How owner operators can be profitable

What is the "value" for you the owner?

At one time, I can and could and likely would justify buying a "donor truck."


This is one that an O/O is likely to have taken care of, a spouse/family is disposing of an estate etc. Pick a scenario on HOW you could find that truck.

However, Body and interior need minimal investment, but still an investment.

Needs an engine, it's tired, the entire driveline is tired.

What's it gonna cost? $5,000 to paint, $20,000 rebuild the engine, $5,000 tranny, $7000 rear ends, $2500 brakes I mean you have $40,000+ tied up into it JUST to get it road worthy.

That's all EXPENSE items too. The only one who will have any value in that is you. Right?

But, you still have a BRAND NEW TRUCK in service life. (not to mention a piece of class to roll in and turn some heads on the road) Call that PRIDE.

Now compare that and the interest expense, depreciation etcetera of a brand new $140,000 truck. Amortize that out over the 48 to 60 month life of financing that piece of equipment.

Interest ALONE would now have PAID for all of those repairs.

Now amortize those payments on the principle of $140,000 to YOU in savings/investments and where does that put YOU the truck owner.

 

As promised....

Caveat to all this. This is ALL MY personal business model. There are many like it, but this one is mine. While this may work for me, others may not find it useful. But this one is mine. It is not the industry standard, but it fits my needs. But be aware, there is 2 1/2 years of accounting and 2 years of management training and 10+ years of business experience that goes into building these.

A spreadsheet that I use to track and follow my monthly, weekly, quarterly and annual expenses. Helps me gage the effectiveness of my decisions.

It's not the ENTIRE spreadsheet, but it's a start and gives you a working idea of the level of detail and stuff that a typical O/O has to plan/budget for.

There's also an acid (operating) ratio off to the side that shows me how much I am spending to earn a buck. Currently right now, it's about .68. So I spend about 68 cents to earn $1. The lower the number, the better you are managing your expenses. This number also includes my personal wages(draw) It's figured by Total Expenses / Total Revenue.

Now how does this ALL wrap up?

You need a lot more information than just this income statement.

How many days are you gonna work this month? We all like our home time. I don't want to be gone 30-31 days a month. All work and no play makes Johnny a dull boy ya know. I plan for 19 days out. This isn't just a random number either. It's a historical number that I have l seen for the number of days I typically work for a month driving the truck. Both as a company and O/O driver. Look at your per diem days for the last couple years. How many days out are you averaging a month. And it doesn't mean you are out 19 days straight either.

You have to know your maintenance numbers. The longer you are in business, the more accurate this number becomes. I put together some of the more common expenses that a truck has and listed them on my Income statement. Based on normal life cycles, that came up with my maintenance expense of about 12 CPM. Realistically, this money ALL goes into an escrow account separate from everything and ONLY pays for things that break or planned maintenance on the truck. (yeah right, welcome to the real world.)

Then you'll also need your fuel expense. What's that costing you a miles. cost per gal/MPG. We'll use 0.60 CPM. $3.90 per gallon / 6.5 mpg.

Next, I look at how many AVERAGE miles I drive a day. This is not a "random" number either. It's systematically recording all of my loads and averaging them out over a LONG period of time. some days it's 75, others it's 750. In my case right now, I am using 500 miles a day. Historically, this includes the time to load, unload, fuel, etc all into that number.

So how does this ALL come together?

First thing you need to look at....

What do I need to earn in revenue EACH day I am working JUST to cover my Fixed overheads.

That would be $5410 / 19. The $5410 is rounded up from the Income statement showing my monthly OH. The 19 days is from my per diem sheets. Gives you about $285 per day needed just to cover fixed OH.

Variable costs. That's the 12 CPM for maintenance and the 60 CPM for fuel. Or 72 CPM.

So how does that work?

You need $285+ (miles * .72) to just break even. Still not so simple.

You need to figure out how many days you'll be on that load. Remember that 500 miles per day average? This is where it comes into play.

(running miles/500)* $285 + (running miles * 0.72) = Break even revenue.

Scenario 1:
You book a load, it's got a 30 mile deadhead and a 470 mile run. It's going to take you a day to do this load. 30+470 = 500 / 500 = 1.

So you now need $285 minimum just to cover the overhead for this load.

You also are going to need 500*0.72 = $360 just to cover fuel and maintenance from moving your truck.

So at a MINIMUM you should need $645 just to consider this load to break even.

Scenario 2:
You book a load, it's got a 130 mile deadhead and a 1470 mile run. It's going to take you a day to do this load. 130+1470 = 1600 / 500 = 3.2 days

So you now need $285*3.2 = $912 minimum just to cover the overhead for this load.

