Owning your own trucking company business involves knowing important metrics and numbers that matter to your business. At least it should. All the important numbers and metrics in the trucking industry is done on a per mile basis. There’s three major factors that you should know on a per mile basis. Let’s discuss them, they are revenue per mile, expenses per miles and profit by mile. Notice we didn’t mention cost of fuel by mile. Every truck driver, owner operator knows their fuel cost per mile. Hopefully you at least know that. Fuel cost qualifies under expenses. We’ll be looking at owner operator expenses and profits by the mile.
Most owner operators don’t know this. I’ll tell you this, I bet every major trucking company knows these numbers inside and out. This equation is the only way you’ll know if you’re a profitable trucking business. I was surprised when we were coming up with our owner operator tip segment that so many owner drivers didn’t calculate these important numbers and metrics. This is likely one of the main reasons owner operators fail.
Why are revenue per mile, expenses per mile and profit per mile important? As an owner operator or lease purchase operator, you’re bidding on freight and the environment can be difficult to navigate. Let’s be honest, bidding can be brutal. As more owner operators and hot shot truck drivers bid for freight, your profit numbers are lowered with every bid. This is one reason that you want to find a good load board. What happens if you haul seasonal freight? Have a small market to work with? We’re going to explore this scenario also, and what you should consider moving forward.
Every operator knows that when they’re taking a load from a primary carrier, they’re likely moving a load at three or four dollars a mile, it’s easy to see they’re making plenty of money to cover the fuel costs and the labor costs. But you need to know you’re covering your other expenses, like truck payments and maintenance. Most drivers leave these expenses out when in fact, they should be including such expenses into the equation.
We all find ourselves in places where rates are tough. Maybe you’re in a market that’s weak, or your primary load fell apart, and you have to go to Plan B. You’re on the load board and they’re offering rates that are much lower then what you expected. When you’re running those lower rates, you have to know what your break-off point is, where you’re going to start losing money. Some loads you might make money, some loads you might lose money. But you need to know where you’re at and make sure you’re staying above that expenses per mile number even when you’re in a weak market area.
This often fluctuates month to month. Some carriers run seasonal freight, such as lumber or produce, especially in the north, so your revenue per mile or your expenses per mile are much lower. You need to be able to find that balance. If you’re in one of these seasonal niches, you know you’re going to need a bigger market to profit. Even if that means traveling further then you’d like, as long as the equation is right, you’ll be making money from the trip.
You need to take all the expenses into account, as well as all the miles. Some of you may have other drivers working for you, this is more expenses and profits to consider into the equation.
On the mileage side, you have loaded miles and you have empty miles – all miles traveled by the truck. The expenses then need to include everything. Oftentimes, we think about the operational expenses, like fuel expenses, labor expenses, driver expenses, tolls, but there’s also maintenance, truck payments, insurance, all those things too have to be figured in. It’s a little bit harder to figure those things in a mileage basis, but it can be done.
You also have fixed expenses, truck parking, your insurance, rent for an office or a garage, these are the things we often don’t think about when the trucks are out there, running on the road. When the trucks are on the road, you think about those costs running down the highway, but you have to think about enough money to cover the rent and the electric and all of the fixed expenses that the truck has to cover too. This is critical. You have to make sure you’re included ALL expenses.
What you need to do is look at your overall expenses for the whole month, including all those other expenses, and then look at all the miles you drove over that month. Next, figure out what the expenses are across the board. This is going to give you incredible insight and data that you need to determine exactly how much you need to make to bring in profits.
Knowing your owner operator expenses and profit on a per mile basis will give you great insight into your trucking business, hopefully helping you to make better decisions on the behalf of your business.
