It is a good time to be a truck driver; freight rates are on the rise and keep climbing higher! You are probably starting to think about expanding your business, but before you do, you should stop and calculate your operating cost. Your operating cost is the total amount of money you need to run your business. This number includes everything from truck payments to daily fuel consumption, insurance payments and more. 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 because it is the baseline for your business. If you accept load rates that are lower than your cost-per-mile, your business will lose money and you run the risk of going out of business. Knowing your numbers will help keep you in business.
Operating Cost Calculation
Staying in front of your expenses does not need to be an uphill battle. Lay out your operating costs to make managing expenses easy. First, you need to find your total amount of expenses. Your expenses are a mixture of fixed and variable costs and to calculate them, 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 wants to add a new truck, trailer, and driver to his one-truck fleet. However, before making any purchases, John makes a list of all the fixed and variable expenses of operating two trucks in order to calculate how much his business needs to make per month.
|Insurance Payment||$2,400||Unexpected Expenses||$4,000|
|ELD Monthly Service Fee||$50||Total Cost – $21,580|
|License & Permit Fees||$600|
Now John Doe knows he needs to make AT LEAST $21,580 to break even when he expands to a 2-truck business. Anything he makes over that amount is his profit.
So what freight rate should John look for to make sure he hits his $21,580 mark every month? John knows, as a long haul truck driver, that he usually averages 10,000 miles a month with one truck. 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.
$21,580 / 20,000 = $1.079
If John’s business runs 20,000 miles per month, then the loads his company hauls need a rate of at least $1.079. Any lower than this and his business loses money. Any rate amount over $1.079 per mile is profit John can use to grow his business again. 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.
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.
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