Top 7 Must-Measure KPIs for Freight Brokers

Freight brokerage industry is growing at a staggering pace. With a highly competitive market, businesses are forced to streamline their operations to succeed. To accomplish this, freight brokers have started relying on Key Performance Indicators (KPIs) to make data-driven decisions. Let's explore the Top Seven KPI Metrics that every freight broker must measure.

• Freight Volume Growth Rate: This KPI measures the percentage growth of transported freight year over year. By tracking this metric, brokers can analyze their performance, identify trends and forecast future revenue growth.
• Average Shipping Cost Reduction Rate: This KPI helps freight brokers keep a check on the unnecessary costs and increase their overall profitability. The metric calculates the percentage of reduction in shipping costs over a set period.
• On-time Delivery Rate: Every business expects their deliveries to arrive on time. This KPI thus measures the percentage of deliveries made within the agreed-upon time frame. A higher on-time delivery rate ensures customer satisfaction and enhances a company's reputation.

These KPIs are just a few of the vital metrics that freight brokerage businesses must track to achieve their targets. In the subsequent sections, we will discuss, in detail, how businesses can calculate and track these indicators to drive their growth in the industry.

Freight volume growth rate

As a freight brokerage company, tracking freight volume growth rate is vital to know how much business is growing over a given period. This KPI directly measures the percentage increase or decrease of the total weight or volume of freight transported annually or over a particular timeframe.

Definition

Freight volume growth rate measures the rate at which the volume of freight carried increases over a given period.

Use Case

Business owners use this KPI to measure how fast their businesses are growing or declining over time. The rate of growth or decline in volume affects revenue, profitability, market share, and brand.

How to Calculate KPI

The formula for calculating the freight volume growth rate is:

Calculation Example

Suppose a company has a freight volume of 50,000 metric tonnes in 2020, and a volume of 60,000 metric tonnes in 2021. The freight volume growth rate will be computed as:

KPI Advantages

• Helps to determine the strength or weakness of the business
• Helps to identify patterns over time
• Helps to assess the effectiveness of marketing and sales strategies

KPI Disadvantages

• The rate may vary from one period to another, leading to distorted conclusions
• The rate may mask other important data, such as revenue analysis or customer behaviour
• It may be challenging to calculate in some instances, such as when freight is measured by the number of shipments rather than weight or volume.

KPI Industry Benchmarks for the KPI: 'Freight Volume Growth Rate'

According to industry reports, the average freight volume growth rate for trucking companies is about 3% to 5% annually.

Carrier Retention Rate

As a freight broker, there are few things more important than carrier retention rate. When you have a good number of reliable carriers in your arsenal, you can provide your customers with a higher level of service. Here's a detailed look at everything you need to know about this critical KPI.

Definition

Carrier retention rate is a KPI that measures the number of consistent carriers that you work with over a given period. This rate is a clear indicator of how well you work with your carriers to make sure they are happy with the job and have a good enough experience to keep working with you. It is measured as a percentage, with a higher percentage signifying that you have better carrier retention.

Use Case

A good carrier retention rate can help you build a more reliable and efficient business. You can be assured that you are working with partners who are knowledgeable about your needs and are dedicated to providing the best possible service. Moreover, having consistent carriers can help you build a better rapport with them, which in turn leads to increased business opportunities.

How to Calculate KPI

To calculate your carrier retention rate, use the following formula:

Calculation Example

Let's say you work with 30 carriers in a calendar year. During that time, you retained 20 carriers. To calculate your carrier retention rate for the year:

KPI Advantages

• Helps to build loyalty: Carrier retention provides a metric to track the loyalty of carriers, which helps to build a stable and reliable network of carriers over time.
• Aids in benchmarking: You can use carrier retention rates as a benchmark to compare your company's operational performance with others in the industry.

KPI Disadvantages

• May not reflect real-world performance: The KPI may suffer from a lack of accuracy, especially if carriers are retained due to factors outside of any improvement in your operations.
• Doesn't address carrier satisfaction: Retaining carriers is important, but what if your carriers are unhappy with the level of service or the pay rates? Carrier satisfaction may not necessarily reflect in retention rates.

Industry Benchmarks for the KPI: Carrier Retention Rate

The benchmark for carrier retention rates varies from industry to industry. However, a general benchmark is set in the range of 85%-90%.

