In Part 1 of this series, we discussed the 9 philosophies behind setting and implementing effective KPIs for your fuel distribution business. In Part 2, we’ll be looking at specific KPIs each department should be looking at.

Operations KPIs

In the fuel delivery business, operational KPIs serve as crucial metrics for measuring and improving performance. The industry focuses on five critical metrics.

Fill Rate and Tank Monitoring

Fill rate stands out as one of the most powerful metrics for transforming your delivery operations. When properly optimized, it can dramatically reduce your required driver base while maintaining the same level of service. As John emphasizes, "It's just astonishing, especially in the context of how difficult it is to recruit, train, you know, onboard drivers and maintain that driver base when you realize you don't even need a third or half of your driver base."

The challenge many companies face isn't in the concept, but in the execution. Most operators struggle with basic data accessibility - simply knowing the tank sizes at each delivery location can be a manual, time-consuming process. The solution? Start with your tank-monitored deliveries. This allows you to build a foundation of data-driven dispatching while working through common implementation challenges like non-functioning monitors or legacy routing patterns that haven't been updated to take advantage of the new technology.

Delivery Efficiency and Route Optimization

Pavan emphasizes location-specific efficiency metrics: "At a given location, your delivery efficiency should be consistent... once you've been there four times and you know it takes you 50 gallons a minute or whatever, 500 gallons an hour, then every driver should be possibly operating at that." He points out significant variations: "How come one driver is able to get 500 gallons per hour, while the other is operating at 100?"

Geographic density plays a crucial role. As Pavan explains, "If you take all of your customers' ship-tos and just plot them on a map, you will see there are some areas that are dense and then others that are sparse." This insight can drive strategic decisions: "You can incentivize your sales team to aggressively sell in the area that's sparse... either you retreat out of that area or build density."

Actual vs. Projected Routes

Comparing actual versus projected route times can reveal significant operational inefficiencies that might otherwise go unnoticed. As John explains, most companies don't have the ability to generate exception reports automatically, but even manual auditing can yield valuable insights. He recommends giving "yourselves 30-45 minutes of leeway either way" and focusing on significant deviations. By investigating these exceptions and "going to the tape" with GPS tracking, companies often uncover systematic issues that can be easily addressed - from unauthorized breaks to inefficient routing patterns that have become habitual. One particularly striking example involved a driver making regular hour-long restaurant stops in potentially hazardous locations, a practice that had gone unnoticed until route timing analysis revealed the pattern.

Technology Integration Challenges

The implementation of tank monitoring technology brings its own set of challenges. As Pavan points out, "Let's say you've got thousand tank monitors in the field. Now your dispatcher is getting thousand emails every day... When the dispatcher is busy kind of fighting another fire or a truck is in an accident or whatever." He suggests a solution: "If it is connected to a dispatch system... that could automatically create orders based on that. Now the dispatch doesn't have to look at thousand emails."

John embraces a practical philosophy: "It's an old common wooden saying, which I'm very fond of, but it's never, um, don't let what you cannot do interfere with what you can." He adds, "If you can't get your arm around the tank data... then the objective is we're going to get the software or we're going to load the tank data. That's the goal then. Then we can start tracking."

Market Development Considerations

While these operational KPIs are crucial, it's important to view them in the proper context, especially when entering new markets. The typical efficiency benchmarks - like keeping tank wagon routes within 45-50 miles and box truck loops within 65-90 miles - might not apply during market development phases. When you're expanding into new territories, expect periods of intentional inefficiency that could last a year or more. This is a natural part of the growth process as you work on building customer density in these areas. Rather than viewing these temporary inefficiencies as failures, consider them investments in future market development.

Procurement KPIs

Benchmarking against market indices is a fundamental yet often overlooked procurement KPI. As John emphasizes, "Most people just don't track how they're doing against an index, which... you just should." While monthly or quarterly tracking is ideal, even an annual review can provide valuable insights into procurement performance. The choice of index is market-specific - for smaller distributors, it's typically an OPIS index, but market variations are significant. For instance, in the Colorado front range, OPIS Low minus 4 cents is the standard, while Ohio operates at OPIS Low minus, highlighting the importance of understanding regional market dynamics.

Supplier relationship metrics form another crucial aspect of procurement KPIs, particularly for companies with contracts. Compliance with supplier agreements, especially regarding ratable lifting commitments, can significantly impact future opportunities. "You can really blow it with a supplier," John warns, explaining that poor performance can land you "on the naughty list," affecting your ability to secure favorable deals in the future. Companies that fail to meet their contractual obligations often find suppliers less willing to trust them with future agreements, making compliance tracking a vital procurement KPI.

Finance KPIs

When it comes to financial KPIs, measuring net income as a percentage of gross profit emerges as a crucial metric for understanding business performance. This approach helps normalize performance across different delivery types and business lines. As John explains, "I want to know, of every dollar of gross profit we generate, how much is dropping to the bottom line?" Whether you're tracking operating profit, net income, or EBITDA, the key is to establish your benchmark and work on improving it.

