Knowing your trucking cost per mile for your owner operator business is critical to your success.
An owner operator must know what it costs to run their business. By knowing the costs of operating your truck, you’ll be able to turn a good profit in your business.
Knowing the operating costs as an owner operator is basic information, yet critical to the health of a business.
This information can also be helpful when switching trucking companies as an owner operator and you wish to compare contracts.
Or perhaps you’re considering becoming an owner operator. These calculations will be useful in helping you make these important decisions.
All owner operators should know how to determine your trucking cost per mile.
2 Types of Owner Operator Expenses (Costs)
1. Fixed Expenses
Fixed expenses or fixed costs are those which an owner operator incurs, just by owning a truck. These expenses are there whether your truck is turning a wheel or just sitting parked against the fence.
- Truck payment ($26,400)
- Trailer payment 0
- Insurance premiums (For truck, trailer, health) ($7200)
- Licensing fees ($2200)
- Permit costs ($650)
- Phone bill ($2400)
- Bookkeeping and accounting fees ($1250)
TOTAL ANNUAL FIXED EXPENSES = $41,030
Tallying your fixed costs will tell you what it costs to run your business. This can then be translated into a more useful piece of information in the form of a FIXED COST/MILE calculation.
TOTAL ANNUAL FIXED COSTS = $41,030
TOTAL ANNUAL MILES RUN =120,000 miles
FIXED COST/MILE = .341 cents/mile (Total Annual Fixed Costs divided by Total Annual Miles = COST/MILE)
FIXED COST/DAY = $112.41 (Total Annual Fixed Costs divided by 365 days = COST/DAY
Your fixed cost/mile tells you how much it costs your business per mile to operate.
The fixed cost/day tells you how much it costs your business per day to operate, whether the truck moves or not.
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2. Variable Expenses
Variable expenses or variable costs are those which usually fluctuate according to the actual operation of your truck (and trailer).
The variable costs for some expenses like diesel, maintenance and repairs will increase directly with the number of miles covered. In other words, when your truck moves, these costs increase. Make sense?
- Diesel fuel $ 70000
- Maintenance and repair costs $ 4800
- Tires $ 2800
- Toll fees 0
- Scale fees $330
- Truck/trailer washes $1100
- Lumper fees 0
- WSIB costs 0
- Freight claims, fines 0
- Fuel tax $900
- Heavy use tax 0
- Income taxes $4500
- Legal costs 0
- Hotel $800
- Meals $6600
- Wages (to self) $49000
- Extra $650
TOTAL VARIABLE EXPENSES $91,180
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CALCULATING TOTAL ANNUAL OWNER OPERATOR COSTS
- TOTAL GROSS INCOME = $ 171,870
- FIXED COSTS + VARIABLE COSTS = TOTAL ANNUAL COSTS
$41,030+ $91,180 = $132,210
- NET PROFIT = $39,660 (AFTER DRIVER WAGES)
- TOTAL ANNUAL COSTS DIVIDED BY ANNUAL MILES = TRUCKING COST PER MILE
$132,210 DIVIDED BY 120,000 = $1.101 PER MILE
This example used total annual figures to calculate your operating trucking cost per mile.
However, use the formula the same way if you wish to determine the costing for
- Round trip
- A month
- A week
- A quarterly report
Is Your Owner Operator Business Profitable?
After looking at the trucking cost per mile and how much it costs to operate, you’ll need to answer some questions for yourself:
- Is your wage sufficient to meet your personal expenses and also tuck away some savings?
- Is there money left over after all expenses are accounted for and you have paid yourself? If there is, you’re in the clear. Now try to increase that bottom line!
- Are there expenses you could reduce in order to increase your profit?
- Is your pay package with your carrier paying sufficiently? If not, maybe it’s time to look at switching companies.
- How much should I pay myself in wages?
There are a number of ways owner operators determine how much to pay themselves from their business.
The driver wage has been included in the variable expense section, as I’m a believer this amount needs to fluctuate according to the health of the month in the business.
It can be dangerous to have a monthly wage of $4000 when there isn’t $4000 leftover after costs to allow for this.
A good rule of thumb can be around 1/3 of the gross earnings for an owner operator’s wage paid to himself.
- How can I reduce the fixed expenses in my owner operator business?
It is possible to save money by examining your fixed costs carefully.
Saving money on your phone bill is always possible, shopping for better deals for insurance premium costs, shopping for competitive interest rates on equipment loans, only spec’ing equipment which will serve your needs and not your ego. A fancy truck with a high payment can really put the squeeze on your bottom line. Get what you need for a truck (and trailer), nothing more.
- How can I reduce my variable costs?
Cut corners and save money where you can. With the high cost of everything nowadays, trimming back whenever possible is important.
Profit margins can be tight, so pay close attention to your costs and save money where you’re able.
If you are a savvy owner operator, saving money on your variable costs is always on your mind.
Here are a few ways to trim costs.
- Since your fuel cost is very likely your highest expense, you’d be wise to be on the look out for the best pump prices when on the road.
- Drive like a granny to get the best fuel economy possible
- Spec a fuel efficient truck when you buy your truck
- Brown bag it for the road. Taking your own food from home will save a bundle of cash. Eating on the road can be expensive and really cut into an owner operator’s profits
- Doing simple maintenance and repairs yourself, if you can
- Avoiding excessive hotel costs by sleeping in your truck as much as you can
- Good solid maintenance program including tire rotation to extend tire life
Will my fuel mileage really change from month to month?
There are influential factors which can affect your fuel mileage and thus your total fuel costs
- the weight of your load
- the terrain where you travel (pulling hills as opposed to flat level highways, can really affect your fuel economy
- fuel subsidy rate, if your carrier pays fuel subsidy to you.
As an owner operator, you have a lot to think about.
Knowing your operating costs and your trucking cost per mile is essential to the overall health and longevity of your business.
Pay attention to it and tweak it and perfect it as time goes on. The time spent will pay you back many times over.
“Remember, at the end of the day, it’s not how much money you make, but how much money you keep that counts!
How much you keep, depends on how much you spend.”
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