Why Does Free Freight Matter?
December 29, 2016
Chris Stange, CFO - 12/29/2016
I often get to have conversations with dealers about a variety of topics, but many times the subject of their account comes up and ways to save money on items they buy from us. There are a few ways that we can save dealers money, and I thought I would spend some time writing about those ideas here on the new DMP blog.
In this recent study I was reading, Transportation Accounting: How Understanding Transportation and Freight Costs Leads to Strategic Thinking and More Profitable Business, it estimated freight costs between two and three percent of the total cost of an item. Of course, cost varies widely with the weight of items.
Another study I read suggested that freight in the technology and electronics industry was 2.46% of the total cost of the equipment. For the sake of this conversation, let’s just use 2.5% of sales. Buying something that costs $1,000, you’d expect to pay $25 for freight, which adds up pretty fast.
Depending on the publications you read, the cost of any company to process an order is anywhere from $35 to $300, with an average of $100 for most companies. So again for this conversation let’s agree to say $100 per order.
One of the ways for us at DMP to save our dealers money is by reducing our expenses.
We look to decrease our cost of processing orders so we can turn it around and give you the savings. We do this by encouraging you to place larger, single orders. For example, if you placed three orders for $500 each, it would cost us almost $300 to process those orders. If you could place a single order that is over $1500, then we would theoretically save $200 over the previous scenario.
That is how we can then offer you Free Domestic Ground Freight on orders over $1500.
There are other ways for DMP to save money. One is if the carrying cost on the money we loan as credit is low. That’s a fancy way to say, pay us faster. One way to accomplish paying faster is if you sign up for Electronic Funds Transfer or EFT. EFT users automatically get free domestic ground freight on ANY size order they place.
Lastly, if you qualify for column five or six (D5-D6) pricing, you qualify for free domestic ground freight. That’s just simply a way for us to thank you for being a good customer.
In all cases, to receive free domestic ground freight you must keep your account in good standing, which means you’re paying within 30 days. When you pay outside of those terms, it increases our costs and does not allow us to offer you these kinds of savings.
So how much money can you save?
If you are buying $10,000 per month from DMP, by getting free domestic ground freight you could be saving as much as $250 per month in freight. That adds up to $3,000 per year. That is $3,000 per year that stays in your pocket, for buying what you were going to buy anyway.
As an aside, if it costs us more to process individual POs, I bet it also costs you more to generate them.
By encouraging you to order more at a time, you are becoming more efficient and saving yourself money at the same time.
If you can apply $3,000 directly to your bottom line, and let's suppose that your company makes a 10% profit margin at the end of the year, then that $3,000 is like creating an additional $30,000 in sales revenue. Nobody would turn down a $30K sale.
If you haven’t been taking advantage of free domestic ground freight from DMP, I encourage you to give me a call today, and we can figure out how to make it work for you.