As an owner-operator, you’re a small business owner. And there are many possible business expenses that you might need to face.
Exactly which ones you have will depend on the specifics of your equipment, the loads you carry, the runs you choose, and even your personal habits.
That means that you can’t just focus on how much money you’re making. You also have to focus on how much money you’re spending.
Below, I'll cover the biggest owner operator expenses.
Fixed versus variable costs
You can break up all the business costs into fixed and variable.
Fixed costs are those expenses that stay pretty much constant month after month. Examples are truck insurance, truck payments, health insurance, and permits.
Variable costs vary depending on how much you drive and what kind of work you do. Examples are fuel, food, maintenance, etc.
Understanding these two types of business expenses help focusing on keeping them as low as possible.
1. Truck purchase or lease
A commercial truck is not a toy. And buying or leasing one is not cheap.
So, if you need to purchase one or more trucks then lease payments may become some of the biggest expenses in your business.
Even if your truck is completely paid off, maintenance and tire costs have a big impact your business income.
2. Truck maintenance and repair
Truck maintenance and repair is also a very big expense for many owner-operators.
Because of that, some owner-operators skip on maintenance of their trucks to lower their bills.
But that is a big mistake for two reasons.
- The first reason is that skipping regular truck maintenance may force you to pay even more when the truck breaks down while in transit with a load. Putting off the regular truck maintenance only ensures a massive repair bill down the line.
- The second reason is that you’re required by law to maintain your truck in safe operating condition.
To prevent any surprise costs put aside a fund for truck maintenance and repair expenses. These expenses usually account for 10% of your overall expenses.
3. Tire expenses
Tire fixes or replacements are another big expense for owner operators.
The average annual tire expense can exceed $4,000.
This number is contingent on variables like miles driven, load weight, number of tires you have, types of tires you purchase, and wear patterns of the truck.
When it comes to making the most cost-effective decision in purchasing tires, consider the cost and expected lifespan of the tires.
4. Fuel expenses
Fuel is another a major owner-operator expense that may average between $50,000 and $70,000 per year.
The easiest way to figure out how much you can expect to spend on fuel is by calculating your truck’s average cost per mile.
This can be calculated by dividing your average MPG by the fuel cost per gallon and then multiplying that number by the number of miles you expect to drive.
If you want to shave off a fraction of the fuel cost, find the truck engine's "sweet spot". The engine's "sweet spot" is the speed level at which it runs most efficiently.
To lower the fuel cost, ride the "sweet spot" as much as you can.
5. Tolls
Tolls are a fact of life.
If you want to get somewhere in a hurry, paying is the better option.
If there is no rush, you can cut your toll expenses by taking alternate routes when possible. But be sure to calculate mileage and time for both routes and compare them.
5. Annual licensing, permits, and documentation
Don’t forget to account for your annual licensing and permitting fees.
These are set by law and may vary by state.
Check with the relevant government authority for current pricing.
- Business licenses.
- Renewal fees.
- Transport permits.
- Vehicle inspections.
- Registration fees.
6. Insurance expenses
Insurance is a type of service that directly increases or decreases your monthly payments according to the amount of coverage you purchase.
The more coverage - the higher the monthly payments. The less insurance coverage - the lower the monthly payments.
There are all sorts of insurance. Some types of insurance are required to get. While you may decide to get other types of insurance.
Pay attention to what's not covered by your insurance. Pay special attention to the risks that may occur when an accident may happen.
7. Taxes
Taxes are another category of owner-operator expenses that you need to consider.
Owner-operators are responsible for paying a variety of taxes, including the fuel tax, federal heavy vehicle use taxes, self-employment tax, etc.
To avoid the stress and confusion that comes from the complexity of calculating taxes, you may want to use a professional tax preparer. But be aware that his consultation comes with a cost that adds up to your business expenses.
8. Food and drink expenses
When you’re on the road, you have to eat. But food and drinks also add up to the list of expenses.
Pulling over into a truck stop for every meal adds up quickly. And you realize that buying food in grocery stores and preparing it in the truck comes cheaper.
Consider investing in a small refrigerator and a microwave for your truck rather than exclusively dining out.
Be honest with yourself about your spending habits when it comes to meals and snacks.
Set out a budget and try your best to stick to that amount.
9. Professional services
Professional services can be loosely defined as the services you pay for to make your business run more smoothly.
Here are a few of the most common services that owner operator use.
Broker fees
Freight brokers match truckers with shippers providing you with a steady stream of loads to haul.
Unfortunately, this option isn’t free.
Every broker sets its own rates. Generally, you can expect to pay 10% to 20% of the gross margin on each load.
Load board subscription
Load boards are vital to many owner-operators, as they provide a perfect platform to find good loads.
These load boards also come with a subscription monthly fee.
Factoring expenses
Factoring is a service that helps control your cash flow.
Without factoring, you haul a load, submit an invoice, and then wait to get paid.
While the industry average is 40 days, it’s not unusual to wait as long as 90 days to get paid.
Factoring allows you to essentially sell your invoice to the factoring service. They pay you right away and then collect the money when the invoice is paid.
Naturally, there is a fee for this service, which typically ranges from 2.5% to 5% per invoice, depending on business volume.
Transportation management system (TMS) subscription
A transportation management system dramatically reduces the amount of paperwork you need to manually fill out.
For a small monthly fee, you’ll be able to automate most of your processing, from single-click invoices to detailed customer agreements to International Fuel Tax Agreement (IFTA) reporting.
You’ll also be able to bring up detailed reports to help you make smarter business decisions.
