Logistics Accounting: Best Practices To Follow
Courier companies generally operate on minimum profit margins and heavily depend on time and package volume. The fast-paced nature of the courier industry means fast lactation of KPIs (KPI) for growth, survival, and success is essential for your organisation. However, many courier operators have an abundance of data and very little understanding of what KPIs mean. In this case, measuring all metrics, such as financials, customer satisfaction, volume, and profitability, but not understanding any of them, leads to inconsistent KPI development and success.
The difference between the successful and unsuccessful operations of courier companies is based on what KPIs are used to assess their performance. Now, let’s take a closer look at the most meaningful and important KPIs that contribute to success for courier organizations.
Your on-time delivery rate is the most important number in your courier operation. This number reflects the percentage of deliveries that arrive by the time promised to your customers. The best-performing companies in the industry have an on-time delivery rate of greater than 95% as a matter of practice; however, it is critical to identify the underlying reasons for any variations from your forecasted numbers.
As you monitor the on-time delivery metric, analyze all aspects of this number, i.e., by driver, route, time of day, and service level. If a driver has consistently late deliveries for the afternoon routes, it is likely that this driver is experiencing similar daily traffic patterns that affect delivery timing.
There is a cost associated with every failed delivery attempt: fuel, labor, and frustrated customers. The percentage of first-attempt delivery success measures how many deliveries you are able to complete on the first attempt. The best companies have a 90% or better success rate with first-attempt deliveries, but to reach this level, they must identify and eliminate the underlying causes of failed deliveries (e.g., incorrect address, recipient unavailable, and access issues).
The impact of first-attempt delivery success on cost per delivery and customer experience is direct. When customers aren’t at home, it’s not just a lack of efficiency; they are frustrated and likely to look for an alternative provider.
The effectiveness of a company is largely determined by how satisfied its customers are. To gain insight into customer satisfaction, consider sending brief surveys to customers following each delivery, inquiring them to provide a rating from one through five (1-5) of their overall satisfaction with the service they received. The CSAT or Customer Satisfaction Score measures how many customers gave you a score of 4 or 5 on your survey.
Unlike operational metrics (number of successful deliveries) which measure the operational movement of the packages, CSAT measures how customers really feel about your service. For instance, a package could arrive on time per your operational metrics; however, if the delivery driver was rude to the customer or the package arrived damaged, the CSAT most certainly reflects that.
Incorrect deliveries due to incorrect addresses, misdirection and/or incorrect items create a great deal of frustration for both the customer and courier companies. The percentage of deliveries made without errors is the Delivery Accuracy Rate.
Tracking this number as a key performance indicator (KPI) is essential, as each error made erodes trust between the customer and the company, and results in increased costs associated with customer service. In fact, the most successful courier companies have been able to maintain delivery accuracy rates in excess of 99% by using each delivery error and/or mistake to help improve delivery accuracy.
This is where profitability lives or dies. Your cost per delivery includes fuel, driver wages, vehicle maintenance, insurance, and overhead allocated to each package. Knowing this number lets you price services appropriately and identify efficiency opportunities.
Calculate it monthly by dividing your total operating costs by the number of deliveries completed. If the number of deliveries increases without an equal increase in prices, this means that your profit margin is decreasing. Compare this figure to your total revenue per delivery to confirm that you are still generating profits for each package you deliver.
Use the time a package is picked up until delivered to calculate the number of deliveries your team needs to make each day, and to set customer expectations accurately. Accumulate data based on route type (urban, suburban, or rural), since these will vary greatly.
Track this information for the purpose of enhancing routes, adjusting human resources, and identifying impediments within the delivery process. Additionally, if you notice a rise in average delivery time, determine what has caused the increased time; this may be caused by changing traffic patterns, a larger volume of packages, or difficulties with operations.
Delivery revenue illustrates how much money you are bringing into your business each month while cost per package shows the total amount you are spending to deliver packages. Revenue per package provides an overall return on investment for your business because you can see both numbers together in order to determine how much profit you are making for each package delivered.
If the revenue per package delivered is decreasing, it may indicate that you are in direct competition with lower priced competitors or your target audience has shifted away from premium services. To evaluate profit margins effectively, you must segment by tier – Same Day Delivery, Next Day Delivery, or Standard Delivery. Additionally, sometimes the Budget Option may help support the Premium Options as part of a calculated marketing strategy rather than a hidden cost where the lower priced option takes away from the higher priced options.
What are the costs of acquiring a customer? How much revenue can you expect from them? If you spend $200 on acquiring customers who only make a single $50 purchase, then your entire business model is broken.
Successful courier companies prioritize keeping their current customers because retaining loyal customers creates substantially more profitable revenue than simply trying to constantly acquire new ones. Consider monitoring the number of repeat customers and the average length of time a customer remains loyal through these metrics.
Disciplined measurement and action are what separate successful courier businesses from those that struggle to survive. It’s critical to monitor at least 10 – 15 metrics that correlate with customer satisfaction and profitability; therefore, you don’t need to track 25 – 30 different metrics.
You should start measuring the four primary metrics outlined here (on-time delivery rate, first-attempt success rate, customer satisfaction, and cost per delivery) to gain greater clarity regarding your company’s overall operational health.