Average Shipping Cost Reduction Rate

Definition

The average shipping cost reduction rate (ASCCR) KPI measures how effectively a freight brokerage reduces shipping costs for its customers. This KPI tracks the percentage reduction in shipping costs for a customer over a given period, typically a year.

Use Case

ASCCR is an essential KPI for freight brokerages that aim to minimize transportation costs for their clients. Freight brokers can use this KPI to monitor their clients' shipping costs in real-time and identify areas for cost reduction. They can also use this metric to demonstrate their value to clients by showing the amount of money they have saved through their services.

How To Calculate KPI

To calculate the ASCCR KPI, use this formula:

Where:

• Total Shipping Costs in Previous Period: the total shipping cost for the customer in the previous period, typically a year.
• Total Shipping Costs in Current Period: the total shipping cost for the customer in the current period.

Note that ASCCR is expressed as a percentage reduction in shipping costs.

Calculation Example

Suppose a freight brokerage reduced its client's shipping costs from $1,000,000 in the previous year to $900,000 in the current year. The ASCCR KPI would be:

This result indicates that the freight brokerage reduced its client's shipping costs by 10% in the current year compared to the previous year.

KPI Advantages

• Helps freight brokerages demonstrate their value to clients by showing the amount of money saved through their services.
• Enables freight brokers to monitor their clients' shipping costs and identify areas for cost reduction.
• Gives clients insight into the effectiveness of the freight brokerage and enables them to compare it with other service providers.

KPI Disadvantages

• ASCCR does not take into account factors beyond the control of the freight brokerage, such as changes in fuel prices or market demand.
• This KPI does not consider the quality of service provided by the freight brokerage, which may have a significant impact on customers' overall transportation costs.
• The ASCCR formula does not account for seasonal fluctuations or other variables that may impact shipping costs.

KPI Industry Benchmarks for the KPI: Average Shipping Cost Reduction Rate

Industry benchmarks for the ASCCR KPI are not standardized and may vary depending on the type of transportation and the specific industry. However, a reduction in shipping costs by 5-10% is considered a good result for most industries.

Customer Satisfaction Index

Definition

The Customer Satisfaction Index (CSI) KPI measures the level of satisfaction of customers with the services or products received from the freight brokerage company. It reflects the gap between the expectations and the actual experience of the customer. This metric is crucial in assessing the performance of the freight broker in delivering high-quality services.

Use Case

CSI is essential for the freight brokerage industry because it provides the necessary insights into customer satisfaction. Knowing the level of satisfaction of customers is crucial in making important business decisions. Improving CSI can lead to higher customer retention rates, increased revenue through increased referrals, and improved brand reputation. Additionally, having actionable feedback from customers can help freight brokers better understand customer needs, enhance service quality, and increase customer loyalty.

How To Calculate KPI

Calculation Example

KPI Advantages

• Provides insights into customer satisfaction levels
• Helps to improve service quality and customer retention rates
• Can increase referrals and improve brand reputation

KPI Disadvantages

• Relies heavily on customer feedback, which may not always be reliable or accurate
• Can be time-consuming and costly to conduct customer surveys regularly
• Difficult to assess competitors' CSI accurately due to different survey methods and techniques used

KPI Industry Benchmarks for Customer Satisfaction Index

The industry benchmark for CSI differs across various sectors of freight brokerage. However, a score of 80% or higher is generally considered a strong performance for freight brokerage companies.

Revenue per Customer

Definition

Revenue per Customer measures the average amount of revenue earned per customer. It is a key performance indicator to understand the revenue generated from each customer and improve customer revenue management.

Use Case

Revenue per customer helps businesses to identify the most profitable customers and plan marketing and sales strategies accordingly. It also enables businesses to identify opportunities to optimize the customer journey and increase customer lifetime value.

How to Calculate KPI

To calculate the Revenue per Customer KPI:

• Identify the total revenue generated
• Divide the total revenue by the number of customers

Calculation Example

Suppose a freight brokerage earned $100,000 in revenue from 50 customers.

• Total Revenue = $100,000
• Number of Customers = 50

Then, the Revenue per Customer KPI for the freight brokerage would be:

KPI Advantages

• Enables businesses to identify high-value customers
• Helps businesses optimize marketing and sales strategies
• Provides insights into customer behavior and loyalty

KPI Disadvantages

• May not provide a full picture of customer profitability as it only looks at revenue and not costs
• Benefits may be limited for businesses with low volumes of customers

KPI Industry Benchmarks

According to industry data, the average revenue per customer for freight brokerages ranges from $1,500 to $2,500.

