How owner operators can be profitable

There is sound advise on what is needed that mentioned by one member Lilbit with thread what needed to be an owner operator.

With this thread we are going to take an different route as to business there are to side one is how to save and maintain money which is cost control and how to make money which revenue generation. Interesting fact is that your major carriers or top 50 trucking companies apply these to approach and are serial planners.

This is going to be short and hopefully let you look at trucking from a different perspective.

Cost control

Costing model

Below is what a typical Managing, Operations and Marketing Director would be looking at on a dailly basis adjusting figures on a weekly or monthly basis. This allow hem to review rates on a quartely basis as that really determines whether they will be around for a longtime


Costing Model: Final figures in Rands and kilometers.

[TABLE="width: 233"]
[TR]
[TD="width: 174, bgcolor: transparent"][/TD]
[TD="class: xl65, width: 136, bgcolor: transparent"]Truck[/TD]
[/TR]
[TR]
[TD="class: xl66, bgcolor: #FFCC00"]Total Fixed Cost Per Day[/TD]
[TD="class: xl67, bgcolor: red, align: right"]R 2 798.16[/TD]
[/TR]
[TR]
[TD="class: xl68, bgcolor: #FFCC00"]Variable Cost: Cents Per Km[/TD]
[TD="class: xl69, bgcolor: red, align: right"]R 7.23[/TD]
[/TR]
[TR]
[TD="class: xl68, bgcolor: #FFCC00"]Total Operating cost per day[/TD]
[TD="class: xl70, bgcolor: red, align: right"]R 8 257.30[/TD]
[/TR]
[TR]
[TD="class: xl68, bgcolor: #FFCC00"]Total Operating Cost R/Yr[/TD]
[TD="class: xl69, bgcolor: red, align: right"]R 2 625 822.03[/TD]
[/TR]
[TR]
[TD="class: xl68, bgcolor: #FFCC00"]Total Operating Cost R/Km[/TD]
[TD="class: xl69, bgcolor: red, align: right"]R 10.94[/TD]
[/TR]
[TR]
[TD="class: xl68, bgcolor: #FFCC00"]Fixed Monthly cost[/TD]
[TD="class: xl69, bgcolor: red, align: right"]R 74 151.26[/TD]
[/TR]
[TR]
[TD="class: xl68, bgcolor: #FFCC00"]Variable Monthly cost[/TD]
[TD="class: xl69, bgcolor: red, align: right"]R 144 667.24[/TD]
[/TR]
[TR]
[TD="class: xl71, bgcolor: #FFCC00"]Total Monthly Costs[/TD]
[TD="class: xl72, bgcolor: red, align: right"]R 218 818.50[/TD]
[/TR]
[/TABLE]


Its important that you know how much your truck is costing you so that you can add an mark-up, that way you will have a clearer picture in terms of the rates you want or are looking at. It will also allow you renogiate rates with out taking a loss that you are not aware of. That is how top trucker survive in the industry.

Another mistake which I always stress is accounting for empty hauls between loading points. What I mean after you offlaod how many miles do you travel to pick-up your next load? How many empty hauls do you do in a week and whether you account for them? In another post I made a rough calculation based on a scenario I see alot of truckers do, let say you do about two round trips per week that mean two loads up and two loads down translating into 2 loading points respectively and three empty halls to complete the roundtrip. Let say you always target a rate of $1.5 per mile, you always get laods but never account or it occurs that you account for that empty hauls into your costing system that means;

Simple Example:

Point A and D in same state and Point B and C also in the same state, let say you are doing one lane for the purpose of the example.

Pick up point A deliver to B, HAUL EMPTY to Point C Pick up and deliver to Point D- FIRST ROUNDTRIP completed then HAUL EMPTY to Point A again pick up deliver to B then HAUL EMPTY to C pick up to deliver to point D-SECOND ROUNDTRIP

Those are three empty hauls in the the two roundtrips


Distance from one loading point to another is average of 35 miles

Empty Hauls: 3

therefore total distance un accounted is 3 x 35=105 miles per week!

per month is 105x4= 420miles per month

per year roughly 12x420= 5040 miles

That means 5040miles x $1.5 per mile=$7560 of lost revenue!

Trust $7000 can make a difference in your business closing or not

Start accounting for all those empty hauls than you wont wonder why you haved used so much diesel!

Hence its important to start thinking in term of the market aswell looking at particular lanes which brings me to my second and most favourite point:


Income Generation:

You see what the top trucking who were once owner operators knew that looking at customers needs is what most important. One of the companies which I will not not mention opened up a whole new division to cater and for a particlur markets needs. It is really not hard to do and you do not need alot of money to do so but effort and dedication is needed.

When you look at the market needs you will start to understand why certain goods flow on a particluar lane and plan accordingly. I stand by this that customers dont care who you are but they do care how are you going to help them and whether you can deliver on your word.

Owning a truck is a great joy and if you sit down start crunching your numbers and looking at your market that you are going to service you will make it in the industry. Rememeber all the top 50 trucking companies were all once owner operators and they have made it on these two approached and more.



One trait which is important is to be operationally minded.

Planning is an important tool.


Rememeber two sides to business cost control and income generation its upto you how you are going to math both to be profitable and have longevity in business.


Warm Regards,
Business Developer

 

Conversion: One Rand = 10 cents U.S.