The beauty of this metric is that it clearly shows the benefits of scaling. As your business grows, you can leverage your existing overhead across a larger revenue base - doing more business without proportionally increasing costs. This efficiency shows up directly in your bottom line. "Hey man, we're making 30 percent of our gross profit is now operating income. It was 22 percent last year," John notes, illustrating how this metric effectively tracks both efficiency and scale improvements. This improvement can come from either top-line growth at lower incremental cost or from servicing existing business more efficiently.

Account profitability tracking requires a more nuanced approach, particularly when considering expansion potential. While it's tempting to classify accounts simply by their current revenue, this can lead to missed opportunities. A critical distinction needs to be made between small accounts and small relationships with large companies. The latter category deserves special attention because they represent significant growth potential. This classification impacts every aspect of your business - from how your sales team approaches the account to how your operations and support teams service it. Pavan says, "It's much easier to retain an account and expand it if you do a good job than getting a new account, and every dollar is the same dollar."

Don't fall into the trap of misclassifying accounts based solely on current revenue. Pavan emphasizes this point with a compelling example: if you're only serving two locations out of a potential seventy, that's not a small account - it's a massive growth opportunity. These situations should influence how you structure your sales team incentives. When the initial "land" is small but the potential "expand" is significant, consider adjusting your compensation structure to encourage sales teams to pursue these high-potential accounts. As Pavan notes, you might want to "pay up with your sales team to go after these" since you know the expansion potential is significant if you deliver good service.

Sales KPIs

Sales KPIs require particularly careful consideration since they directly influence behavior through variable compensation plans. As John points out, "You can really screw up by tracking and measuring the wrong things, because again, it drives behavior." The fundamental metrics that companies typically track include new account acquisition, lost accounts, and ship-to locations (distinct from customer accounts). Pipeline management is another crucial KPI, with many companies requiring weekly CRM reports from their sales teams to track engaged prospects.

Beyond these basics, successful companies monitor the sales process through metrics like quotes submitted, credit applications processed, and closed deals - with the first floor order marking a successful closure. Some organizations also track sales commission as a percentage of gross profit or measure commission against delivery freight rates to maintain desired profitability ratios. These metrics help ensure that business development activities align with company profitability goals while providing clear visibility into the sales team's performance.

Compliance KPIs

You can focus on two critical areas that directly impact both operational efficiency and regulatory compliance. The first is labor compliance, specifically tracking overtime hours and meal break adherence - metrics that not only affect your bottom line but also ensure you're meeting labor law requirements. The second key metric is tracking fines and penalties in dollar terms, which serves as a direct indicator of your compliance performance. While these might seem like straightforward metrics, they act as crucial early warning systems for potential compliance issues and can help identify areas where additional training or process improvements might be needed.

Aligning on Metric Definitions: The Foundation of Effective KPIs

Standardizing metric definitions across your organization is crucial for accurate performance measurement. Different companies often categorize the same items differently in their COGS and gross profit calculations, leading to inconsistent benchmarking. A classic example involves dealer business rebate income - while some companies keep the 3-cent rebate below the line, this practice can distort gross profit calculations, making it appear as if you're only making "75 points a gallon" when the actual profitability is higher.

Capital expenditure treatment, particularly for tank assets, presents another significant challenge in performance measurement. The accounting rules around the "$2,500 bug" can severely impact P&L statements, especially during periods of rapid growth. When tank sets are fully expensed rather than amortized over a reasonable period (like five years), it can create distorted incentives - some managers might even delay deals until the new year just to avoid the immediate P&L impact. Similarly, management fees, particularly in private equity-owned businesses, need consistent treatment in performance metrics to ensure fair evaluation.

Commission structures require particularly careful consideration in the context of gross profit metrics. Unlike wholesale broker businesses with straightforward transport load margins, tank wagon operations involve high operating costs - with up to 60% of margin consumed by delivery expenses and systems costs. As one participant notes, "If that location's 70 miles away... the company's not netting anything and the sales guy is getting 15% of the 40%." Additionally, the actual gross margin can vary significantly from initial projections as delivery volumes change over time, suggesting the need for longer-term measurement periods or adjustments based on actual delivery volumes.

Another critical consideration is the difference between projected and actual performance metrics. Initial account volumes and margins at the time of sale often differ significantly from actual performance three months in. This reality suggests the need for more sophisticated measurement approaches, such as evaluating performance over extended periods (12-24 months) or implementing adjustments based on actual delivery volumes rather than projections.

Conclusion: Building a Strong Foundation for Performance Measurement

Successful implementation of KPIs across departments - from operations and finance to sales and compliance - requires more than just choosing the right metrics. It demands careful attention to how these metrics are defined, calculated, and applied within your specific business context. Start by selecting one or two key metrics for each functional area and establish consistent benchmarks. Remember that the goal isn't to track everything possible, but to focus on metrics that drive meaningful improvements in your business performance. As you develop your KPI framework, ensure that your definitions align with your business objectives and provide a fair, accurate picture of performance across all areas of operation.