Stay Competitive & Maximize Margins Selling LTL Freight
Booking LTL Freight through an online portal is almost as common place as booking an airline ticket from a website these days. Whether its through the LTL carriers website or a third party freight broker’s online portal, its the convenient way to get a quote, book a shipments, and generate a BOL.
In order to offer LTL rates online you either have build a tariff for the customer or create a cost plus margin were you typically add a percentage or flat dollar markup to your freight. In the third party freight broker market, cost plus margins are becoming more common place due to the rising use of API calls to the LTL carriers’ websites to generate freight cost instead of building their LTL tariffs internally. The only problem with cost plus margins is how do I stay competitive and maximize my margins with a fixed markup to my customer?
The answer is by implementing a strategy to your margins, such as tiered cost plus margin system. If a third party freight broker applies a fixed percentage margin of 25% on their LTL freight, they might be competitive on a shipment that cost them $300, but that markup might price them out for a shipment that would cost $1,200. In an online marketplace if your product or service is overpriced it is rare that the customer will call in to negotiate a better price. They will just move on to the next vendor’s website.
To strategically maximize your margins on your lower cost LTL freight and make sure you stay competitive on your higher cost freight you need to implement a tiered cost plus margin system. That means setting your margins on LTL freight that cost $1 to $500 at say 25%, $501 to $1,000 at 20%, and shipments over $1,000 at 17% . Setting up tiered cost plus margin system by weight will have the same effect.
This strategy can also be used if you have negotiated FAK discounts with the LTL common carriers as well. Instead of passing all the cost savings for a FAK discount to the shipper, maximize margins on freight classes that get dramatically rated at the lower FAK.
If you would like more information on setting up tiered cost plus margin systems for your online LTL portal, please send me a message on Linkedin or email me at firstname.lastname@example.org.