Freight Tech, ROI & Input vs. Output Metrics
tl/dr - Don’t buy software-especially anything around “freight tech”-if your vendor can’t show you exactly what impact you’ll get and which knobs to tune. Here’s a framework to use to make sure you’re successful.
Inputs vs. Outputs
Years ago, I used to work at an online bookshop in Seattle called Amazon. I joke, because Amazon has evolved into a several hundred billion dollar a year behemoth that is well beyond books, beloved of consumers and strikes fear into the hearts of complacent companies. There are many reasons why Amazon is successful (future blog post?) but there is one reason that is particularly relevant to freight brokers as they think about how to use technology to create an advantage vs. their peers.
At Amazon, the executives cared about the results and you had to deliver results (it’s a leadership principle) but if you delivered results and couldn’t explain why, you were in big trouble. The results were an output metric: they’re backwards looking financial or operational metrics that tell us how we did but they don’t tell us why we performed that way.
The folks who really succeeded at Amazon dove deep (another leadership principle) on the input metrics that explained those output metrics. They developed an intuitive understanding of how changing an input metric now would lead to a change in an output metric in a few weeks.
This went all the way to the top. There was a senior executive who was described to me at “the eye of Sauron” who had connected the entire business and could ask penetrating questions about different input metrics of any team. Many a junior executive presented to him what they thought were good results only to be humbled when shown that their input metrics - the foundation of their future business - were shaky.
Auditing Your Vendors
So why does this matter to freight brokers? Well, right now you’re looking for advantages relative to your peers and one way to do that is to invest in the right technology. Vendors right, left and center are reaching out to you offering you “solutions” and all of them purport to having a great “ROI”. But this can’t be true or else everyone would use these technologies - and then no one would have a relative advantage.
You need a way to sort the wheat from the chaff and the input/output metrics framework is a great way to do it. Let me walk through an example of it, using the software we offer at Parade as a way to do so.
At Parade, we offer a capacity management platform. This is a fancy way of saying that we help you identify the best carrier for every load and then we help digitally book them (no carrier rep needs to be involved).
We help our customers by creating an ROI statement of what it will be. Remember: the “R” in ROI is an output metric and a financial one. For example, if we help you automate your freight, you will see higher margins on those automated loads vs. manually booked loads.
Right here, you have two output metrics you can ask us for:
What is the margin on my digital vs. non-digital loads?
What % of my loads are booked digitally vs. manually?
The first is a financial metric that measures success and the second is an operational metric that is a proxy for that financial success. As a buyer, you should expect that metrics like these are visible in the product so you can audit them at any time. And at Parade, we’ve baked them in as reporting dashboards:
You should expect reporting like this baked into your software products so that you can measure progress towards output metrics.
Sidebar: Beware of ROI Metrics that aren’t Financial
Many years ago in the unbelievable world before smartphones I was pitched by a Blackberry salesperson. He told me that if our sales team used Blackberries, their productivity would go up by 1200%. That was the ROI.
Sounds great. But it’s not real because “productivity” is not a financial metric. When pushed, the Blackberry salesperson didn’t actually mean that the sales per salesperson would go up 12x (or 1200%). Instead, they meant that our sales team could now process email 12x faster. Impressive-but not nearly impressive as 12x-ing sales.
Back to our Main Story
So we have our output financial and operational metrics. Now we can set targets on where we want to go and see if we got there. But what is the journey? What do we need to do to get there? This is where input metrics come in.
At Parade, we provide each customer with detailed dashboards on actions to take to achieve goals like increasing your share of freight booked digitally. For example, our Missed Opportunities dashboard shows digital bookings that fail, the reason why and who on the team to coach to improve. There’s a one-to-one correlation between “coach this person” and “increase digital bookings.”
An example of input metrics. These tell us exactly who to coach to impact an output metric.
Similarly, many things have to come together to create digital bookings - at minimum, you need to match carriers with loads, you need to communicate matched loads to carriers and you need to put a Book Now price on each of those loads.
Things like “% of loads with a Book Now price” are input metrics and you want to know these so that you can figure out how to experiment in your business. Maybe you are matching and communicating with your carriers but you lack Book Now pricing on most loads so you’re blocked from digital freight. At Parade, we put this all in one massive dashboard so that you know exactly what to change.
More examples of input metrics. Tune your configuration and impact the business outcome you want.
I’m speaking here in the context of Parade, but there are four important summary lessons here:
Expect every vendor to give you an ROI statement (and the “R” should be financial)
Ask the vendor how you can measure the financial and operational output metrics in the product
Ask the vendor how you can measure the input metrics in the product
If the vendor can’t answer all of 1-3, ask yourself how you’re going to justify the spend to your boss
Bonus: The Role of Customer Success
Many freight tech vendors (Parade included) have a Customer Success team whose job is to make sure that you quickly achieve the “R” in the ROI statement that you agreed to during a sale.
If you are talking to a vendor who does not have a Customer Success team, that’s a red flag. Freight is a complex business and if your vendor doesn’t have a team to help you hit the ground running, how are you going to achieve your ROI? Most freight tech products have a learning curve; Customer Success helps you get up it as fast as possible. You don’t want to do it yourself.
Additionally, if the team does have a Customer Success team, how are they going to help you learn what knobs to tune to get to the “R” in your anticipated ROI? If they don’t have a dashboard with data on how you’re performing on input metrics and which ones to change, you should be highly skeptical that they are going to live up to the “Success” in their title. And if they claim to have one but won’t show it to you, be similarly skeptical.
This blog post is a bit of a rant but hopefully you appreciate the power of input vs. output metrics and the importance of challenging every freight tech vendor you meet on each of these. It’ll help make sure that your scarce technology dollars go as far as possible and give you an unfair advantage vs. your peers.
If you’d like to learn more about Parade, please sign up for a demo and we’ll walk you through everything described above and more.