BlogBusiness Success TipsFreight Factoring

How Do Trucking Companies Make Good Money?

By 10.21.20November 18th, 2020No Comments

It seems simple enough to make money as a trucker; pick up freight here, deliver it there, bill the customer. To a layman being an owner operator or trucking fleet owner seems like a dream job. To those of us in the industry we know it to be otherwise: long hard hours, a constant hunt for freight or drivers (or both!) and a never-ending battle to stay ahead of costs. Yet, for those who have it in their blood, there’s no better way to make a living. Maximizing equipment utilization and controlling costs to drive as many loaded miles as possible is the key to making good money in freight transportation.

It’s a rough playing field, even the most hardened road warrior can find it tough to succeed without a disciplined approach. The logistics and financial obligations of operating a trucking business can be overwhelmingly difficult if not managed well. Stiff competition, rising costs, fluctuating markets and heavy regulations are only a few of the challenges that frustrate company owner’s ability to reap consistently good profits.

But, trucking is an essential service that has outlasted economic crises, global pandemics, changing technology and environmental regulations. It will remain an essential service for decades to come and will continue to provide opportunities for growth. For those willing to work hard, work smart and are dedicated to operating at high efficiency, trucking is a huge industry with big rewards at stake.

3 key actions you can take to make more money as a trucking business owner:

There are only three steps you can take to increase your trucking company’s profits:

Key Actions

  1. Control expenses to lower your company’s cost-per-mile.
  2. Increase the rate-per-mile you charge customers.
  3. Drive more loaded miles in a week, in a month and over the year.

Trucking Business Operations Tip 1: Know Your Cost-per-Mile

Unless you know exactly how much it costs to run your trucking business, you will never be able to set a rate-per-mile to charge customers that will create profit. To identify the true cost to deliver a load you must consider both variable costs (running costs) and fixed costs (overhead). This is where accurate bookkeeping and financial reporting becomes critical. Ensure you record every dollar spent on large ticket items, over-the-road expenses and even small office supply purchases. Every dollar amount, large or small adds to the overall picture.

A common problem most trucking companies share is the keeping of messy books, inability to understand some key business metrics and not entering the right measurements into their accounting systems.  It is well advised for all trucking companies to produce monthly financial statements that accurately record all transactional details and to analyze these reports regularly to best control finances. With this level of detail, determining your cost-per-mile is an easy exercise with the use of an online cost-per-mile calculator. Use the data entered into your books for accounting and tax purposes to populate the calculator’s data fields and your company’s unique cost-per-mile result will be displayed.

Trucking Business Operations Tip 2: Set A Competitive Rate-per-Mile

Establishing a competitive rate-per-mile that attracts customers and supports your company’s bottom line is critical to the success of your trucking company. The rate needs to be high enough to pay all your expenses, leave a profit and be competitive, it’s a difficult balance to maintain!

3 Steps to Balance Profit with a Competitive Rate-per-Mile

Step 1- Know Your Company’s Cost-per-Mile

Step 2 – Apply a Profit Margin: Once you have your company’s cost-per-mile, it is then a process of adding a profit margin to establish the rate-per-mile your company will charge to customers. Be aware that competition is high and trucking profit margins are exceedingly low compared to most other industries. Be careful not to pad this rate with an excessive profit margin that will price you out of the market.

Step 3 – Measure Against Competitive Rates

The trucking industry is highly competitive and cyclical creating wild roller coaster rates and profit margins. 2012 to 2016 was a particularly tough period in the trucking industry, profit rates ranged from 2.5% to 3.8%. Profits surged dramatically in 2017 to an average of 6% and grew higher in 2018 until margins plummeted again in 2019. By the end of 2020, margins grew past 6% again. To remain competitive, keep profit margins slim and regularly measure your per-mile rate against your competition.

How to measure against competitive rates:

1.            Select your freight lane

2.            Go to a load board

3.            Select 10 comparable loads going in one direction

4.            Contact the brokers to find out how much they pay

5.            Determine the average price

6.            Add 10% to 15% to get the price brokers charge shippers

7.            Repeat the process for back haul

Once you have compared rates, you may have to focus on decreasing costs or commit to driving more loaded miles to improve profit margins and remain competitive.

