How to become an Owner/Operator

All the questions you ask have many answers and everyone will answer different. If you want to gain knowledge read every thread on the first two pages of this section. IMHO, you will learn far more valuable information reading than asking questions.

1) Costs will vary depending upon many factors. You have to decide what you will buy (new or used) and how you will use it (trailer type and freight lanes). Then you must figure your costs.
2) This is a personal choice. You pay in payments or repair/maintenance and sometimes both.
3) Only a crystal ball can answer this and it is only 50% right, 50% of the time. You can come up with a CPM based on the average of others past experience.
4) What ever is left over after everyone gets their piece of your pie. This is true but you have to remain profitable enough to pay yourself or it grows old fast.

While I was trying my hand at a little humor, which by the way I am not that good at, there is a lot of truth in everything I wrote. Unfortunately, there was not much information.

I'm going to post part of a piece I did in another thread to address your pay question and hopefully let you know what you may expect. Then I will post an analysis that I did in another thread on costs.

"It just makes good business sense to pay a portion of your CPM into each category of expenses. This way if you understand your cost of operation and don't run cheap freight the process is simple. When done this way your pay will be so many CPM and will vary based on miles traveled in the period.

Most people just don't understand how hard it is to make a business successful. Unfortunately, in business the owner is usually the first one to be shorted if the money runs out. You can't get your fuel free. You're out of business if you short your maintenance/repair fund and breakdown. They won't wait for your equipment or insurance payments. You can't run if you don't pay for license or taxes. You get the point. There is only one expense to cut and stay in business.

In trucking the only way to make it work is to know your cost of operation and put that portion of earnings from every mile into each category to cover the expenses. Everybody gets his or her slice of the pie. You just have to run hard enough and be profitable enough that the owner doesn't get shorted his pay. If you want more money you run harder or become more profitable."

There are a few owner/operators with their own authority, on this forum, that are on track for $90,000 or more pre-tax gross this year. There are just as many on here that are plagued with breakdowns, bad choices, poor economy and bad luck that are broke and losing autos and homes. Most fall somewhere in the middle. In my estimation the majority are probably between $45,000 and $65,000 pre-tax gross. When I speak of pre-tax gross that is after all truck expenses and before you pay your own taxes. It is an amount comparable to the W-2 amount from a job.

 

I will put it simple....

If you have good business sense, and want to run it as a business, then you can make out pretty well.
If you have no business sense, and run it as a job like most do, they you will find yourself in the poor house.

Being an O/O enatils much more than just pulling a trailer to a shipper/reciever, tho a lot of O/O operate this way, and just run for comapnies and let then do all the work. At the end of the month, they make little more profit than a company driver. And to be honest, if you can in with a good company, and clear $1,000 a week bring home as a co driver, then i would just stick to it, cuz as an O/O you will have weeks where you don't even make that, and some where you do very well.

So it all comes down to how and why you want to be an O/O and how hard you want to work.

 

I'm going to share the numbers I worked up for my decision process. First I will cover the assumptions used for the calculations. I have tried to keep things that involve income low and things that involve expense high. The unexpected will always remain the unexpected.

I can't guarantee how accurate these numbers are. I have found many who share their break-even numbers, but few examples with line item costs. I feel these numbers are in the ballpark but I welcome any constructive criticism to help me hone my decision process and others who may be looking at this too.

Assumptions


I planned this for me running the truck and a 53X102x110 vented dry van with my own authority. I planned running 48 weeks of the year, with most/many weekends at home and four weeks off for repairs and vacation. I am centrally located in Missouri. I don't plan to run either coast. I plan to stay in the better freight lanes.

My insurance quotes are coming in high because it has been more than 10 years since I've done any serious OTR driving. I have nothing on my DVR in almost 5 years, no alcohol or drugs charges ever and 35 years with a CDL. One quote has a lower down, higher payments and a mileage limit. The other has higher down, lower payments and no mileage limit. The cost is about $7600.

