The Dollars and Sense of Pick-Up and Delivery
Posted Apr 28, 2011 in Management
In the good old days, American consumers enjoyed the free home delivery of a wide variety of products and services. Doctors still made house calls and local businesses such as markets, pharmacies and dairies delivered their goods to our doorsteps at no additional charge.
Today, these conveniences typically come with a price tag attached. As consumers, we have grown accustomed to paying higher prices or substantial freight charges to get the products and services we want delivered to our homes or businesses.
Despite this consumer willingness to pay more for expeditious delivery, it is still standard practice in our industry to provide case pick-up and delivery as a free service for local dentist-clients. Since many laboratory owners view pick-up and delivery as a service they have to offer to be competitive, they often don't take the time to analyze the cost of the service or consider its effect on their profitability.
The key to ensuring your pick-up and delivery system is—and remains—cost-effective is to track these expenses separately and make sure you are taking into account all related costs. Consider, for instance, a start-up denture laboratory located in a large metropolitan area. In an effort to keep overhead costs low, pick-ups and deliveries are handled by the least busy technician who uses his own vehicle and receives mileage reimbursement.
Suppose the laboratory charges $150 for a full denture case that requires four 20-mile round trips to the client's office. The mileage reimbursement for the case amounts to $26 (at 32.5 cents per mile, the IRS mileage rate in March 2002). On this laboratory's financial statement, the only line item expense for the pick-up and delivery service would be mileage reimbursement. However, since the laboratory is not factoring in the cost of the technician's travel time and loss of productivity, this is not an accurate reflection of the laboratory's total expenses.
By analyzing pick-up and delivery costs on a per case basis or as a percentage of gross sales, you will get a more accurate assessment of costs. For example, Brad Bond, owner of Bond Laboratories, Inc., a nine-person C&B lab in Stuart, Florida, does not charge for pick-up and delivery but reviews these expenses quarterly and compares them to previous financial statements. Bond employs one full-time driver who uses a laboratory-owned vehicle for deliveries. He adds the driver's salary, car payments, insurance, packaging, fuel, maintenance and repair costs each quarter and divides the total by the number of units fabricated during that time period. "The resulting figure—currently $4.03—gives me a precise evaluation of my pick-up and delivery costs per case," explains Bond.
In 1999, Bond's expenses for pick-up and delivery amounted to 4% of the laboratory's gross sales—a percentage he feels is satisfactory. If expenses increase, Bond either looks for a way to cut costs or—more likely—raises his fees across the board to absorb the increase.
"If you offer free pick-up and delivery, delivery expenses that total 5% of gross sales is a good number to shoot for," says Jim Gorgol, CDT, owner, Distinctive Dental Studio, Naperville, Illinois, who owns eight delivery vehicles. He recommends individually tracking expenses for drivers' salaries, car payments, depreciation, insurance and repairs and maintenance to help pinpoint where to make adjustments.
For example, if Gorgol's repair costs get too high, he considers buying a new vehicle to cut expenses. Although this purchase will increase his depreciation expenses, he weighs this increase against the decrease in maintenance costs. Generally, he replaces vehicles at about 150,000 miles but that can vary depending on the number of mechanical problems and repair costs.
A Different Approach
Like Bond and Gorgol, Ron Ferguson, CDT, owner of Ferguson Crown & Bridge in Chesapeake, Virginia continuously monitors his pick-up and delivery expenses. Unlike most laboratory owners, however, Ferguson passes shipping charges on to his clients as a separate item on their invoice. He feels this is the most accurate way to track expenses, ensure that costs are covered and maintain a healthy profit margin.
"No matter what the fee is for a case, the costs for pick-up and delivery remain the same," Ferguson explains. "For example, if that fixed cost is $5, the expense is less than 2% of a $300 case, but it amounts to 5% on a $100 case—that's a 3% lower profit margin."
Ferguson says none of his dentist-clients complained when he began charging delivery fees six years ago. Avoiding resistance from clients, he says, depends on your approach and how good your service record has been up until the time you begin charging. "We have always had a very dependable delivery system and never fail to meet deadlines," says Ferguson. "In addition, we charge clients for the actual cost of the service, so the amount is exact and meaningful—rather than just tacking on a dollar or two."