Trucking Business Operations Tip 3: Drive more loaded miles

Driving loaded miles; it’s what truckers love to do and, more importantly, it brings home the bacon. Along with driver issues, it’s also the primary concern that occupies the minds of most trucking company owners, fleet manages and dispatchers. 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. To help with this endeavor, we have compiled a list of 7 ways to find more loads.

Find the Right Balance

Changing any one of the three key actions listed above will have a ripple effect throughout your company that may or may not result in the desired outcome.

–       Raising the rate-per-mile may increase revenues, but will it make you less competitive and cost you business?

–       Controlling costs to lower expenses may save you money, but will it hinder operations and your ability to service customers well?

–       Driving more loaded miles may stress your manpower resources and shorten equipment life expectancy.

Trucking companies are constantly trying to adjust to improve returns and remain competitive. Without a defined approach, knowing what to do and when to do it is very much a guessing game. Let’s say for example that you decide to trade in your 5 year old tractor for a new, more fuel efficient model. Will the savings in fuel costs out way the increased monthly carrying costs of the new equipment? Or, what if you take on that new customer; will adding more trucks and drivers to fulfil the contract return a profit, or create losses?

It is the careful balancing of the three key actions that will best position your company to generate the highest return on investment. Industry expert David Boyd believes it is the analysis of meaningful monthly financial reports that paints the company’s big picture revealing strengths and weaknesses.

David Boyd is an experienced accountant/controller who provides online controller services to small- and medium-sized transportation businesses. David’s expertise has guided numerous trucking companies through the difficult phases of start-up, growth and sustainability. According to Dave, “what if” scenarios using the company’s unique data information is needed to predict the likely outcome of changing actions. To predict how change will impact profit, you must create “what-if scenarios” with the use of a profit and loss calculator. This calculator is designed to predict the impact of change based on your company’s unique financial data. By adjusting the calculator with the accounting details of adding new equipment, taking on a new customer or any other change, the calculator will predict the likely outcome as a positive or negative result towards improved profits. Using the calculator to predict results on paper is much less risky than committing to change in real time and waiting to discover the final impact. Analyzing the data in this manner is a safe approach to determining the best course of actions to take to increase revenues and profits.

Add to Revenues with Accessorial Fees

In many cases, freight movement is more involved than simple pick-up and delivery. Accessorial fees are charged by the carrier to the customer for additional services required to complete the delivery. The most commonly charged accessorial fee with contract pricing is a fuel surcharge. This fee is charged to compensate the carrier for fluctuating fuel costs that would otherwise eat into profits. Utilizing a fuel discount card can help with fuel costs.

The Big Money is in Growth

As long as your cost-per-mile is less than your rate-per-mile, the more miles your company drives, the more money it will make. A company with 60 trucks will make substantially more revenue than a one or two truck company. The following example illustrates the potential earnings for a mid-size fleet.

Assumptions:

·      Number of Trucks: 60

·      Per-Mile Rate: $2.25

·      Average miles per truck, per year: 100,000

Revenue Calculation:

·      60 trucks 100,000 miles = 6,000,000 miles driven per year

·      6,000,000 $2.25 = $13,500,000

In this example, the 60-truck company generates $13.5 million in revenue per year.

To grow, you must be as smart, or smarter than competition and keep your trucks moving. Large trucking companies require more than a significant customer base, fleet management and a strong driver pool, they also need effective financial management and access to working capital. For growing fleets, a factoring line of credit is the ideal funding solution to support expansion.

For those able to navigate the challenges of growth, the money to be made from large trucking companies are well worth the hard work and dedication it takes to succeed. To help guide your growth, eCapital provides a guide with five ways to grow your trucking business.

For truckers, there’s no better way to make good money

To make good money in trucking, each truck and driver needs to perform at maximum efficiency. Costs have to be controlled and revenue needs to be maximized with increased loaded miles and accessorial fees when possible. The formula for making good money is to work hard, drive safe, service your customers well, control costs and monitor your competition for comparative rates. For those who have it in their blood, there’s no better way to make a living!

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