An inexperienced driver thinks that owner-operators or truck fleet owners make money very simply by picking up the freight, delivering it, and billing the customer.
But running a trucking company is not only about driving a truck or choosing a route.
The reality for successful trucking business owners means long hard working hours, constant hunt for freight and drivers, and never-ending battle of staying ahead of the business expenses.
In simple words, staying successful in the trucking industry is not easy. Many truck drivers tried getting into the this business but failed.
Yet, some trucking companies succeeded.
The question is what do they have in common?
In the article, I'll share important points that make a trucking company resist the ups and downs in the trucking market.
Key steps to making money with a trucking company
A successful trucking company makes its money by being aware of two things.
- The first thing is keeping operating costs as low as possible while staying competitive in the market.
- The second thing is knowing the exact rate per mile they need to charge the customers to create profits.
- The third thing is increasing the loaded miles driven.
1. Control the company's expenses
Trucks are the bread and the butter of the trucking company.
Managing trucks correctly may help the company to succeed in the trucking industry. But, if not, they can harm the company's financial situation.
If they break down too often or if they consume too much fuel, this issue increases the company expenses, which decreases its chances of competing with others that work on improving the efficiency of their trucks.
Expenses are a burden for any trucking company. So, if a trucking company wants to succeed, it needs to control its expenses. Some of the expenses can see in the below list.
- Fuel expenses (mileage, fuel cost, fuel economy, anticipated routes, etc)
- Road use taxes (varies by state, charged through IFTA)
- Permitting and other licensing logistics
- Loading and Unloading (including lumpers)
- Anticipated delays and layovers
- Tolls, scales, and other load-specific expenses
- Per Diem (meals, showers, hotels)
- Cost of labor
- Administrative costs
- Expenses for Insurance
- Personal, business, and employment taxes
- Cost of regular vehicle maintenance
- Driver compensation
- Software payment
- Truck repairs
- Vehicle Registration
- Trailer Registration
- License fees
- Medical Exams
- Monthly truck and trailer payments
- Rental costs for office space
If the company makes less money than its expenses then it is in a dangerous situation.
Keeping expenses low and profits high is an art because you want to charge your customers a competitive price on the market.
You need to find a fine balance between low expenses and still delivering good service to your customers while maintaining a high rate per mile to make a profit.
To identify if delivering a load will end up profitable for the trucking company, you must determine two types of operation of costs:
- The first is determining the fixed operational costs (overhead) of your trucking company. These are the costs that stay the same regardless of how many miles the trucks drive. For example, truck payments, insurance, permits, and so on.
- The second is determining the variable operational costs (running costs) of your trucking company. These costs depend on the number of miles the company's trucks drive. For example, fuel is a variable cost. The more the company's trucks drive, the more fuel they consume.
Being aware of these two types of operational costs, allows you to determine the company's cost per mile, which is the second important key performance indicator.
2. Set a competitive rate-per-mile
Establishing a competitive rate-per-mile that attracts customers and supports your company’s bottom line is critical to the success of your trucking company.
To determine the company's operational cost per mile, substract the company's expenses cost from the rate of the load and you can determine the profitability of the load for the company.
The rate needs to be high enough to pay all your expenses and low enough to stay competitive in the market.
To find the right balance with your profit with a competitive rate per mile, you need to:
- Know your cost per mile, which I explained in the above section.
- Apply a profit margin - once you have the company's cost per mile calculated, add a profit margin to establish the rate per mile your company will charge to customers. Be careful not to pad this rate with an excessive profit margin that will price you out of the market.
- To remain competitive, keep profits slim and regularly measure your rate per mile against your competition. To determine the competitive rates, select your freight lane, go to a load board, select 10 comparable loads going in one direction, contact the brokers to find out how much they pay, determine the price, add 10% to 15% to get the price brokers charge shippers, and repeat the process for the back haul.
Now, once you have determined your desired rate per mile, you may have to focus on decreasing the companies costs or commit to driving more loaded miles to improve profit margins.
3. Drive more loaded miles
Driving loaded miles is what brings the bacon home.
From now on, the biggest concern of most trucking companies is how to market your trucking business to earn more loaded miles.
Acquiring additional freight to keep trucks moving and to maximize equipment utilization is a severe challenge.
Your best strategy is to be relentless and use every tactic available to book freight.
One thing to consider is finding the balance between driving more miles without stressing your manpower too much and shortening your equipment life expectancy.
Find loads to haul
Trucking companies often find shippers indirectly by going through middlemen called freight brokers or by using online postings called load boards. While these services are useful, they also charge a fee, cutting into your profits.
To maximize your profit margin, develop your direct relations with shippers.
To have your company equipment drive more loaded miles, you need customers.
The majority of successful trucking businesses are not making new customers every time they haul a load. The majority of their business comes from the same few customers.
These types of trucking companies build lasting and trusting relationships with different clients.
It's this repeated business that makes a trucking company very successful in the market.
Grow the company's fleet of trucks
As long as your cost-per-mile is less than your rate-per-mile and the more miles your company drives, the more money it will make.
A company with 60 trucks will make substantially more revenue than a company with one or two trucks.
Large trucking companies require a significant customer base, fleet management, and a strong driver pool. They also need effective financial management and access to working capital.
For those able to navigate the challenges of growth, the money to be made from large trucking companies is well worth the hard work and dedication it takes to succeed.
Building a brand
While doing the loads, building an industry reputation for reliability and quality drivers and equipment.
Successful firms understand that they are in the customer service business and can be replaced at any time.
In this environment, brand building is crucial.
To make good money in the trucking business, each truck and driver needs to perform at maximum efficiency. Costs have to be controlled and revenue needs to be maximized with increased loaded miles and accessorial fees when possible. The formula for making good money is to work hard, drive safe, service your customers well, control costs and monitor your competition for comparative rates.