Thursday, November 20, 2014

Why Gross?

One of the key decisions we had to make when designing PricePoint was how to handle net vs gross basis for pricing, an area where our industry has historically lacked uniformity. The overriding consideration for PricePoint was to focus on simplicity, with the conclusion to therefore treat all sizes as gross.

In my experience, the distinction between net and gross figures is a common cause of confusion and human error, resulting in invoice disputes which are time-consuming and costly to both agent and booker. Net/tare/gross is not complicated, but it is a level of detail that can easily be overlooked in the daily rush of activity, particularly when coordinators are juggling dozens of files on a daily basis.

In terms of software design, accommodating a net/gross distinction would not be difficult in terms of coding logic, but it adds an extra dimension to the user interface. There is a temptation to make software highly accommodating in terms of options, but too many options/buttons can cause confusion or apprehension for new users, particularly when considering a global user base with potential language barriers and differing comfort levels with new technologies.

Lastly, gross is simply the more relevant figure. All 3rd party transportation charges are universally based on gross weight or measure. Any "net" measurement is completely irrelevant to 3rd parties. I personally don't believe net figures are necessary for pricing "inside" the industry either.

For all these reasons, we decided that PricePoint usage should always defer to gross figures where applicable, to avoid confusion and prevent invoice disputes.

That said, if you are accustomed to offering your origin/destination tariffs on net basis, it is very easy to mathematically convert your rates to gross basis. Simply choose an inflation percentage which represents the typical difference between net and gross, such as 25% (i.e. assuming gross size is typically 25% larger than net size). Then take your price and divide it by 1 + "inflation factor",
i.e. 1 + 0.25 = 1.25 in this case.

net rate = $50/cwt net
equivalent gross rate = $40/cwt gross ($50 divided by 1.25 = $40)

The math comes out the same either way:
$50/cwt net x 1000 lbs net = $500
$40/cwt gross x 1250 lbs gross = $500

So again, when working with PricePoint, please always use gross figures when applicable. It makes things easier for everyone.

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