Averaging more than $221,000 in gross profit per year, make it seem as if owner-operators make good money. But that yearly average doesn't illustrate the big picture of an owner-operator's profitability.
The big picture of the trucking business profitability can be seen only after deducting business expenses from the gross profit.
This is key indicator because many trucking businesses that didn't manage their expenses well, are no longer in business.Keeping low business expenses is one of the most important trucking business management tasks the owner-operator or fleet manager needs to be aware of.
Find below a list o trucking business expenses but first, let's see why these are important for the successful development of the company.
The importance of reducing owner-operator expenses
Making money by building a trucking business is all about finding a balance between increasing profits and reducing expenses.
Some expenses have a bigger impact on the business while others have less of an impact on it.
An owner-operator may face different types of expenses. Some of them, you can find in the list below.
Difference Between Fixed and Variable Costs
Before completing any reports, you need to be sure you’ve included everything. First, you should classify your expenses into two main categories:
- Fixed costs: Fixed costs are the expenses you’ll have whether or not your truck ever leaves the parking lot. These costs usually stay the same but may change a little from time to time.
- Variable costs: Variable costs are the expenses you incur while driving your truck. This amount varies with the number of miles driven.
Why is this information important? Because tracking fixed costs helps you see the daily expense of running your operation. Equally important, tracking the variable costs let’s you know how much you spend on the road and where you can cut back.
Furthermore, when you compare fixed and variable costs, you can better understand what areas you need to focus on. The information will help you make informed decisions rather than just driving by the seat of your pants.
1. Truck purchase or lease
In trucking, to complete the job, you need physical trucks.
You can acquire the trucks in two ways:
The first option is to purchase your trucks by paying a huge amount from the start. That allows you to exclude the following high monthly fixed payments.
The second option is to finance your trucks. That means borrowing money to buy trucks for the business.
If the second option is the case, there's not much that you can do to reduce the truck payment. You'll have to take care of the fixed monthly expense.
2. Truck maintenance and repair
With added miles, the truck may need repair of brakes, alternators, airlines, wiring, tires, etc.
By law, owner-operators and carriers are required to maintain their trucks in good operational condition.
So, although for many of them, truck maintenance and repair cost is big, they can't skip on this business cost.
Another aspect why owner-operator and carriers don't want to skip on truck maintenance is because it ensures a massive repair bill down the line.
Smart fleet managers budget for these costs upfront to prevent any unexpected bigger truck breakdown later on.
At the same time, taking care of the commercial trucks helps to keep the business expenses down.
3. Fuel expenses
4. Licensing and permits expenses
To legally operate your business, you may need special licenses and permits.
So, depending on the type of your trucking business, you might have to pay fees.
These types of expenses are set by law. However, these costs may differ from state to state.
Having all these fees paid on time avoids paying bigger fines down the road.
5. Insurance expenses
Insurance is required on every vehicle using the American roads.
This category of expense is also one of the largest costs in the trucking business.
Insurance is a type of expense where you need to carefully weigh its costs versus its benefits.
The problem is that the more coverage your trucking business has, the higher your monthly payments are. On the other hand, the less insurance coverage your business has, the more risk it assumes.
So, when cutting down on insurance, think of how much you allow yourself to pay and how much risk the business can indulge.
Taxes are another category of owner-operator expenses that you need to consider.
You can bring down your corporate taxes by taking all the trucking business deductions for which you qualify.
To do that, you need to prove most expenses, such as by keeping your receipts.
Along with keeping a detailed record, it’s best to consult with a tax attorney or CPA each year.
7. Professional services expenses
Professional services can be defined as the services that you pay for to make your business run more smoothly.
Owner-operators may rely on the services of an:
- Accountant - an accountant helps in maintaining all the money flow inside the company.
- Payroll manager: This is someone who is in charge of paying drivers and all employees correctly and on time. This is important, especially as your number of drivers grows. You can also use software to organize payroll if a physical person isn’t necessary.
- Fleet manager - having a mechanic within your company who takes care of truck maintenance inside the company is a smart move. etc.
- Secretary: You may need someone to manage business affairs, handle and manage client inquiries, and handle miscellaneous business operations.
- Logistics Coordinator: This person oversees the transporting of goods between destinations safely and efficiently. They help to optimize the entire trucking process and derive the most value from each route.
- Dispatch operator: Information may be constantly changing and need to be delivered to drivers. They keep the drivers on track and help them navigate safely to get their cargo to the destination on time.
Of course, the need for these types of expenses adds up when your company grows and along with that grows the number of trucks.
8. Load board subscriptions
Certain types of expenses are vital for the operation of a trucking company.
One of them is the use of load boards and monthly subscriptions to those online platforms.
Load boards provide the possibility to find loads quickly, which helps keep your trucks rolling.
9. Factoring expenses
Factoring is a service that helps to control the trucking business's cash flow.
- Without factoring, you deliver a load, submit the invoice, and then wait to get paid. While the trucking industry's average is 40 days, it’s not unusual to wait as long as 90 days to get paid.
- Factoring allows you to sell your invoice to a factoring service. After that, the factoring company pays you right away and then collects 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. But it can be well worth paying the fee to ensure that you get paid quickly.
10. Hiring Drivers
The trucking industry relies heavily on its drivers because they are responsible for every delivery.
Depending on the strategy you choose for the company operations, you can hire drivers to operate your vehicles or you can hire drivers with their own trucks.
Costs are lower for using drivers with their own trucks. But the overall profits and control are restricted as well.
The salary for a driver is $40,000 on average. However, in the trucking industry, the turnover rates are very high.
So, offering higher salaries is one of the ways trucking companies try to keep their drivers with them.
11. Marketing expenses
Without a constant flow of clients, a trucking company won't survive for too long.
So, to make your potential clients aware of the trucking services you provide, you need to market to them.
Marketing processes require a marketing budget as well. You'll have marketing expenses to create advertisements and develop relationships with other businesses.