I planned to buy a 6 - 8 year old truck with a fresh overhaul and 3-year/300,000 mile warranty from a local reputable name brand engine shop. Several are available at any given time in my area. The trailer would be 5 - 7 years old. Financing, not lease purchase, with a 24 - 30 month payoff. The equipment is sold with a fresh DOT inspection. Most of the trucks have new virgin rubber and many have new brakes and some new drums. Trailers have at least 80% rubber and 60% brakes.

With these numbers I would run about 500,000 miles in 4.5 years. Once the equipment is paid off at 2.5 years the payment money would be banked to replace the equipment. At the end of the 4.5 years I would have about $ 48,000 to replace the equipment. This means the truck would be about 11.5 years old and the trailer about 10.5 years old. This may be pushing the age limit a little.

Fuel calculated at $4.10 per gallon and mileage at 6.2 MPG loaded and 7.0 MPG empty. Paid miles per week at 2000 with 15% deadhead for a total of 2300 miles per week, 9200 miles per month or 110,400 per year.

I will have to utilize broker quick pay as much as possible. I may be forced into factoring but will avoid this if possible and wean myself quickly if I do.

There are 30.42 days per month (365/12=30.41666...) and 4.333 weeks per month (52/12=4.333...). However since we plan to run 48 weeks per year we can figure 4 weeks per month on average. Now I realize these are tidy little calculations and will not prevail in the real world. However, I believe it is important to have some realistic numbers to use in our calculations.

Initial Investment


$4000 Truck down payment
$2000 Trailer down payment
$2000 Insurance down payment
$2000 License plates
$1400 Miscellaneous
$600 Authority and filings

$3000 Fuel fund
$2000 Repair fund

$17,000 Total Startup

Note: I could possibly get initial costs down to truck 2500, trailer 1500, insurance 1400, license (half year) 900, other 1000, fuel 1500 and repair 1000 for a total of $9,800. On the other hand $25,000 would be a much better number to work with. That would allow me to double my fuel and repair funds and have 3000 for personal bills.
The facts: I have $13,000 to work with, good credit; no debt besides house payment and my wife has a good job (for now).

Cost of Operation - CPM


Variable Costs - Equipment & Operations

.75 Fuel - $1725. per week
.14 Repair, Maintenance and Tires - $322 per week
.01 Miscellaneous supplies - $23 per week

Variable Costs - Driver & Benefits

.38 Driver's wages (me) - $874 per week (day $175)
.09 Driver's Insurance, Workmen's Comp and Social Security - $207 per week (day $41)
.05 Driver's Per Diem - $115 per week (day $23)

Fixed Costs - Equipment & Operations

.16 Truck payment - $1472 per month (day $48 )
.06 Trailer payment - $552 per month (day $18 )
.08 Insurance payment - $736 per month (day $24)
.03 License and Permits - $276 per month (day $9)
.01 Fuel taxes - $92 per month (day $3)
.04 ROI (Return on Investment) - $368 per month (day $12)

1.80 Per Mile - Cost of Operation

Note: This leaves me paying the same amount of social security and income taxes as I would on any job. I would gross about $42,000 before taxes. ROI is on $17,000 at 10% interest for 5 years to pay back my initial investment. If you subtract the benefits, per diem and ROI you will get the 1.62 that I spoke of before.

Obviously you would use different numbers to put a driver on the truck. I just feel that many owners are not realistically analyzing their cost of operations.

Facts for Load Selection


Minimum Costs

$115 per day to set and wait on a load - Fixed costs (no driver pay)
.60 CPM (fuel at 7 MPG) to deadhead to a better lane - 300 miles = $180

Realistic Costs

$353 per day to set and wait for a load - Driver and Fixed costs
1.47 CPM (1.62 - .15 DH fuel) to dead head to a better lane - 300 miles = $441

Actual Costs

$353 per day to set and wait for a load - Driver and Fixed costs
1.65 CPM (1.80 - .15 DH fuel) to dead head to a better lane - 300 miles = $495

Remember I have 300 (15%) deadhead miles weekly built into my business model. You need to know the numbers in this last section, for your operation, to make a sound decision on whether to take a load. In addition, you need to know what loads pay where you are and in nearby cities and lanes. If you went into a know area of cheap freight you should have received a premium going in (to cover deadhead) and have a plan for getting out in advance. This plan should most likely be turn and burn to a better lane. If you know that is what you are going to do, you can have the next load set up by the time you unload.