 

Thanks for the conversion rate, with that you can calculate relevant figures for the costing model that well established carriers run for.

 

I only carry loads that alway under 20000, I reduce my maintence,tire,i average round trip 1.40 to 1.5, sometime 1.65. I will never haul over 35000

 

I agree with that contain variable cost like what you mentioned is important but Remember quality maintenance work on your truck could be difference on whether you can do an extra load or let me put it this way if you can have faster turn around times. In terms of tires aswell some companies have come up with tire policies to reduce cost but both those variable cost factors are not at the expense of trucks performance, I do not know whether I am making sense?

You dont want a situation where your have 5 major breakdown in the year that increases your down time, that is definitely not going to keep you in the game. Yes I agree with that maintenance and tires can be decreased but only from a total cost perspective and that requires that your truck as litle downtime as possible and do more miles.

I would love to have an webinar on proper cost control measures that owner operators can implement to control cost but also ensure litle down time.

 

Said another way......


It's cheaper to plan your maintenance than deal with a breakdown during or under load away from a location you can control the costs.

 

I think most of the REAL costs should apply to every trucker. Wether they are driving a new 2013 truck or an old 2003 truck, you have to truck looking forward and as if you're going to be doing it beyond the next 5 years, and even 10 years. And you can't run a truck forever, and some states have mandated you stay current with engine technology, so you have to decide on a truck life cycle that is realistic, properly account for inflation, trade-in value, finance rates and terms, then go from there.

Should every o-o plan to trade for a new truck every 5-6 years? No, but why not? The regulations are becoming such that this is practically what you have to do if you're going to truck long term? You think CA is done setting new limits and standards? They're not. States like CA and governments like current federal government are constantly changing the game, raising the bar, and making it more and more difficult. My point is you need to expect what you know to be law going forward the next 10 years will probably change to a more restrictive model 5-7 years from now. That's what law-makers do, they make new laws to respond to "the earth is going to end if we don't do something drastic now" fear-mongers. It's only a matter of probably another few years when federal law will mimic California law so many of the trucks on the road today will become worthless overnight.

Obviously you do what you can to keep operation and maintenance costs as low as possible, and understanding there is a cost to benefit ratio that needs to be carefully looked at in terms of preventative maintenance vs. reactionary maintenance.

You also need to be able to know that assuming you run your budgeted miles for the period, (no lost-time days, no vacation days, no sick days, etc) that you're own realistic salary as a driver can be met without taking from some other budget. And you have to be realistic about what you are worth as both a driver and a business manager. No, you are probably not worth $120,000 year or $0.95/mile.

And yes, there is a very wobbely line that defines what a "reasonable rate" is but much of that is because there are too many out here trucking who don't know what they're doing from a truck business management perspective and as such don't know what a fair rate is or should be. It's a vicious circle that is detrimental to the industry and those looking to make a fair profit and salary, and it needs to be PROPERLY addressed anywhere possible as the OP is attempting to do to get some to wake up and stop hauling the truly "cheap freight" because you have no truck/trailer note payment in an era when costs, and regulations, and compliance requirements have never been higher, and the future is more of the same.

 

You can consider the empty move of the truck as lost revenue but many of us put that into the cost category, not a loss. I don't count it as lost revenue but part of doing business. Basing the cost on my break even point from the last quarter to plan forward, the empty move or deadhead is easier to account for than to try to roll into a revenue stream and see a loss that I can't take out of the gross profits.

One of the things i have done in the past is to use inexpensive moves to generate a break even load to get to another move which pays off. I know many don't like the idea of a $1.05 rate but there are a lot of advantages to putting something on the truck to make a loss into a break even or in some cases a gain in the ledger.

As for maintenance, I amortize things like tires, shocks, injectors and so on then plan on replacing them no matter what condition they appear to be in. I know this sounds stupid to many but I have had one truck break down in the last three years and that was something that could have been prevented. Does it save money? I think it does but it is like what ifs in like, I don't have a time machine to show me a difference but I do have the trucks working because they are dependable.

 

as to the first post....

someone tells me they are getting $2.00 a loaded mile. It means nothing to me. Did you dead head 3 miles? 50 miles? Is the trip 150 miles? or 1500 miles?

Fuel I am looking at more and more as a percent of revenue. Right now, I am around 32% I can do better, but it's a LONG way from the 40-43% I was at for fuel.

I willingly spend money on my truck, but only if there is a clear and reasonable purpose for what it's going to be doing.

Makes sense to put a set of 4 virgin used tires on last month when a single used was 1/2 the cost of the entire 4. It replaced not one, but 3 bad tires on the truck I had that was hurting me.

Life will always throw those little packages at you. Be ready to recognize them and take advantage of them when they present themselves.

 

Thinking from the law perspective and matchingit to life cycle of equipment is just brilliant as that is a true trait of atrucker and I appreciate people like you as that cement longevity in theindustry. I also agree with you that a lot of new O-O don’t know a lot about businessmanagement and hence you have a situation of 44% of start-up trucking companieshave survived till now prior the recession. One I I’d like to make thought in connectionwith business management is that if you don’t know how your truck is costingyou or going to cost you to operate you would not know what a fair rate isapplicable to your business and how much you must pay yourself that will give apicture amount of loads and type rate you must haul for. Hence I posted acosting model that a lot of executives, senior and junior management look ateach and every day to see whether they on par with their budget andprojections. But this is still open for debate