class A licenses since the early 80's starting out driving in the oil field and hauling grain as fill in drivers where Bob worked as a diesel mechanic. Linda worked at the local country courthouse in data processing.

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Very good article! It is always a delicate balance between price, supply and demand. Unfortunately some customers don't care about anything but price, sometimes not realizing the potential long term consequences like a late load that they are spending labor waiting for. And on the other side of the equation, unfortunately, not everybody is a smart business person and the barriers of entry into trucking a relatively low. Educating and coaching others - even if they are your competition - helps prop the industry as a whole. There always seems to be the ones that will drive for enough money to buy a Big Mac, coke and a 6 pack of beer for when they are off.

December 16, 2014 19:50:07 PM

Great article Linda. In my small industry I don't want to be the cheapest but I also don't want to be the most expensive. Many of the cheaper contractors end up spending more time broke down because they don't have the profit margin to reinvest in their equipment. I try for a balance between a cost effective offering to the government and enough profit to reinvest in my equipment and make it worth my time.

December 15, 2014 8:50:40 AM

Once we hit rock bottom in price we need to be looking for an exit plan.

December 13, 2014 8:23:32 AM

When we raced cars and pushed the engines to the last 10% they often would blow up .

December 13, 2014 7:42:27 AM

YES- When we are operating on that edge - we are just waiting for something to go wrong and throw off any chance of profitability. great concept

December 13, 2014 6:01:42 AM