Unless you know there are good loads in an area, setting is a bad plan regardless of any other data. For me setting has seldom, if ever, paid off. I think it only makes sense when it is a matter of timing such as too late in the day or it is the weekend. Sometimes it may make sense if freight is slow but needs to be analyzed carefully. It will never make sense in a cheap freight lane. As simple as this sounds, I lost a lot of revenue learning this. I did the same thing over and over, lacking the courage to turn and burn, getting the same results repeatedly. Can you say insanity? Finally the light bulb came on. Have the courage to just say no to cheap freight and for heaven's sake don't sit and wait for the price to come up. Just avoid that area and let some other poor slob running on a hope and a prayer pull the cheap freight on his way to the bankruptcy attorney.

Rant

You should have a minimum that you will run for and never go lower. I have run empty from NJ to home in MO. The load I turned down was .85 per mile in 1992. I was leased to Ligon and it was sit the weekend waiting for something better on Monday or spend it at home. My minimum was $1.00 then. So now you see why these owner/operators laugh at .90 CPM leases at today's fuel prices. With today's costs, I would run across the United States and park at home before I would haul freight for less than $1.50 - $1.60. I can go broke running empty or sitting at home. Why would anyone not cover his or her cost of operation while making a profit for someone else?

Looking for Profit


Let's say you can increase your miles by 20% to 2760 per week, of which 2400 is paid, and 360 is deadhead. Now your weekly variable costs increase by 20% - read more cash needed for day-to-day operation. Your wages increase by 20% bringing your gross to $50,000. Your cost per mile on fixed expenses decreases by about 16% from .38 to .32 CPM. This leaves you about $6600 profit per year to bank. In addition, when your ROI is paid off in 5 years that will be $4400 profit per year to bank. This is in a perfect world and I wouldn't count on it.

Leasing

I'm not seeing how owners are making it on leases. Let's cut .04 from variable - equip & ops, .13 from variable - driver and .11 from fixed that is paid by the company. Now we end up with a driver that doesn't probably make enough to be happy and a cost of operation of 1.52 CPM. Of course increasing the miles by 20% would leave some breathing room. One thing that should be obvious by now, if you are going to lease your truck, you better run a lean mean operation.

 

Big John, nice work there with the numbers and all, but you have $92 per month factored in for fuel taxes which is $270 per qaurter. If a guy knows which states to buy fuel in and which one not to, he can get by for waaaaay less than $270/qaurter. I am generaly within $10 per qaurter and have even got refunds. The closest I have ever gotten to dead nuts zero is owing $1.37 for the qaurter.

Not trying to knitpick ya here John. You make alot of good posts. Im just posting this fuel tax info out for discusion.

BTW, that .85/mile in 1992 is that same going rate today from dirty jerz to the midwest....LOL.

 

BigJohn, that is probably the best breakdown I have seen yet to date. I only wish more guys would do this before coming out here and losing it all. I just hate seeing and hearing the stories of guys losing the wife, house, truck ect because they could not make it.

Good luck and congrats if you go for it, seems like you have done your research, and like me, I always plan HIGH on my monthly/yearly bills and fee's that way I have less surprises.

 

Thank you. You are exactly right, my numbers for fuel tax are quite high. I expect I would do a lot better and could match your numbers with some practice. I believe almost all of my expenses in that projection can be improved on. I'd bet many who don't understand them will pay that much though. When I was leased to Ligon, I got pretty good at that because it put money in my pocket. I also believe I could gross another $10,000 pre-tax. It is just when I do a projection, I want to be sure I can at least come away with what I put on paper.

