# Cost calculation for trucks as basis for pricing

## Short summary

- Cost transparency protects against the loss zone
- Vehicle cost calculation as a basis for the calculation of transport costs
- Pricing below cost is risky
- Flows of goods as a core component of competitive prices
- Secure competitive advantages with good pricing
- Pricing with the IMPARGO Quotex

## Cost transparency for risk minimization

Keeping an eye on costs is one of the most important tasks for any transportation company. If an entrepreneur or a dispatcher does not know what costs a transport causes, he runs the risk of not being able to cover his costs and slip into the loss zone. Cost transparency therefore contributes significantly to risk minimization.

## Vehicle cost accounting as a basis

The vehicle cost calculation as the basis for calculating the transportation costs follows certain standards, but depends on many unknown parameters, which initially only allow a forecast. If a 40-tonner reaches its assumed annual total mileage of 140,000 km, for example, remains unclear until the end of the year. The unknowns thus provide an uncertainty, which must certainly be considered in the pricing in terms of a security surcharge.

In theory, kilometer rates (€ / km) and hourly rates (€ / h) are often used in a two-dimensional appraoch. In practice, however, in most cases a more simple, one-dimensional approach with a kilometer rate (€ / km) is used. Due to the fact that waiting times also play a decisive role in the cost analysis, a one-dimensional approach (which disregards the time dimension) often leads to a cost underestimation for short distances and a cost overestimation for long distances. This should always be considered when operating on a one-dimensional approach.

If the cost rates of the vehicle have been calculated, the order- or tour-specific costs can be determined. For this, the cost rates of the truck have to be applied on the distance or the transport time, toll costs have to be taken into account and finally administrative costs have to be added.

## Driving under cost is rarely recommended

To be economically successful in the long term, a company has to make a profit. This means that the transport company should earn more revenue on average than its transportation costs. Certainly it is necessary nowadays to drive below cost from time to time in order to generate at least a contribution margin. However, this should not be the rule – loss orders have to be offset by lucrative orders. The minimum price should rarely be below the cost.

## Flows of goods regulate the price and increase the risk

Of course, the price is not only dependent on costs, but also on factors that influence supply and demand, such as flows of goods or public holidays. For example, more goods are generally exported from Germany than imported to Germany. Transferred to the transport capacity, this means that more free cargo capacity exists on the route to Germany. The supply of cargo is thus ultimately higher than the demand, which ultimately has a negative impact on the price to be achieved. If the transporter does not know these gradients, it may well be that his offers are too low on a relation and can not compensate for this with a return load. Considering supply and demand-influencing factors is thus a key component of competitive pricing.

In the end, a pure „cost plus margin“ consideration for pricing is only approximate. If you look at the example of Germany, the entry and exit prices must be correspondingly different – optimally, but in total, cover the costs and provide the required margin. Market imbalances are therefore the biggest challenge to the pricing of the transportation company.

## Secure competitive advantages with good pricing

Knowing the right price for a transport order and its cost structure is not only important in order to cover costs, but also in terms of competition. If the entrepreneur knows how much he can lower the price, small amounts can make the difference to „win the order“ or „lose the order“. Transparent costs thus help to ensure proper pricing and therefore increase competitiveness.

With the QUOTEX, IMPARGO has developed an application for transportation companies which addresses those challenges and combines route planning, cost calculation and pricing. Learn more about and try our Cargo Apps.