Key Performance Indicators to Drive Business Decisions
Digital transformation is taking place across all industries and is particularly prevalent in transportation and logistics. For fleet managers and owners of trucking companies, this shift means one thing — modernize your management systems or roll the dice on your digital, data-driven competition, gaining a competitive advantage and leaving you behind.
While digitizing your company and becoming data-centric is a significant change, it does not have to be a difficult or costly process. Understanding the importance of key performance indicators (KPIs) and why they’re vital to performance and long-term profitability is where to begin.
The Power of Metrics in Driving a Well-Run Operation
KPIs are quantifiable business metrics that track and measure a company’s progress toward its strategic goals. KPIs track the metrics that are most important to a company for achieving those goals and, in doing so, provides fleet managers and owners numerous advantages, including:
- The ability to measure performance and progress and identify problems to improve operations
- The ability to make analytical based decisions by identifying patterns and trends
- The insight to adjust goals and targets and focus on those areas that matter most
- The ability to identify bottlenecks and improve efficiency
While KPIs vary by industry, company, and departments within an organization, what’s common among all is that the KPIs selected should be in line with a company’s overall strategy and goals.
There are hundreds of transportation KPIs you can measure for trucking companies, but you want to focus on those that matter the most to your company and that you can act upon. Examine as many as possible, but choose wisely. Too few; you may not get an accurate picture. Too many; you may find yourself drowning in data.
To narrow down the number of KPIs, you must keep in mind that to be effective, a KPI must be:
- Critical to achieving your strategic goals
- Embedded throughout your company
- Metrics you want to track every day, so you get an accurate overview of your company’s performance
To help you further whittle KPIs down, the following are some of the most common KPIs shared by trucking companies across four metric categories.
Not a surprise, profit is the most crucial performance indicator for measuring how well your company is doing. To get an accurate picture of your success rate for generating the desired return, make sure to analyze both growth and net profit margins.
Revenue vs Target
This performance indicator provides a comparison between your projected revenue and your actual revenue. Monitoring the differences between these numbers will give you insight into your company’s overall performance.
Gaining knowledge of your operational costs on a per-mile basis gives you the ability to manage expenses efficiently and also the ability to determine the per-mile rate to charge shippers.
Day Sales Outstanding (DSO)
This metric is essential in determining the state of your company’s cash flow and improving cash flow. It represents the number of days it takes your company to collect its accounts receivable from your customers. This provides insight into the quality and efficiency of your accounts receivable department in billing customers and collecting payments.
This indicator allows you to analyze the number of claims filed, claims resolved, and the time for resolution. With this data, you can make changes to improve your customer service efforts, which can help grow your customer base and increase profitability.
For trucking companies, maximizing equipment utilization is crucial to maximizing profitability. To determine productivity levels, measure your equipment usage time versus its idle time.
Customer Lifetime Value (CLV)
CLV is a calculation based on customer retention, average revenue per mile, and delivery cost per mile. CLV gives you insight into the potential value of each customer and is critical to understanding what each customer is worth from a financial perspective.
Customer Acquisition Cost (CAC)
This can be applied individually as all the costs to secure a customer or as the average cost to your company for acquiring a new customer. Suppose data shows that your customer acquisition cost is equal to or exceeds the CLV of that customer. In that case, you can initiate efforts to correct the problem, such as raise rates or change your marketing strategy.
Driver Turnover Rate (DTR)
To calculate your company’s DTR, divide the number of drivers who have left your company by the average number of drivers in your pool. If your DTR is high, you can examine areas such as safety, workplace culture, compensation, and benefits and implement changes to lower your DTR.