Setting limits is another important aspect of maintaining a cost-effective pick-up and delivery system. For most laboratories, setting limits begins by determining a geographic boundary that is manageable for daily service and establishing a regular route within that area.
For example, Thurmond Price, CDT, owner of Alpha Dental Laboratories, a 12-person, full-service dental laboratory in Waretown, New Jersey offers pick-up and delivery service only to dentist-clients in a 50-mile radius from the laboratory. Price's full-time driver has a set route that he follows each morning and afternoon. For clients located outside the 50-mile radius, Price uses a regional courier service and passes the cost of the courier on to the dentist as a separate charge.
According to Price, his driver clocks about 250-300 miles a day, stopping at an average of 25 offices. "Our driver is currently servicing 98% of our clients and we simply don't have enough clients outside the 50-mile radius to financially justify adding another driver," says Price. "The courier company allows us to service those accounts without taking on more deliveries than we could handle or reasonably afford."
For Custom Craft, a four-person crown and bridge laboratory in Flowood, Mississippi, providing free pick-up and delivery service for dentist-clients within 20 miles of the laboratory is more realistic. The laboratory has been open for two years and does not yet have enough local accounts to warrant hiring a part-time driver or to cover the cost of a courier service. Instead, Custom Craft's co-owners Tim Blackburn, CDT, and Diane Sharron, CDT, handle pick-up and delivery for their 11 local clients themselves. The laboratory closes at four o'clock and the partners head home in opposite direc- tions, each stopping at several dental offices. "When we first opened we had to come up with a system that would allow us to avoid taking time away from the bench during the day and still get us home at a decent hour," says Blackburn. "We told prospective clients up-front that pick-ups and deliveries could only be done between four and five o'clock. They all understand that we are a small laboratory and continue to respect the limits we've set."
Such scheduling policies help to minimize costs and ensure an efficient system. For example, owner Gerry Jacobi, CDT, tells his clients they must call by noon to guarantee a scheduled pick-up for the following day. The noon deadline ensures that the driver will be able to service all 20 local accounts during his 10am to 2pm shift. "Without a scheduling system in place, the driver's hours would vary too much, making it difficult for me to hire someone to take on the part-time job," says Jacobi, Jacobi Dental Laboratory, a nine-person crown and bridge laboratory in St. Louis, Missouri.
In addition, traffic congestion in the greater St. Louis area is a challenge for Jacobi's laboratory. By scheduling pick-ups and deliveries mid-day, the driver avoids heavy traffic and can complete his route quicker. "We have a good system in place and our clients need to work within that system," says Jacobi. "There are occasional exceptions and I sometimes will offer to have an employee pick a case up on the way home, but usually I ask the dentist if a member of his staff could bring it to us. It helps him view pick-up and delivery as a shared responsibility."
Bond uses a different strategy for after-hours service. He purchases all-weather lock boxes for dentist-clients to install outside their offices. The boxes cost about $45 each and, in emergency situations, allow Bond or an employee to handle pick-ups and deliveries after hours. In addition, the boxes offer dentist-clients added convenience and have proven to be a good customer service and marketing tool for the laboratory.
Your laboratory's pick-up and delivery system can also serve as a valuable marketing and customer service tool. The drivers at Prosthodent Dental Studio in Clinton Township, Michigan wear shirts, jackets and caps with the laboratory's logo to ensure that they present a professional image. They often deliver promotional items such as birthday gifts, bagels or doughnuts to dentists and their staffs.
"Our drivers are an extension of who we are as a laboratory," says co-owner Kathee Pascoe. "It's important to us that they are neat, friendly, arrive at our clients' offices in a well-maintained vehicle and present a professional image."
Likewise, Bond Laboratories allocates a portion of its marketing budget to pick-up and delivery costs because its driver delivers promotional items and helps build stronger relationships with clients. The laboratory also has a written guarantee that cases will be delivered on time or there is no charge, so it's especially important to Bond that his pick-up and delivery system runs like a well-oiled machine.
"My decision to purchase a vehicle was largely based on my desire to ensure the system is hassle-free," says Bond. "I don't want to deal with a driver's car breaking down or creating a negative image for the laboratory. It may be slightly more expensive, but in the long run, I feel it saves me money—and headaches."
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