Inefficient contractors fail, how to avoid the pitfalls.
Good morning, good afternoon, and good evening all. I’m sure you’ve seen the headlines by now, Contractors are facing certain bankruptcy if they don’t receive a raise! Each Contractor has a unique service area they deliver to. I do not believe two service areas fit the same mold. I started working in this space in 2009 as a driver. Several months later, my dad and I had the opportunity to buy a set of routes. I would watch contractors do very well, and I would watch a handful fail over the years. The failures had several things in common; I want to take a look at what I’ve seen firsthand. These same trends are causing other brokers to claim contractors are facing certain bankruptcy if things don’t change.
- They are absent from their business. The top operators in this space are all very hands-on with their operations.
- They have inefficiencies within their business. High payroll is bleeding some contractors to death. Payroll should be 50%-55% of your gross revenue. I’ve seen it as high as 80% before! Once that contractor made the change, they started making money again!
- Lack of DRO knowledge. DRO is Dynamic Route Optimization; Contractors use route planning software to plan the next day’s deliveries. We have people who can train you on how to use this tool to get within 10-15 stops off the estimated stop count! This is where you will either make your money or lose your money each day!
We think inflation will ease heading into 2023. Gas prices have steadily been declining the last several weeks as we pass the height of the summer driving season. The labor market has seen drastic improvements with better prospects in the last 4-6 weeks. I think a lot of the business headwinds everyone faces will turn into tailwinds moving into 2023.