Why cpm?

Discussion in 'Ask An Owner Operator' started by davenjeip, Jul 30, 2010.

  1. davenjeip

    davenjeip Medium Load Member

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    Dec 20, 2009
    Port Charlotte, Fl
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    This is something that's been bugging me, as I've been thinking about getting a truck sometime in my future.


    Why does everyone only seem to have a single cpm break even point, and no other way of figuring what they need to make?


    The way I see it (and I could easily be wrong) is that this cpm break even point would only be relevant if you run a consistant amount of miles every week. Many of these costs (truck payment, insurance, tags, etc.) are fixed and don't care if the truck moves or not. The other costs do relate to the truck moving (fuel, maintenance, etc.), but would also have very small relations to sitting if there is idle time involved. Simplified, your break even cpm is going to be very different if you drive 500 miles a week vs. 3000.

    At least, that's the way I'm seeing it, and would appreciate someone explaining things to me if I am wrong.


    Now, in my mind I'm thinking that you need to start with a cost per month on your fixed costs, then break that down to a daily amount. What you end up with at that point is a dollar amount that you have to make if that truck doesn't move an inch.

    Next you would have to figure out what it costs to move the truck. This would not take into consideration any of your fixed costs, like most people add into their cpm figures.

    Now, when you look for a load you look for something that covers your cpm for however many miles you'd be driving, then just add your daily rate to it for however many days it will take to get your break even. You could add drivers pay to either of these figures, depending on how you want to pay yourself.

    Just to make it easy, using numbers that have no basis in reality other than just trying to make the math easy, let's make an example where you need to make $100 per day and $1 per mile. On a 100 mile load you would need to make your $100 fixed, plus $100 to cover your cpm for a total of $200 or $2 per mile. But, with a 1000 mile run over two days you'd need two days of fixed costs at $200, plus $1000 worth of cpm costs, so your break even on this run would be $1200 or $1.20 cpm.


    Like I said, I have no experience as an owner/op and do not present my ideas to have any relationship to fact. This is just what's going through my head and I'm curious as to if it makes sense to anyone else.
     
    cynicalsailor Thanks this.
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  3. Howling Wolf

    Howling Wolf Bobtail Member

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    Apr 29, 2009
    Newark Valley, New York
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    davenjeip; You are 100% correct in your analogy. Problem is, is that most drivers don't know this, because they're not taught this way. I just learned this method you are asking about. It's how successful owner operators run their business. You could use the c.p.m. way to figure your B.E.P. but, if you don't have all your fixed cost numbers added into the equation, it won't come out rite. You will loose money and most likely go out of business real quick. I belive this is why the trucking industry is so unstable from the drivers point of view, and why so many "New" owner operators fail. Now, most of the trucking co's know this, that's why they'r succesful. But in order for them to stay profitable, they will only pay c.p.m. to the driver,o/o or co. It is my true belife that to be sucessful in todays "trucking market" you have to be "Independent". Good Luck to you, and if you ever are in the market for a driver that knows how to run a truck ,let me know. I do know of one co where you can be sucessful. If interested, just reply to this post, an we can figure out how to contact each other from there.
     
  4. grizzly

    grizzly Medium Load Member

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    I base my business on CPM. You can figure a very accurate picture based on an average of what you do. I refigure my cost per mile every quarter based on a yearly average. In other words a quarter drops off and a quarter is added. Your fixed costs like truck payment, insurance and the like don't change much unless your miles dramatically change. Variable costs like fuel and repairs are more easily adjusted using this formula. You are correct in thinking that the more miles you run the less per mile your truck costs. Using the formula you are thinking it really is going to come up with roughly the same number. Days the truck doesn't move are figured in the CPM formula because CPM is based on the average of actual miles ran.
     
    Big John Thanks this.
  5. rooster1775

    rooster1775 Light Load Member

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    Metro Detroit
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    For many it just makes thing easier. Even if they have the whole of the math worked out. Keeping the format of the variable the same is easier than recalculating. Earn in CPM = calculate in CPM.
     
  6. heyns57

    heyns57 Road Train Member

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    Dec 30, 2006
    near Kalamazoo Speedway
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    Years ago, we said it this way. Know your variable costs. In the short run, take any load that covers the variable costs and contributes to fixed costs. Of course, in the long run you must cover both fixed and variable while accumulating the down payment for the next truck.

    In the real world, you do not have simple choices. I know that once my truck was paid for, I slowed down.
     
  7. RAG

    RAG R.I.P.

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    Tonga
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    I treat the truck as it's own profit center
    If I don't work very hard my CPM goes up:biggrin_2559:
    If I buy tires the CPM goes up.You get the idea
    I don't change my rates based on the current CPM
    All my cost are in my CPM including the wage I pay myself
    CPM lets me know if I'm flying or falling
    There are many ways to measure profitability
    CPM works for me:biggrin_25525:
     
    dino6960, Bigray and Big John Thank this.
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