On-time Delivery Rate

Definition

On-time delivery rate is a key performance indicator (KPI) that measures the percentage of shipments delivered on or before the promised date. It is a critical metric for freight brokers as it reflects their ability to meet their customer's shipping needs.

Use Case

The on-time delivery rate is used to monitor and improve the performance of a freight broker's shipping operations. By tracking this metric, brokers can identify inefficiencies in their supply chain and work to reduce delays or missed delivery appointments. This KPI also helps brokers ensure their carriers are meeting their commitments and that their customers are satisfied.

How To Calculate KPI

The formula for calculating the on-time delivery rate is:

Calculation Example

Let's say a broker completed 100 shipments in a month, and of those, 85 were delivered on time. To calculate the on-time delivery rate:

The on-time delivery rate for this broker is 85%.

KPI Advantages

• Improves customer satisfaction by ensuring that shipments arrive on time.
• Helps brokers identify and address inefficiencies in their supply chain, leading to cost savings.
• Allows brokers to monitor carrier performance and hold them accountable.

KPI Disadvantages

• Does not account for the reasons for late deliveries, which may be beyond the broker's control.
• Can be difficult to calculate accurately, especially when dealing with a large number of shipments.
• May not provide a complete picture of the broker's overall performance.

KPI Industry Benchmarks

The industry average on-time delivery rate for freight brokers is around 90%, although it can vary depending on the type of shipments and the industry. Brokers should aim to achieve a rate as close to 100% as possible.

Gross Profit Margin

Definition

Gross profit margin is a KPI that measures the profitability of a business after accounting for the cost of goods sold (COGS). This KPI takes into account the direct costs associated with producing and selling a product, such as materials and labor. A high gross profit margin indicates that the business is effectively managing its production costs and selling its products at a higher price than the cost to produce.

Use Case

Gross profit margin is a crucial KPI for freight brokerages as it measures how much profit the company is making on each shipment after accounting for the cost of transportation, the cost of goods sold and other expenses. By analyzing gross profit margins, freight brokers can make informed business decisions, such as adjusting pricing strategies, negotiating with carriers, and identifying areas for cost savings.

How To Calculate KPI

To calculate gross profit margin, you will need to subtract the total cost of goods sold from the total revenue and divide the result by the total revenue. The formula for gross profit margin is:

Calculation Example

For example, suppose your freight brokerage had a total revenue of $1,000,000 and a cost of goods sold of $700,000. You can calculate the gross profit margin as follows:

KPI Advantages

• Provides insights into the profitability of a business
• Helps businesses make informed decisions when it comes to setting prices and negotiating with carriers
• Allows businesses to identify opportunities for cost savings

KPI Disadvantages

• Does not take into account indirect costs, such as overhead expenses and administrative costs
• May fluctuate depending on the industry, making it difficult to compare between different businesses

KPI Industry Benchmarks

According to a study by Inbound Logistics, the average gross profit margin for freight brokers in the logistics industry is between 15-20%. However, this can vary greatly depending on the specific industry and region. As such, it is important to compare your gross profit margin against that of similar businesses in your industry and region when evaluating the health of your business.

As the freight brokerage industry continues to expand rapidly, businesses must adopt effective strategies to stay competitive. One such approach is the use of Key Performance Indicators (KPIs) to measure company performance accurately. Among the top KPIs that every freight broker must measure include Freight Volume Growth Rate, Average Shipping Cost Reduction Rate, and On-time Delivery Rate.

Freight Volume Growth Rate, measured by the percentage growth of transported freight year over year, enables businesses to analyze their performance, identify trends, and forecast future revenue growth. On the other hand, Average Shipping Cost Reduction Rate helps freight brokers keep a closer check on unnecessary expenses and boost their overall profitability. Finally, the On-time Delivery Rate, which measures the percentage of deliveries made within the agreed-upon time frame, plays an essential role in ensuring customer satisfaction and enhancing a company's reputation.

By tracking and analyzing these KPIs, freight brokers can make data-driven decisions, streamline their operations, and enhance their growth and success in the industry. Measuring these metrics regularly allows brokers to stay ahead of competitors and deliver superior value to customers while maintaining profitability. Therefore, every freight brokerage business should adopt these and other relevant KPIs to achieve their targets and achieve long-term success in the market.