Starting a trucking company is important but keeping it profitable is more important.
Without constant monthly profits, many trucking businesses don't last longer than 1 to 3 years of operation.
So, before you start building your company, ask yourself if you know how to operate the trucking business so that it returns an investment. How can you focus on the most important KPIs so that you don't spread your business resources too thin? The answers to these question is the key to how trucking companies make money.
Find below a list of things you need to take keep an eye on to ensure that your financial planning helps you overcome any obstacle of operating the business.
Never mind whether trucking is a profitable business: It can be a difficult business to start. But it can be rewarding if you manage your operation well.
How Much Do Trucking Companies Make?
According to trucking company Cargo Transport Alliance, the average gross per truck is between $4,000 and $10,000 per week.
That means $16,000 to $40,000 per month or $192,000 to $480,000 per year per truck. Imagine you own a fleet of 100 trucks.
The above numbers like nice but be aware that out of this gross revenue you'll have to take off business expenses.
That means that the profitability of the trucking company very much relates to how well can manage your business costs.
There are only three steps you can take to increase your trucking company’s profits:
- Control expenses to lower your company’s cost-per-mile.
- Increase the rate-per-mile you charge customers.
- Drive more loaded miles in a week, in a month, and over the year.
How to ensure a trucking company is profitable?
According to the article an expert's advice on best metrics to use for fleet profitability, an expert said "Once you book a load, you've made all the money you are going to make.
This means that you can have the highest payable loads on the market but if the costs of operation are poorly managed then the profitability of the trucking business goes down.
On the other hand, if you book loads with average costs per mile but you are doing a great job at cutting operational costs, the business can still be profitable.
The moral is that a trucking company's profitability comes from good business operation management and is not always a thing of high costs per mile rates. If you have them, that's a great bonus to have.
Planning how to manage key metrics of the business to increase revenue and lower costs is key to the maintenance of a strong profit margin.
Steps ensuring the profitability of the trucking company
1. Support the right market niche
Supporting the right market niche is the most important step towards building a profitable trucking company.
The chosen market determines the type of equipment you need, the level of rates you need to charge, and the freight lanes you can service.
As a rule, owner-operators should focus on markets that the large carriers avoid serving. In other words, consider hauling specialized loads.
Making money in the dry van niche is difficult because there is too much competition.
You may want to look into the dump truck niche or into the reefers niche where the competition is less competitive. However, be aware that these more specialized trucking industries also have their advantages and disadvantages.
When starting out as a small trucking business, you have better chances of turning a profit if you choose to serve a specialized market where you don't compete with large and established companies.
2. Determine your operating costs
To know whether your trucking business will be profitable, you need to know what your expenses are. That way, you know how much revenue you need to generate to turn a profit and how high you need to set your prices.
The operating costs of the trucking business can be divided into two categories: fixed and variable.
- Fixed costs - are the costs that stay the same regardless of how many miles are being driven. For example, fixed costs can be such as truck payments, insurance payments, or permits fees.
- Variable costs - are the costs that vary depending on how many miles are being driven. For example, variable costs can be such as fuel consumption, tolls, vehicle repairs, and maintenance costs, meals.
Use these two types of costs to determine the operating cost per mile for your trucking business.
When you substract the "cost per mile" for your business, you should receive the profit that you keep.
3. Charge the right rate per mile
As an owner-operator, you need to determine what rate to charge your clients to haul a load.
Your rates need to be high enough to give you a nice profit and pay all your operation costs while staying competitive in the market.
There is a specific process that helps figuring out your rate per mile. See below.
- Select your freight lane.
- Go to a load board.
- Find 10 loads going in one direction.
- Call the brokers and find out how much they pay.
- Get the average.
- Add 10% to 15% to get the price brokers charge shippers.
- Repeat the process for the opposite direction.
After you find out how much is paid for your specific lane make sure to consider your businesses expenses such as fuel, driver compensation, software cost.
Now that you know your costs, you are in a better position of developing a competitive yet profitable cost per mile for your trucking business.
4. Use the right fuel-buying strategy
Fuel is the largest expense for owner-operators, which cuts into your trucking business profits.
So, to maintain your company profitably, you need to set a good fuel-buying strategy.
Unexperienced owner-operators buy the cheapest pump price thinking that this provides them with the cheapest fuel.
But this strategy is wrong.
When dealing with fuel costs, the main issue is taxes.
Truck drivers must deal with IFTA, which is an agreement between the U.S. states and Canadian provinces that allows commercial motor carriers to register in one state and have these tax assessments paid out to all participating areas according to their fair share.
Because of this tax issue, you should buy fuel at the cheapest base price regardless of the pump price.
5. Work directly with shippers
When you have left an empty truck, brokers and load boards can be very useful.
However, brokers are also very expensive. They keep about 10% to 20% of the load price.
To optimize the profitability of your trucking company, you need to minimize the use of brokers and load boards when searching for loads.
To maximize your profit margin, develop your direct relations with shippers. You can pocket the markup fee you would normally pay a broker, or use the difference to offer more competitive prices and promote repeat business.
6. Avoid cash flow problems
Trucking is a cash flow-intensive business.
That means that operating a trucking business requires buying fuel, making insurance payments, or repairing payments on a regular basis.
Unless you get quick-pays, it's difficult to maintain a surviving cash flow.
The problem is that shippers and brokers can pay invoices in 15 to 30 days. This delay may create a cash flow problem for your trucking business.
A solution to this problem is using a bill factoring company.
Factoring solves your cash flow problem by advancing up to 95% of the invoices. The remaining 5%, is rebated once your shipper pays.
7. Check customer credit score
Whether you’re dealing with shippers or brokers, it’s prudent to select customers with a good credit rating. That way, you reduce your risk of not getting paid.
Use a credit check service to review prospective customer business credit scores before committing to a new client.
8. Maximize truck loads
The more driven loaded miles you make, the more profit you can make.
Acquiring additional freight to keep trucks moving and to maximize equipment utilization is sometimes easy if capacity is tight, but more often it’s a severe challenge. Established fleets, growing companies, and new start-ups all compete for the same load. Your best strategy is to be relentless and use every tactic available to book freight.
Is the Trucking Business Profitable? It Can Be.
So, is the trucking business profitable?
Running a profitable trucking company requires careful planning centered around sound financial management. Niche selection, cost-cutting strategies, pricing and cash-flow planning all play an important role in maintaining a profitable trucking business.