Knowing how much money you need to run your business enables you to calculate your profits and find your cost-per-mile. Cost-per-mile is essential; it is the baseline for your business. If you accept load rates that are lower than your cost-per-mile, your business can lose money and you run the risk of going out of business. Knowing your numbers will help keep you in business. We will be covering some of the key points involved in this process and learn how to tackle the calculation of the operating cost for your company. This is the most important metric you can consider within your business operations. Knowing your operating cost lets you know how much you are profiting vs how much you are spending. Obviously, we want to be as profitable as possible as business owners while also providing quality and sustainability.
How to Calculate Cost-Per-Mile
In calculating your cost per mile as an owner-operator you will want to think ahead and have in mind the total miles for the load, the number of miles in which you might have to deadhead, as well as your average MPG or miles per gallon. Obviously, there is some math involved in the process so to keep things tidy it is wise to invest in QuickBooks or another quality accounting software to help you keep track of your bookkeeping and total expenses better. These four sights will give you a much better idea of your bottom line.
So what freight rate should John look for to make sure he hits his $25,180 mark every month? John knows that one of his trucks usually averages 10,000 miles a month. He expects to be able to hit 20,000 miles with two trucks. To calculate his baseline cost-per-mile, he needs to divide his total expenses by the number of miles his business will truck.
$25,180 / 20,000 = $1.259
If John’s business runs 20,000 miles per month, then the loads his company hauls need a rate of at least $1.259. Any lower than this and his business loses money. Any rate amount over $1.259 per mile is profit John can use to grow his business. Whenever John adds to his business (a new truck, trailer, and/or driver) he will need to recalculate his operating cost and cost-per-mile to make sure he is always earning enough money to cover his business expenses.
Operating Cost Calculation
Staying in front of your expenses does not need to be an uphill battle but we do have to appropriately plan ahead to stay in front of variable costs and variable expenses. It is always nice to have fixed costs where they make since but that is not always the case. You need to lay out your operating costs to make managing your expenses easy. First, you need to find your total amount of expenses. Your expenses are going to be a mixture of these fixed and variable costs we mentioned. Let’s take a look at those a bit closer.
Fixed costs are the expenses that you can count on remaining the same month after month such as your truck payment. You know how to appropriately plan for your truck payment because when you start the payments they break them down over a set amount of time with a set payment amount each month until it is paid off.
Your Variable costs are those pesky costs that you have to use a bit more business since to account for and project when breaking down your costs. These are expenses that you know you will have but they are not always the same amount. Some months they can run lower and some months they can be higher and this is left up to you to know how to appropriately gauge what you think those costs will amount to and work that into your plan. Examples of your variable costs are going to be your fuel costs, wages for employees, factoring fees, etc. These depend on how much fuel you use depending on how long your runs are. Same with wages, sometimes they can stay fairly close in range but depending on the hours and expenses of your employee that amount often varies.
To calculate your costs, make a list of everything you purchase for your company. In the following example, we are going to track the expenses for John Doe’s long haul company, ABC Trucking.
John runs a 2-truck company. In order to calculate how much his business needs to make per month, John makes a list of all the fixed and variable expenses of operating two trucks.
|Trailer Payment||$960||Unexpected Expenses||$4,000|
|Insurance Payment||$2,400||Total Cost – $25,180|
|ELD Monthly Service Fee||$50|
|License & Permit Fees||$600|
Now John Doe knows he needs to make AT LEAST $25,180 a month to break even. Anything he makes over that amount is his profit.
When tracking your cost-per-mile, it is important to have a business plan. Layout exactly what you expect from your business. When things change, update your plan. Keeping your expenses up-to-date will help you set realistic plans for the future.