Trucking is a profitable industry where businesses operate with an average net profit margin of 2.5% to 6%.
But not all enjoy that level of success.
Many good truckers fail to build successful businesses?
One of the reasons why improving trucking businesses profitability fail is because the owner doesn't manage the company's profit margins well.
Because of that, they start having issues with their cash flow. And without positive cash flow, they can't cover financial gaps in their business.
Below, find tips to increase the profit margins of your trucking company.
Following these tips can boost trucking company profit margins considerably—but even with higher revenue and lower costs, you may run into problems with cash flow.
The key to building a profitable trucking business
You may be a skilled truck driver but, as an owner of a trucking company, you might not have the ability to earn high profits from what you love.
As an owner of a trucking business, you face a different set of challenges requiring mathematical skills.
So, your profits equal to all the revenue generated by your company minus all required expenses.
The higher the expenses are, the smaller the cash flow and profit margins are.
Put these costs into a spreadsheet keep revising it regularly to see which type of expense eat up the most of your business revenue.
After you've figured out a few such aspects, make changes to reduce that cost.
From here your business is in a better position of making a profit.
So, finding ways to decrease the operational cost of your business is also a part of increasing profit margins.
To keep track of that level of granularity, you need a plan.
To build a profitable trucking company, you can't start with blind eyes.
You need information based on how you can build a solid financial plan so that you have a clear idea of how much you need to cover the costs of the trucking business while maintaining a positive cash flow of the business.
Your business plan should include:
- total revenue of the trucking company.
- average revenue per truck per day and month.
- total costs of the trucking business.
- total costs of the trucking business per truck per day or month.
- the company's financial projections or setting its financial goals.
- calculate the operating margin that can allow the business to stay profitable and competitive at the same time.
But first you need to understand the difference between fixed costs and variable costs.
Whether your trucks are on the road making money or not, fixed costs are necessary expenses.
These types of expenses are unavoidable and regular.
Fixed costs for a trucking company may include:
- Property lease.
- Truck or trailer registration.
- Truck payment.
- Health insurance.
- Marketing costs.
Unlike fixed costs, variable costs are not a fixed amount and they are not recurrent, either.
Examples of variable costs in trucking are:
- Maintenance fees.
- Frequency of days not delivering.
- Driver efficiency.
- Vehicle maintenance costs.
- Seasonal conditions.
- Market conditions.
1. Stay on top of preventative maintenance
To keep your truck running optimally, preventative maintenance is key.
By sticking to the manufacturer's recommended maintenance schedule, you end up with less downtime for your trucks and fewer costs spent on unexpected breakdowns that come from poorly maintained vehicles.
Perform regularly scheduled maintenance on your trucks to reduce costly breakdowns.
2. Control your driver's driving habits
When you’re on and off the gas pedal, it becomes difficult to hold a steady speed. Constantly speeding up and slowing down, even in small increments, wastes fuel.
Cruising a truck at 75 mph uses 27% more fuel than a cruising speed of 65 mph.
Driving with speeding, hard acceleration, or harsh braking has an impact on fuel efficiency.
To maintain the cost of fuel low, tell your drivers to maintain an optimal speed for that specific vehicle or, if possible, use cruise control.
Slowing down can help to increase profits.
You can also reduce idling by providing auxiliary power units (APUs) to provide drivers with comfort during breaks without spending fuel to idle the engine.
Using APUs instead of fuel for idling is another way to save on fuel.
An APU provides in-cab climate control and a power source for your appliances.
3. Invest in fuel cards
Fuel card programs offer discounts on diesel as high as 42 cents per gallon.
In this way, you can save thousands of dollars per year per truck. This added revenue can be added to your trucking company's profit margins.
A wide variety of fuel cards are available; do a bit of research to choose the one that provides the most savings for your situation.
4. Bundle insurance policies
Trucking company owners need several types of insurance such as commercial liability, workers’ compensation, cargo, and trailer interchange insurance, etc.
Many insurance agents offer discounts for bundling these products, and the savings can be significant.
5. Use rewards programs
Many of your vendors offer rewards programs. Over time, these programs can lead to real savings.
For example, credit cards may offer cashback on charges, while truck stops or retailers may provide free services or a percentage off purchases.
The individual benefits may be small but scaled across your business, they add up.
