A trucking company’s Break-even Points are the basis from which its hauling rate range is calculated. If the company owner or manager doesn’t know what it costs to operate a business, then success is very elusive. Many small trucking businesspeople are unsuccessful because they fail to cover the company’s cost of doing business in the hauling rates they establish or accept. If they don’t know the least amount they can charge in order to pay all of the expenses required to keep the business open and operate their trucks, their success is doomed from the very start.
One of the biggest mistakes many small and micro-trucking company owners make is failing to calculate one very important expense as a fixed expense in their Break-even Point. This one expense is so important, if it isn’t paid constantly and continually, the company will fail. Now, as you continue to read this article, please think of all the costs you’re required to pay as a trucking company owner. See if you can pick out the one that’s more important than all the others. As you read the article, you’ll find my answer; compare it to yours and see if you agree with me.
The biggest mistake many trucking company owners make is thinking they just need to establish a firm rate per mile, adjust it with a Fuel Surcharge and they’ll generate the revenue to exceed their BeP.
Figuring a Break-even Point goes far beyond a per-mile rate. Some expenses can be figured by the mile, but other costs occur even while your trucks are sitting. It’s basic arithmetic, but figuring the correct formulas from the proper perspective is the real secret to success in trucking.
There are five components to a Break-even Point:
Operating Cost: Costs or expenses required to keep your trucks rolling: Maintenance, Repairs, and Tires. The most effective means of figuring this cost is per mile. However, minimally, it should be based on these costs from the previous month. Also, amortize the cost of tires and repairs based on the anticipated life of that repair; i.e., two steer tires costing $900 with an anticipated life of one year would be $75 per month. Take the total Operating Cost on each truck and divide it by the odometer miles for the month to arrive at a cost per mile figure.
Fuel Cost: The reason Fuel Cost is separated from Operating Cost is because it changes constantly and needs to be calculated on a price change to price change basis (also calculated per mile). Take a predetermined amount of miles and divide by the individual truck’s miles per gallon to arrive at the total gallons required for that distance. Multiply by the current cost per gallon of fuel for total cost of fuel for that distance and then divide by that distance.
3,000 miles ÷ 6 miles per gallon = 500 gallons X $4.00 per gallon = $2000 ÷ 3,000 miles = 66.6666 cents, rounded up to 67 cents per mile.
Driver Labor: How you pay your truckers determines how Driver Labor is calculated. If it’s per mile, remember to figure payroll costs (FICA, benefits, etc.) into the driver’s pay per mile. If it’s an hourly or salaried rate, the same thing needs to be calculated, but it becomes a per day figure rather than per mile.
Load-Specific Costs: Expenses exclusive to a particular load or run, including tolls, trip permits, escort fees, load/unload labor or any expense which may not appear on other loads or runs.
Fixed Cost: Any expense paid regardless of whether your company’s trucks are rolling or parked, including equipment loan/lease payments, insurance, office rent, utilities, staff salaries and phones, communications, etc. Think of it as expenses that keep on tickin’ even though the truck and driver are sittin’. This is where that one expense, that if it isn’t paid constantly and continually, the company will fail is included … (drum roll, please) … the most important expense that must be included in any trucking company’s fixed cost is the trucking company owner’s salary!
Think of your BeP (Break-even Point) as the point at which your doors stay open for one more day. Therefore, each time you meet or beat your BeP, you’re still in business and not relying on ‘profit’ which evades most companies in the first years of being in business. Warning: if you depend upon hard-won profit to pay yourself, two things will occur. One, in the early years, you’ll be working for free a lot of the time. Two, since profit is what a trucking company needs to sustain itself in difficult times and grow in good times, the owner who depends on it for his pay is stealing his success.
Know your Break-even Point for each truck and secure your well-deserved success.
Tim Brady (www.timothybrady.com/) is an industry expert on small motor carriers. He’s a business editor and columnist for leading trucking publications and a weekly guest expert on Sirius-XM Radio’s Road Dog Trucking’s Lockridge Report.