By better managing fuel costs and having an effective fuel buying strategy, business owners and fleet managers have the ability to make their trucking businesses more profitable. Fuel costs are one of the expenses that you can control in your trucking business. These costs represent your company’s highest operating expense and demand appropriate management to increase profit margins.
You may not be able to control the price at the pump, but you can implement systems and procedures to better manage fuel consumption and control expenditures. Regular truck maintenance, reducing idle time, controlling speed and taking advantage of a fuel card program with discount pricing are just a few examples. The direct impact of these implementations can make a substantial positive difference to increase profit margins. The key is to track, monitor and compare expenses enabling you to make informed decisions regarding fuel savings. A robust fuel card program is much more than a simple fuel buying strategy – it provides online monitoring of purchasing transactions in real time, plus historical data to enhance fuel cost management and help to increase profit margins.
Many variables affect your fuel buying strategy
It is difficult to effectively track and manage fuel expenses as there are many variables that alter your overall spend. For example, every trucking business experiences peaks and valleys for demand that change the utilization of your fleet from one period to another. The degree of change can be substantial for trucking companies experiencing growth.
If you look at just the dollars spent, it can easily create a false impression. Your business may spend less on fuel one month compared to another, but that could easily be the result of having a slow month and nothing to do with improved fuel efficiency. Next month, you may spend more, not because fuel costs got out of control, but because you saw some real growth in revenue. In other words, the more loads you deliver, the more revenue is generated and the more fuel is consumed. These variables must be considered when developing your fuel buying strategy.
Track fuel costs as a percentage of revenue
Monitoring fuel expenses by dollars spent provides little value in aiding the development of your company’s fuel buying strategy – instead, track fuel costs as a percentage of revenue. This method creates a valuable management tool providing insightful metrics to track whether fuel costs are increasing or decreasing at the same rate as earned revenue.
The monthly income and expense statement that your bookkeeper creates for you isn’t just to satisfy your tax requirements, it should also be a valuable management tool. Beside each major expense line item (such as fuel), ask your bookkeeper to record each amount as a percentage of total revenue. For example, if your revenue is $100,000 and your fuel cost is $30,000, then your fuel cost would be 30% of revenue. Expressed as a percentage of revenue, fuel costs can be easily compared on a monthly basis.
Getting your fuel percentage under control
Now you have a comparable measure on your trucking company’s fuel cost. The next step is to determine an acceptable percentage of revenue to spend on fuel. The appropriate percentage depends on the size of your company. If you operate a small trucking business with a single truck, experts recommend that you try to get that magic number to less than 30% of revenue. That can be a tough challenge, but getting this number under control can have a huge positive impact on your company’s ability to increase profit margins. If you operate a trucking fleet with multiple drivers, you’ll need to work with your accountant to come up with the appropriate percentage of revenue for your trucking company.
Put your plan in place to control fuel costs
You’ve done your homework to calculate where you are with your current spend on fuel (as a percentage of revenue). Now it’s time to put together a plan of the things you can do to reduce your fuel costs and fuel consumption to improve profit margins.
7 ways to reduce trucking fuel costs
Once you’ve determined what you actually spend (as a percentage of revenue), you need to determine what your target goal is to be. For example, if your average cost of fuel is 33% of earned revenue, you may want to reduce this expense by 5% to get it within the industry recommended range of less than 30%. Here are seven ways to reduce your trucking fuel costs without the need for capital intense investment up front:
1.) Use fuel discount cards: Almost two-thirds of owner operators used credit cards for business expenses, including the purchasing of fuel. Despite ease of use and the lure of reward points, this is a convenience at great expense. Instead, successful trucking companies use high-value fleet fuel card programs to gain substantial discounts on the cost of fuel at major full-service truck stops across North America. Depending on the size and fuel consumption of your fleet, trucking companies can save thousands every month. These programs offer much more than savings – easy expense monitoring and reporting provides improved expense management, plus credit terms to improve cash flow are just a few of the additional benefits. For one-truck companies, large fleets and everything in between, implementing a fuel card program is an ideal fuel buying strategy.
Get started today with cost-saving fuel cards to increase profit margins.
2.) Ease up on the accelerator: There’s a misconception in the trucking industry that delivering more loads in less time by any means is the best way to increase profit margins. While the basic principle of finding ways to reduce delivery time is sound, you may be shooting yourself in the foot if you try to do that by speeding down the highway. Studies show that, for each mile you drive over 60 mph, your truck loses .14 mile-per-gallon in fuel efficiency. Add to that the wear and tear on the truck and tires, and the added stress placed on the driver and you’ve got a recipe for eating up what little profit you’ve gained.
Simply reducing your rig’s speed from 65 to 60 mph can save you thousands a year in fuel.
3.) Get your drivers involved: Your drivers are in a position to make decisions daily that will affect fuel costs and consumption. It is estimated that efficient drivers can get approximately 30% better mileage per gallon than their least efficient colleagues. Over revving, hard braking and improper shifting are just a few examples of poor driver habits that directly impact your bottom line. Ongoing training will keep your drivers at top-of-form with the skills and knowledge to maximize fuel efficiency. The cost of instruction will pay dividends and increase profit margins long after they’ve left the training room.
Let them know your goals for fuel consumption and encourage them to think of their truck as a micro-business within your company. Get their buy-in, provide them with the tools they need, like trucking fuel cards, and then watch your savings grow.
4.) Choose efficiency over beauty: Show trucks may be good for the ”wow” factor, but they’re not the best choice for running a trucking business. Lots of chrome, added body weight and big engines eat up fuel. A truck with aerodynamic design that can get the job done efficiently and without the added horsepower is a better choice when it comes to keeping fuel costs under control.
5.) Maintain, maintain, maintain: Your trucks are your bread and butter. It only makes good business sense to keep them well-maintained. A well-maintained truck uses less fuel. That includes checking tire pressure at least weekly. Under-inflated tires are up to 3% less fuel efficient and misaligned tires can cause another 2% loss of fuel efficiency.
6.) Monitor idle time: You’ll waste up to one gallon of fuel for every hour of idle time. Monitor how much time your trucks are spending idling and make sure it’s absolutely necessary. Better planned routing and less time spent doing paperwork in an idling truck are two solutions to consider. Not only will you improve profit margins; it’s better for the environment.
7.) Plan routes and deliveries more efficiently: Is every trip your fleet makes necessary? Are you combining shipments to various customers with a similar destination effectively to minimize the times your trucks hit the road? If you deliver to the same customer 5 times a week, could it be 3? You say your customers wouldn’t be interested? What if you shared some of that savings with them so everyone wins?
Get creative with ways you can actively reduce your drive time and distance while balancing the need to service your customers well.
Understanding how to track your fuel cost as a percentage of revenue will greatly enhance your ability to control your company’s largest operating expense. Implement cost saving practices and closely monitor your month over month expenditures to help push expense trending down. Every dollar saved is a dollar added to increase profit margins.
Freight factoring companies are specialists in the transportation industry. Their funding products are designed to be the most cost effective and most convenient form of invoice factoring for trucking companies. Additional support services such as free credit checks are fine tuned to provide maximum benefit to bolster profitability. Working with a freight factoring company as your financial partner is a sound strategy to improve cash flow and gain extra savings.
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