From my way of thinking that means lots of research, figure out what is realistic, cut the revenue, increase the expense and if I can live with the worst case - go for it.

 

For license I am speaking of tractor base plate. You prorate them based on the miles you will run in each state and the Canadian provinces. I think you have around 56 jurishdictions to declare your mileage in. The first year most states will provide you an estimate sheet to use. After that, you use last year's mileage. They vary in cost based on the state you live in and the miles you show in each jurisdiction. They used to run from $1800 - $2400 per year and I think they are closer from state to state than they used to be.

You used to have to buy trip permits in some states that were not part of the IRP, so I always figure a little extra and think in terms of license/permits. I think most of the states are part of the IRP now.

 

Thank you. Thirty years ago I was one of those guys. I'll share my story so others can see just how bad it can be. A small paycheck is far from the worst you can get as an owner/operator.

I had a dream. It wasn't about money as much as the lifestyle. There wasn't much in the way of jobs around my little town. I had no experience but I knew I could do it, others were. I had no business plan. My dear old Dad allowed me to borrow $16,000 against his paid off house in 1979 when interest was peaking. I paid 13% to an individual when the bank was getting 10% but wouldn't loan for a truck operation. I was 22 years old with a new family.

As you can see disaster was in the cards before you hear the rest of the story. I didn't even know how to back up but I was a quick study and good with mechanical things. I was the most determined young person you ever met. I had watched my Dad work two jobs most of my life and I knew hard work was the only way I would have what I wanted. And I wanted more than enough to get by. I quit school at 16 to go after my fortune. Fortunately, I later wised up and pursued many educational opportunities that raised my earning power.

The first trip to California with my new truck and six year old reefer, undercarriage and rub rails painted to match my truck and aluminum wheels all around, I broke down 50 - 70 miles west of Albuquerque, NM. There was an expensive tow to the TS. He dropped me 500 yards from the CAT house and I didn't even notice or think what I needed to do. The tow was an old Mack that ran 45 MPH flat out, cab full of smoke and he used my trailer brakes for all his braking. Next morning I awoke nearly frozen to death, called a different company to tow me to the engine shop. Guess who shows up and fleeces me again? Now I find out the fuel pump shaft is broken and CAT is on strike. They re-powered my load and the truck was in the shop for 10 days. Insurance, truck and trailer payments were $90 a day while setting.

Two months into my great adventure I laid it on its side in Buffalo, WY. I was nearly a week with little or no sleep and trying to get home for Christmas. I had been on black ice for a couple of hours, worn out, both windows down, drinking coffee and you can guess what else. As soon as I got off the black ice I relaxed and awoke on the left shoulder, jerked the wheel and my trailer tried to pass me in the deep median. An experienced driver could have saved it. I jerked the wheel again and the trailer returned to the road. While trying to pass me on the right side, the nose came down on the drivers and nearly locked them up. I pulled the trolley valve really hard and the sliding tandems left the act. I went over on my side across both lanes of the Interstate. I spent nearly five weeks in the shop to rebuild it. Since God was looking out for my young foolish butt, nobody was hurt.

Now if things weren't bad enough, the company didn't want me anymore and who can blame them. My insurance went from about $3300 a year to $10,000 (in 1980). I decided to go independent/wildcat. As you can imagine things continued to get worse until I lost everything I owned, my family, my equipment and finally my dream. I spent the next seven years or so, with Dad's help paying off his house. God bless him, he always took the sure thing for himself and his family but he supported all my foolish dreams.

Now I don't take failure too well, just a personal idiosyncrasy. So there was but one choice, do it over and be successful. I bought an old worn out truck that would use and blow out 3 or 4 gallons of oil on a 2300 mile round. I leased it on, and pampered it until I paid for it in less than a year and borrowed the money to in-frame it and paid that off in less than a year. I made a decent living and was home many/most weekends. I then had a new son and got out.

Now the kids are about all grown and the road calls again. I know what it takes to make it but I know just how easy it is to fail. I've never had more fun than I did with that first truck. And I have never paid such a high price for a good time since.