You also are going to need 1600*0.72 = $1152 just to cover fuel and maintenance from moving your truck.

So at a MINIMUM you should need $2064 just to consider this load to break even.

Short loads:
Different beast entirely. While you still have to consider your minimum mileage, it becomes more of a realistically looking at how much time you will be under a load. While a 50 mile load would figure to only 0.1 day or $28, you KNOW that will sink you as it's really going to take you about 1/2 day to complete, so you might say, $150 + $40 for fuel and need $190. Short stuff REALLY becomes a "how well do you know your market" situation. So you might really bid this at say, $350 and get it.

But you don't WANT to just break even. You want a profit? How much of a profit? 30%? 50%? I go for as much as I can get.

But I KNOW the bottom number on where I can go to and STILL cover my expenses. Including my own pay draw.

 

But I KNOW the bottom number on where I can go to and STILL cover my expenses. Including my own pay draw.

Most that FAIL as an O/O have no clue of their BOTTOM NUMBER, same as the BSers who brag on running empty from California to PA because they can have no clue on their true costs per mile. * ( This is not about DEDICATED , SPECIALIZED Equipment, PAID to do it but running home for $0.00 / mile ) *

 

I know the bottom number it costs me to run my truck and deadhead routinely back to pa from the left coast. I am hauling a specialized trailer that is dedicated to a specific product for a specific customer. the customer is charged for me to come back empty. I could get the tank cleaned out and do another load back but the amount of time involved getting the trailer bare metal cleaned to be able to haul another product is too long to make it worth it. last time the trailer was bare metal cleaned it took a week and 10 hours a day to get it cleaned. Not everybody is just bragging about deadheading across the country, some people that's what the load requires for you to do

 

Business,

I appreciate what you are trying to say. My humor is somewhat dry and you do not see that. I happen to like war movies and it's a slim attempt at mimicking one of them.

The last part of this is to simply say, "I didn't slap this together out of thin air".

There is a major component schedule involved that breaks down not only the expected cost, but also the life expectancy to that component. Allowing you to "amortize" your maintenance.

If you take a close (or even look at the spreadsheet.) It lists ALL of the expenses that make up your Fixed overhead as well as the variable expense and breaks them down and adds them up for you.

In reality, it's a standard business management form that an accountant would put together for your mid to upper management. More so your middle management to make informed decisions.

Sorry, you are not the only person here with your knowledge and experience. You are saying, you have to know this stuff.

I am showing them just one example of how you can see it. Hence the "this is mine" statement. How you compile it is up to you, this is only one example and version. But it's also more standard and common to business and based on taught as well as practical business modelling.

In other words, I did not re-invent the wheel here. I just created a spreadsheet that made sense to me and if you care to use it, feel free to.

 

I'm driver of 23yrs experience who's interested in joining with someone to further my relationship with a loyal transportation broker FRIEND of mine. Refrigerated and dry freight is available with above average rates. Loads mostly comes out of the southeatern region but all areas are possible. I can be reached here or by direct email.......tonybrown47@live.com. Only serious inquiries please. Also advice is welcomed.

 

I would agree we are both wanting that, but to me at least, you are coming across as dismissive towards me.

I see you saying, "this is your fixed OH cost." But not sharing how you get that number. For an O/O, that number creation is as critical as anything else.

I also know talking to so many about costs, it's more common for an O/O to really state it in terms of cost per mile even for a fixed cost such as an equipment lease or building rent. It's a different point of view for an O/O vs a business background.

If you look at both of my examples, it breaks down to $1.29 per mile. So a typical O/O is going to say I need at least $1.29 per mile to haul a load.

Sure is a lot easier to state it that way than the big ol' formula I laid out above. Miles * $1.29. easy peasy. Just remember though, price changes in anything changes that number. Fuel and Maintenance are the big and direct hitters to this. All the rest gets spread out over a much larger mileage base.

As to real time vs historical....

I have always looked to history and said, "What's it's cost me in the past and/or how much have I used?" I got a "base" to start with. OK, I have historically used about 800 gallons of fuel a month. (or whatever your actual usage is) If you adjust it for expected priced, you can realistically plan your expenses next month. But you can't just come up with what amount unless you know historically what you've done in the past. It's really two parts: What do I normally use? and what's the current pump price? Real time pricing. Nothing fancy about that. If the pumps are going down, that's great like we are seeing now. We can easily live with that. I am likely to just leave my fuel budget forecasting for the month alone. If price is headed up, NOW it becomes critical to stay on top of that figure. You can find yourself in area 51 with no fuel money left.


Gotta run.....

Load came in and I am going home.