It’s been a bumpy ride for the trucking industry! Profit rates have been up and down like a roller coaster in the past five years. First rising through 2017 and 2018 before dropping back in 2019, then escalating to record levels in 2020 and early 2021. Some trucking companies that ran hard during the past two years of record-breaking freight rates are now scaling back to weather the storm as rates rapidly decrease again. More volatility may follow as fuel costs remain high, the economy struggles against inflation, and shifts in consumer spending change traditional trends. Yet, some trucking businesses with an eye on the future are planning for growth.
In this article, we speak to Raye Ackerman and Oscar Rombola, two of eCapital’s senior executives – transportation specialists who have seen and done it all. Raye and Oscar leverage years of industry experience to provide success-based insights on how to grow your trucking company to thrive in a volatile market and build long-lasting success.
Why Grow Now?
It may sound counterintuitive, but one way to ride out volatility is to scale up to more trucks, says Raye Ackerman, vice-president of subscription services at eCapital. “There’s a low ceiling on the profits of one truck due to the limitations of how much any one operator can be on the road. With multiple trucks, owners can expand services to new shippers, capture more loads, and pocket increased profits.” Raye explained the rationale to support this statement. “Shippers and brokers favor companies that can manage volume. They prefer to assign a regular lane that ships three or four loads weekly to a single carrier. It simplifies everything for them from quality assurance to dispatch and invoice payment.”
Adding more trucks to your operations provides the advantages of economies of scale. The cost savings associated with a larger business position your trucking company to be more competitive and acquire more freight. More freight – more profit!
“There is never really a slowdown in the transportation space.” according to Raye. “Trucks are quite literally the engine of the U.S. economy. Freight will always need to be transported. Any day is always a good day to look to expand your fleet.”
Growing from one truck to two or more better positions your trucking company to:
- Take advantage of new opportunities and attract new customers.
- Offer additional services to increase sales.
- Respond rapidly to market demand.
- Increase both business stability and profits.
Start By Running The Numbers
Of course, growth must be managed carefully – the key is to remain profitable as you navigate the ebbs and flows of market volatility. As you grow, stay lean during downturns, run hard to capitalize on opportunities when demand is high, and watch the numbers.
Know Your Costs
“Understanding how much revenue you need to generate is the number one priority to ensuring profitability,” says Ackerman. “To calculate profit, you must first know how much money it costs to run your trucks per month.”
To decide if your business model is scalable, begin by calculating your cost-per-mile.
Set A Profitable Freight Rate
Now that you know the costs you have to cover, set a freight rate that earns more revenue than you pay out in expenses.
To establish a freight rate, study your market and ask around to find out what other carriers are charging. The freight rate you set must be profitable but competitive.
Test Your Business Model
The next step is to test your business model and ensure you’re generating enough profit to make all your hard work worthwhile. To see if your business model works for you, subtract your cost-per-mile from your freight rate per mile and multiply it by the number of loaded miles you travel in a month. If the numbers don’t look as good as you’d like, fix them. There are only three ways a trucking company can positively affect profit:
- Lower costs
- Increase rates
- Drive more loaded miles
Keep an ever-watchful eye on these three variables and adjust the numbers to be profitable.
Develop An Entrepreneurial Mindset
Getting the numbers right is critical, but successfully growing your business involves more than just math. Leadership, experience, skill, and a determination to succeed are essential in volatile markets.
“You need to have an entrepreneurial mindset,” emphasizes Raye Ackerman. “You need to think of yourself as a business owner and have the discipline to put systems, structures, strategies, and planning in place to get to that next level.”
Oscar Rombola, managing director at eCapital, suggests asking yourself these questions as you prepare to expand your fleet:
- Do I have the business knowledge to run a small company?
- Am I willing to take the time to educate myself on all aspects of the trucking industry?
- Do I have good relationships with shippers and freight brokers who will send profitable loads my way?
- Do I have access to load boards and know how to leverage them to find profitable loads?
- Do I have the drive, experience, and problem-solving skills to overcome barriers?
- Do I have the support of my loved ones – perhaps even to take responsibility for the administration of the business?
If your business model is in order and your answers are all “yes,” you’re almost ready to start creating your growth plan — just one last detail.
Leverage The Experience Of Others
Know your limitations – you’re not Superman. No one can be all things, know all things and have the capacity to solve all problems. Learn to leverage the experience of other industry experts. “Tap the knowledge, work practices, and strategies of individuals and companies that have more experience than you do.” encourages Oscar Rombola. “Nurture relationships with people and organizations with strengths you can leverage. These contacts can help guide you through the challenges of a volatile market.”
Raye Ackerman agrees. “Small carriers can learn a lot from how big carriers work in times of high demand and down markets. Duplicate what the big fleets are doing,” continued Raye “you don’t need to reinvent the wheel.”
Study the practices of larger fleets to learn:
- How they use load boards.
- How do they schedule regular freight.
- How they hire and retain drivers.
- How they use software to manage all aspects of their business.
Keep in mind that scaling up makes sense only if you stay profitable. Get the right balance between your cost-per-mile and your freight rate before you invest in an additional truck and driver. Know you have the skill and resources to acquire more freight – growth is only profitable if all trucks in your company contribute to your bottom line.
Look yourself in the mirror and determine if you have the grit to be a business leader. Work to transform yourself from being a truck driver to a profit-driven business owner. Strive to advance your business sense, be determined to get the job done no matter what and develop excellent problem-solving skills to overcome barriers. But don’t try to take it all on by yourself. Get experts in your corner. They can help you plan the most efficient route to success and make your journey there smoother.
eCapital is a rapidly growing leader within the freight factoring space and has been a trusted financial partner to thousands of trucking businesses since 2006. Our mission is to empower North America’s trucking companies to run their businesses better by accelerating their access to cash flow. Every team member shares our dedication to helping trucking companies run efficiently and profitably. Learn more about using freight factoring to provide startup funding with the flexibility to support growth and companies in transition by visiting eCapital.com.