Maximizing revenue growth is a top priority for most logistics companies to achieve long-term success. But how can companies ensure that their current operations and strategies are best positioned to achieve those goals? Measuring and tracking specific metrics is the most effective way to identify areas for improvement and drive sustained revenue and margin growth.
In this blog, we will discuss the four most important metrics that freight brokers and thrid party logistics providers (3PLs) should continually track which include:
- Days sales outstanding (DSO)
- Personnel efficiency
Days Sales Outstanding
DSO measures the average number of days it takes for a company to collect payment on its sales. In simple terms, a high DSO indicates that a company’s customers are taking longer to pay, which leads to liquidity issues, increased financing costs, and a negative impact on cash flow. All of which limit the agility of an organization which is an impediment to growth.
On the other hand, a lower DSO helps a company free up cash that could be used for growth-oriented investments. According to a Q1 2023 report by Dun & Bradstreet, nearly 10% of all payables within transportation are over 90-days past due, creating a major problem for freight brokers and carriers to have necessary operating capital. By tracking this metric, companies will identify areas where they need to improve collections procedures, collaborate with customers to optimize payment processes, and/or invest in technology to streamline billing and payment procedures.
Far too many freight brokers and 3PLs rely on their personnel to manage what could be automated in their back-office operations. This means that in order to scale, they need to add more employees which is a costly proposition and a significant roadblock to corporate growth.
Tracking personnel efficiency metrics such as revenue per employee or profit per employee helps companies understand where they stand relative to their industry peers and determine whether they are over or understaffed. If a company is understaffed, the additional stress often leads to lower employee morale, reduced productivity, and increased employee turnover. On the other hand, overstaffing reduces profitability and results in reduced investments. By tracking personnel efficiency metrics, companies will identify opportunities to improve training, reallocate work tasks, and/or automate certain job functions to maximize efficiency.
Order-to-cash is a critical metric for freight brokers and 3PLs, as it measures the time it takes to receive payment for a product or service sold. A high order-to-cash cycle indicates issues with invoice accuracy, poor communication with customers, or inefficient billing and payment processes. This typically leads to a negative impact on cash flow, increased financing costs, and reduced profitability.
By tracking order-to-cash, companies will identify areas to improve processes and up-skill employees to better manage the relationship with customers increasing efficiency, accuracy, and reducing lead times.
Profitability is ultimately the most important metric for all businesses, and transportation and logistics companies are no exception, especially in this market. Companies must always remain vigilant to keep a watch on every penny spent and earned, as there is always a constant margin squeeze in this industry. By continually tracking their profitability metrics, companies will be able to make informed business decisions around cost control, investment in technology, diversification of customers and geographies to achieve sustainable growth.
As 3PLs and freight brokers look to gain a competitive advantage, the ability to gather and interpret data is more important than ever. Tracking the four key metrics mentioned above will provide transportation and logistics companies with the insight they need to drive growth and remain competitive in their industries.