As a trucking company, your net profits are a direct result of how much money you spend per mile. Logistics is a very delicate balancing game, and you need to constantly ensure that your income outweighs the per mile expense of hiring out your truck for a job. In order to do this effectively, you need a solid understanding of what your actual cost per mile is.
Looking solely at tangible expenses like fuel efficiency doesn’t cover all your bases. You need to factor in things like:
- The wear and tear of your vehicle,
- The insurance costs,
- The possibility and risk of accidents, and so forth.
How to Calculate Your Trucking Cost Per Mile
To accurately calculate your costs, you need to know what your expenses are and where they come from. In the logistics industry, there are two kinds of operating expenses. Namely, fixed operating expenses and variable operating expenses:
- Fixed Operating Expenses
Fixed operating expenses consist of the monthly bills that come in regardless of the use of your trucks. These include but are not limited to:
- Vehicle Payments
- Bank fees
- Phone fees
Even if your truck has travelled a total of 0 miles that month, these fees will be deducted from your bank account regardless and are relatively the same from month-to-month. Budgeting for these fees is simple as you know what they’re going to be.
- Variable Operating Expenses
Variable operating expenses change from month-to-month. They come about as a result of the operation of the vehicle. More operation means more variable operating expenses. These expenses include but are not limited to:
- Toll gates
Fuel is the biggest contributor to your variable expenses and will likely make up 80% of it. Depending on the type of contracts you have drafted, the driver salaries can be either a fixed or a variable cost to your company.
The sum of your fixed expenses and your variable expenses, with the salaries you pay to your tour drivers, will make up your total operating expenses for that month. Your gross profit minus your operating expenses will result in the net income of your company per month.
In order to determine the ‘cost per mile’ of your truck, you have to take the total operating expenses and divide it by the number of miles travelled in that month.
Know Your Trucking Company’s Costs
To be able to do the calculations of your cost per mile, you are going to need to know what your expenses are and where they come from. The easiest way to understand how to do the bookkeeping is through learning by an example. For the purpose of this article, we will look at how a fictional company, which we are going to call ‘Tom’s Trucking’, does these calculations.
Tom has one truck and one trailer, which are both new and being paid off. He has supplied his driver with a company fuel card and pays him a monthly salary. All repairs, service, and maintenance are done through his approved mechanic, ‘Tim’s Truck Repairs’.
Tom would be able to look at his bank statement at the end of the month and see how much money went out to settle his various payments. Using this knowledge, he (or his appointed bookkeeper) would be able to list the expenses as either fixed or variable operating expenses.
List Your Fixed Trucking Costs
Using his bank statement and the services of his professional bookkeeper, Tom’s Trucking has split his fixed from his variable trucking costs. Fixed costs are often debit orders, as a fixed amount gets deducted from the bank account on a certain day each month.
Tom created a table to list all his fixed costs to better understand his Fixed Operational Expenses breakdown.
|Fixed Operational Expenses
It is important to note that the total of $5,740 is independent of the miles traveled or any activity at all. Those costs would have been incurred whether the truck was on the road 24/7 or whether it sat idle in the parking spot for the whole month. This is the core of ‘fixed’ expenses.
List Your Variable Expenses
Once again, your bank statement is your good friend when listing variable expenses. However, in this scenario, you aren’t looking at all for the debit orders that are being deducted. You are looking at all your other expenses: the odds-and-ends and the unpredictable expenses – those that don’t go out on a certain date and that vary from month-to-month, which is if they even do appear at all. Fuel is likely your largest variable expense followed by unforeseen truck repairs
Tom follows the same layout as he did with his fixed operational expenses, but this time he lists his variable operational expenses instead:
|Variable Operational Expenses
It is important to note that most of these expenses are a result of the number of miles driven in Tom’s truck. As his truck drives it burns fuel, wears through its tires, suffers wear-and-tear, breaks down, and passes through toll gates. The more the truck drives, the higher these expenses will be.
Truck Driver’s Salary
Long-haul truck drivers are generally considered as ‘non-standard’ hours due to the needs of the business. This can result in non-standard payment of a salary when one accounts for overtime or shift work. This puts the truck driver’s salary in an interesting position, as it can be either a fixed or a variable operating cost. If the truck driver gets a standard monthly salary, the salary will fall under fixed operating costs. It will allow you to more accurately predict what your company’s cost per mile will be.
However, if you pay your truck driver hourly, or per shift or per mile driven, his or her salary will become a variable operating cost. While this means your cost per mile becomes slightly more difficult to predict, it may create the incentive for your drivers to perform better or may even save you money when business is slow.
Regardless of whether your drivers earn fixed salaries or whether they are paid per shift or per hour worked, you need to put the expense in the correct section. Tom pays his driver a fixed amount, so he updates his fixed operating expenses accordingly:
|Fixed Operational Expenses
Working Out Your Trucking Costs Per Mile
Now, this is the important part. You have collected all your data, you know where each figure is coming from, and you know what the exact amount of each expense is. You can now bring it all together to find your actual per mile cost.
The formula for your per mile cost is easy. It is:
‘Fixed operational expenses’ + ‘Variable operational expenses’ / ‘miles driven that month’.
If we keep following Tom’s Trucking example, Tom learns his truck drove 12,550 miles last month. So, he applies the formula:
$7,440 (Fixed Operational Expenses) + $4,220 (Variable Operational Expenses) = $11, 660.
$11, 660/12, 550 = $0.93 per mile.
This means that Tom’s cost per mile to operate his truck is $0.93. This is extremely useful information, as it allows him to give good, competitive quotes to his clients and keeps his business profitable.
Calculating Your Trucking Revenue and Profit per Mile
After calculating your cost per mile to operate your truck, you can finally understand what your per mile profit will be for a job. Having a good understanding of the distances between your start and end points is what will ensure you always turn a profit on your jobs.
Going back to Tom’s trucking, he gets a job that starts in Atlanta and ends in Miami. After plotting a route for his truck driver, Tom notes down that the travel distance for this job is 680 miles. Using his cost per mile that he calculated earlier he determines his cost for this trip in the following manner:
$0.93 (Cost per mile) x 680 (mileage) = $632.40 (Cost for this job)
Tom now knows how much this job is costing him. So, he can calculate a price that will make him a profit. Tom charges the client $1,600 for the job. This means that if we minus his expenses
$1,600 – $632.40 = $967.60
Tom is making a profit of $967.60 for this job. Dividing this profit amount by the mileage determines his profit per mile:
$967.60/680 = $1.42
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