How Much Does Pricing Cost You?
March 16, 2010 - 5 Comments
Think about the life-cycle of a typical intermodal load. (I’m going to assume that Sales/Customer Service, Pricing, and Operations are three distinct groups, but the example works equally well when one person handles more than one task.)
- 1. Customer requests a rate
- 2. Sales/Customer Service forwards the request to Pricing
- 3. Pricing calculates a rate and returns it to Sales/Customer Service
- 4. Sales/Customer Service quotes the rate to Customer
- 5. Customer tenders load
- 6. Operations checks availability
- 7. Operations re-requests rate if there is no capacity
- 8. Operations checks availability
- 9. Operations re-requests rate if there is no capacity, etc…
For steps 6 through 9, if capacity is available at the rate determined by Pricing during the original quote then it’s just a simple cover and dispatch of the load. If capacity has tightened, however, then extra requests must be made to Pricing until capacity can be attained at an acceptable rate.
Now, think about how long it takes for Pricing to calculate that rate. How’s 15 minutes? Does that sound about right to make sure that linehauls for every possible ramp pair, dray rates, and equipment charges are compiled? For some loads, it could be less, but others could take significantly longer. Think about loads into or out of PA/NJ/NY. There can be 5 or 6 ramps within 100 miles of each other. But let’s stick with 15 minutes. So, in the time it took you to get that rate, your customer probably called 3 or 4 other carriers so that she can compare all of the prices and make the right decision.
At this point, we could assume that you’re an excellent multi-tasker and that after you fire off a quick email to pricing you get right back to your sales calls and reporting duties. But I’m going to suggest that the amount of time it takes to construct the email to pricing plus some back and forth correspondence on the details is going to cost you about 15 minutes, as well.
Let’s assume that your rate or service is the best and your customer tenders you the load three days later. Now, Operations has to determine whether there’s capacity at that rate or not. If there isn’t they have to re-initiate the 15 minute process until they can find a suitable replacement.
Traditional Pricing Model:
So, the true cost of pricing that load is:
15 mins for Pricing + 15 mins for you + (% chance customer gets better rate while she waits * lost margin) + (15 minutes for Operations * number of times capacity changes)
Now, let’s compare that to calculating a rate with Turbine. Your customer calls you up, you banter for 30 seconds while you run the lane, scan the rate and availability of every possible intermodal combination, make sure the drayage consists of capable carriers, and provide a quote. Oh, and you offer her an over the road quote while you’re at it since it’s right next to the intermodal rate.
Your customer decides that she likes your service, the rate sounds good, and she’s too busy to chase other quotes, so she tenders the load to operations three days later and they re-run the lane to check availability. If capacity is loose, they book the load as before, otherwise they take 30 seconds while they glance at the rate of the next available box. If that total puts them over the truck rate, they decide to move the load over the road.
Turbine Pricing Model:
Therefore, the cost of pricing the load with Turbine is:
30 secs for you + 30 secs for Operations IF capacity has changed
What we’re talking about here are marginal opportunity costs, so you have to multiply these costs by every load you quote. On 100 loads the difference in employee time could amount to the difference between 45 hours and 1.25 hours, or 3,600%.
In an effort to realize top line growth you would have to add significant marginal costs. But not only that, let’s say you make a decision to quote twice as much freight as you did last year. Can your pricing process handle that kind of increase? Or will you have to add fixed costs in the form of additional employee salaries and benefits?