Rates go up and down. Fuel costs spike. Insurance gets higher every year.
Trucking also costs a lot of money to start and run day-to-day. Repair bills are astronomical.
It can seem like things need to be complicated to make any money in this business.
But you don’t need to be fancy to turn a profit.
Simple rules are easy to follow, especially if you are new to the business.
So let’s get to it.
Know your total costs per mile
Knowing your costs per mile lets you easily compare it with load rates to make sure you are earning enough.
Calculating cost per mile can be a bit tricky since you have to take into account fixed and variable costs and there’s a lot of categories to add up.
You also have to think about what might happen in the next couple years instead of right now. Your truck will get older and have more miles on it, and that needs to be figured in.
To make this easier for you, I’ve built a calculator tool to help you add them all up.
The calculator helps you gather all the numbers you need to figure out your cost per mile.
It will also help you figure in future repairs that may not happen this year but still need to be saved for now.
Then it will show you a range of cost per mile numbers in case the number of miles you run change or the price of fuel changes.
Here’s the Cost Per Mile Calculator.
It’s also helpful to update your calculations periodically to make sure you aren’t bidding and accepting loads using old numbers that are too low.
Haul loads that pay more than your costs per mile
Once you have your costs per mile figured out, this is the important next step.
Make sure you are hauling loads that pay above your cost per mile.
I know that sometimes you don’t have a choice and have to take a cheap backhaul or avoid a deadhead, but you really need to focus on this to make sure your average revenue per mile ends up above your average costs per mile.
If your average revenue per mile consistently stays below your costs, then you aren’t profitable.
Even if it takes a year or two and a breakdown to find out.
Figure out ways to earn higher revenue
If you are struggling to find freight you can haul for more than your costs allow, or just want to earn more, there are some ways to move up the revenue ladder.
Some of these methods may be easier if you have more experience in trucking or have more experienced drivers.
- Negotiate your rates more often. Brokers will often have some wiggle room or can go back to the customer for more money if no one’s willing to haul at the offered rate.
- Get CDL Endorsements to haul Hazardous Material (H), Tanker (N), both Tanker and Hazmat (X), or multiple trailers (T). These endorsements can allow you to be paid more. Be aware that hauling many of these endorsements may come with increased operating costs.
- Get into a new line. For example if you are hauling dry van then reefer loads will likely pay more. You can research flatbed, oversize loads, tanker, car hauling, and more. Most of these require more costly equipment but the increase in rates may justify the investment.
- Find new brokers or lease onto a new company that has less fees
- Develop direct relationships with customers. If you have your own authority you can start working directly with customers and cut out the brokering fees. This will require salesmanship, but is almost always worth it if you can make it work.
If you plan ahead the new revenue can outweigh the costs and increase your profits.
Cut your costs as much as possible
Growing revenue isn’t the only way to improve the bottom line, and in some cases cutting costs can be faster and more effective.
Trucking is typically a low margin business so that means you will spend almost every dollar you earn.
Here are some ways to lower your costs:
- Increasing fuel mileage (driving habits, tire rolling resistance, more aerodynamic parts)
- Decreasing maintenance costs (better preventive maintenance, better quality parts, better purchasing decisions)
- Knowing the best strategies for fuel-buying on long trips
- Find a fuel card with better discounts
- Preparing your own food on the road
- Planning out lodging and dining locations to save money
- Shop around to lower your insurance rates
- Save money when you purchase a truck
- Lower your cell phone bill
Save up a cash buffer
Some of my most costly decisions have been made to pinch pennies because I didn’t have enough cash on hand.
This can happen a lot of ways.
Stretch your tires out a little too much and have a blowout.
Push off a repair a little too long and have a breakdown. Then you’re out a tow bill and somehow you’re lucky enough to find the most expensive shop in the country.
Pay for your insurance monthly instead of getting the annual discount.
Put expenses on your credit card that you can’t pay off right away.
If you have cash on hand, you don’t have to make these tradeoffs. You can make the smart investment when you need to and save the over charges and headaches.
Keep a separate savings account for maintenance and repairs
This is related to saving a cash buffer, but it’s so important it needs its own section.
You’ve got to save up for future maintenance and repairs. Especially the big ones.
The best time to start saving for an engine overhaul is 4 years ago.
The easiest way to make sure you are saving up for maintenance and repairs is budget for it and regularly sock money away in a separate bank account. A maintenance and repair budget typically runs between $0.10-$0.15 per mile, depending on the age of your truck and type of motor.
If you are leased on to a company, a lot of them will let you automatically deduct this from your settlements. If you don’t have this option, you should do it yourself.
Once the money is in the separate account, keep it there until you need it for maintenance costs. Don’t clear it out at the end of the year, save it until you need it.
Bonus: Set aside money for taxes
This one doesn’t really affect your profitability, but it can definitely affect your peace of mind.
Nothing stings worse than Tax Time rolling around and you have to part ways with a big chunk of your savings account.
Even though you know it’s coming and it happens every year. It still hurts.
If you take a similar approach to the maintenance account and sock away 25-30% of your income into a special savings account, it helps once it’s time to pay the tax bill.
It never touches your “real” savings account so you always know it’s already money spent.
It still hurts but just not as much.
That’s it for now. I hope these tips help or spark your own ideas for improving your trucking business.
My name is Jason Forrest, and I’m the creator of Rigbooks. Rigbooks is a cloud-based software that makes it easier for small and medium-sized trucking companies run their business while keeping organized. We’ve been around since 2010.
A little about me: I grew up in a trucking family and from an early age I learned about the day-to-day problems that truck owner/operators have to deal with. I was into computers and programming as a kid so over the years I helped write small computer programs that helped my parents run their company better. Eventually that led to the idea of putting all those tools together in one package. And Rigbooks was born.
Are you always behind on your bookwork?
Hundreds of customers have told me this is when they do their books:
- stay up late and lose sleep
- waste their weekends and family time
- scramble when taxes are due
Wouldn't it be great if you had help keeping up without losing sleep or wasting your weekends?
Rigbooks bookkeeping software was designed for trucking companies to stay organized and get control of your money. You can try it free for 30 days without entering a credit card.
More resources for trucking business owners:
- What’s the difference between HVUT, Form 2290, and IFTA?
- "How long do I have to keep these?": FMCSA record retention for owner-operators and small fleet owners
- Top tax filing tips for owner-operators
- Tips for owner-operators with tax problems
- How are fuel surcharges calculated?
- Simple rules for maintaining long-term profitability in your trucking business
- Starting out with an owner-operator trucking business
- Owner-operator expenses: Fixed costs vs variable costs
- Understanding owner-operator expenses and costs
- Gaining half an MPG can put more money in your pocket than adding $90,000 in revenue
- Cutting fuel costs and improving fuel efficiency for Owner Operators
- Top truck-buying tips for owner-operators
- New versus used truck pros and cons table
- Buying a truck: Should you get a new or used rig?
- Preventative maintenance strategies to avoid major repair costs
- IFTA fuel-buying strategies: Where is the best place to buy fuel?
- Calculating your cost per mile
- Owner Operator Expenses - Fixed Costs vs Variable Costs
- How do I calculate IFTA?
- How does IFTA work?
- How did IFTA start?
- What exactly is IFTA?
- Tracking miles for IFTA
- Fitness for the road
- Acronym cheatsheet for the trucking industry