ticulate why ; are they “ understandable ” losses vs . service or other operational failures by the last-mile provider ? No one is expected to have zero churn , but it is important to have a good handle on what is happening with your customer base .
Finally , investors will focus on customer concentration . A good rule of thumb is that > 50 % revenue concentration with one customer will scare away many investors altogether . A 25 % concentration with one customer is okay , but ideally , the revenue base is much more diverse with no single customer representing > 10 % of revenue . Concentration risk can be mitigated if the relationship with a large customer is spread across multiple services , contracts , and / or geographies .
Operating Model
Operators in the last-mile space broadly have three models for implementing their boots-on-theground networks : independent contractors ( IC ), company fleet / drivers , and agent networks in different markets , or some combination thereof . All else equal , the investment community tends to prefer the non-asset models . Without the capital expenditures required in the company model , there will be more cash flows to the bottom line . That said , the IC model comes with its own risks , which are primarily regulatory in nature . Assembly Bill 5 ( AB5 ) in California is perhaps the most widely publicized regulation addressing IC classification , but the concept is percolating through other states across the U . S . In some geographies , private law firms are organizing class action lawsuits to target industries and / or companies that are large users of the IC model . The lesson here is for operators and business owners to work closely with their counsels to ensure IC relationships are documented appropriately , accounting for jurisdictional differences .
This is not to say the company fleet / driver model is looked upon unfavorably . We all know that specific customers like their delivery partners to own assets . Having your own fleet gives you more control and , therefore , reliability in the eyes of shipper customers . This may be particularly important for customers in end markets with time-sensitive , high-value freight . As with many things , the optimal mix between ICs and company fleet / drivers comes down to the best operational fit for your business . On the margin , it may impact which groups of buyers are most interested , and there is likely to be a valuation premium for more cash-generative , asset-light business models .
Growth Strategy
A familiar playbook for private equity investors is to acquire platform investments and grow them via accretive “ add-on ” acquisitions over time . This theory applies largely in the last-mile space as well . However , there is general acknowledgment that integrating network-based businesses is more di ! cult in practice especially when the networks overlap geographically .
Therefore , having a purposeful organic growth strategy is paramount . While maintaining and growing shipment density is the proverbial North Star for any network-based business , last-mile companies may have different approaches to organic growth . Some may choose to grow their wallet share with existing customers in current geographies . Others may foray into new end markets to gain that extra degree of specialization and customer stickiness . Still , others may elect to establish a beachhead in new states , perhaps following an anchor customer
fall / winter 2024 I customized logistics & delivery Magazine 45