6. Stay compliant
The U.S. Department of Transportation charges a fine for violations of the Federal Motor Carrier Safety Regulations.
It makes no sense to add violation fines because for a trucking company, it's cheaper to stay compliant.
You can avoid these charges by remaining compliant, whether that means replacing a taillight or ensuring you stay under weight limits.
7. Control fuel cost
Expenses on fuel are among the highest costs that a trucking company may have. Fuel costs can eat up 7% of the company's yearly revenue.
So, it makes sense to look for ways to reduce the costs spent on fuel.
The salary that you pay your drivers or office employees is an essential expense because your team is what keeps you in business.
How you negotiate salary with your team should vary based on employee candidates.
For example, this works for driver's salary. Their pay varies based on their working hours. The more hours they spend on the road, the more you have to pay them.
9. Interest rate expense
The average trucking business only spent 1% of total revenue on interest expense.
This is something to keep an eye on with your business. If you take out too large of a truck loan, your interest expense could become a significant portion of your expense budget which will cut directly into your take home pay.
10. Know your cost per mile
To control your profit margin, you need an accurate picture of your expenses. The most important key performance indicator (KPI) for this task is the cost per mile (CPM), which tells you how much you pay to haul a load in a single mile. When you know this figure, you can adjust your rates to reach your target profit margin.
11. Schedule more short hauls
Typically, short-haul loads pay more than long-haul loads.
Also, short-haul loads place less wear and tear on your vehicle.
If you have a choice between one long or three short hauls, take the latter. You’ll bring in more revenue per mile driven.
12. Nurture relationships with repeat customers
When you need to raise prices to stay in business, you may wonder if your customers will continue working with your company.
If you've built a mutually beneficial relationship with your customer then they might still stay with you due to who you are and the culture of your trucking company.
Exceed your customer's expectations to build trust.
Pick up and deliver loads on time and without any freight claim.
Your customers will be encouraged to give you more loads.
13. Work directly with shippers rather working with brokers
At the beginning of the trucking business, when everything is slow, working with brokers is a great way to maintain a steady business.
The problem with brokers is that they keep around 10% per the value of the work they connect you to.
So, once your trucking grows and gathers momentum slowly find ways to work directly with shippers.
In that way, you can keep that % paid to brokers and spend it on increasing your profit margins.
So, if you have a chance to connect with a shipper don't hesitate to do that.
14. Invest in good equipment
A good way to minimize the operation cost of the trucking company is to invest in efficient vehicles.
Efficient vehicles are less prone to expensive repairs, are more fuel-efficient, and serve your customer better.
15. Expand your fleet
The best way to scale your business is to invest in more tractors and hire more drivers. That’s quite an upfront investment, but the more trucks you have on the road, the more jobs you can take and the more revenue you’ll bring in.
16. Reduce deadhead miles
When booking loads, try to reduce the deadhead miles.
Deadhead miles are driven miles by your truck without a payload. These deadhead miles are an expense because the truck burns fuel and the vehicle wears down without bringing in revenue.
17. Minimize driver turnover.
Hiring continuously new drivers is expensive because it takes time and money to train new drivers.
In comparison with new drivers, experienced drivers know your routes and customers. And these drivers are more profitable for your trucking company.
To keep your business growing, reduce driver turnover in your company.
18. Have the right price tag
Increase cash flow by charging more.
The amount you charge your clients determines how much you will make.
But forming the right cost for your trucking services is not that easy.
For example, overcharging your customers moves them to your competition. While not setting enough causes you to run at a loss.
Weigh your options against other costs and strike a balance with a price that offers a good profit margin.
19. Use GPS to plan the shortest routes
Provide your trucks with GPSs and train your drivers on how to run the shortest routes from pick up to delivery.
In that way, your drivers drive less and save fuel, which reduces the fuel costs.
20. Reduce detention time
Shippers usually allow for 2h of detention delay. But the delay at the shipper can stretch to 3 hours or more.
After a 2-hour delay inform the shipper that you request detention time.
This has shippers or receivers pay for detention time to cover the loss for waiting.
21. Use an efficient dispatching system
Using a dispatching service is another way to manage loads where you can assign loads to drivers, manage drivers, manage issues with shippers and customers, handle billing, and maintain compliance.
An efficient dispatching system can allow you to handle more loads at a lower cost.