You earned your CDL, gained experience as a company driver, and leased your truck to a carrier. Now you’re considering getting your own authority, so let’s pause and consider this carefully.

More Than Just Driving

You possess thorough knowledge of safe truck operation, along with a clean CDL and PSP Report. Your consistent punctuality for deliveries and pickups reflects your reliability and professionalism. However, it is important to consider the motivations behind obtaining your own authority. Gaining independence as an owner-operator involves a significant shift in responsibilities. You will serve not only as the lead driver but also as a substitute driver, financial planner, mechanic, load planner, safety director, tax planner, and chief negotiator, among other roles. Flexibility remains limited, as you cannot take time off at will. As a business owner, greater effort and strategic thinking are required to succeed compared to any previous stage in your trucking career.

Why Some Owner-Operators Fail

A significant factor contributing to failure in this industry is a lack of understanding regarding both the business itself and operational expenses. Among the numerous owner-operators I have spoken with over the years, very few were aware of their actual truck operating costs. Even those who believed they understood their expenses often realized, after a brief discussion, that their knowledge was incomplete.

Understanding the Cost of Operations

Cost of operations is a critical aspect of any business. Without a clear understanding of these costs, it becomes challenging to determine appropriate pricing for customers. There is no universal formula or standard figure. Each truck on the road incurs unique expenses. Factors such as vehicle age, type of truck and trailer, specialized equipment, maintenance capabilities, operating region, insurance premiums, and actual fuel efficiency all significantly influence the overall cost of operations.

Fixed Costs

It is essential to understand that expenses fall into two primary categories: fixed costs and variable costs. Fixed costs are incurred by a business irrespective of whether the truck is in operation; typical examples include insurance, permits, licenses, depreciation, and truck payments. To determine the fixed cost per mile, first estimate the total annual mileage the truck will travel. For a single driver, over-the-road operation, the standard projection is approximately 100,000 miles per year. Although higher weekly mileage figures are sometimes proposed, it is important to factor in holidays and periods of downtime, such as scheduled maintenance. Achieving 125,000 miles annually would further reduce the fixed cost per mile. In essence, add  all fixed annual costs and divide them  by the projected annual mileage, such as 100,000 miles, to arrive at your fixed cost per mile.

Variable Costs

Variable costs are incurred when operating a truck. Fuel typically represents the largest expense, calculated based on miles per gallon and the fuel price in various locations. Tire costs depend on mileage and hauling conditions; for example, if a set of tires lasts 100,000 miles and each tire costs $600, then 18 tires would cost $10,800, resulting in a cost of just under $0.11 per mile. Routine maintenance expenses also vary depending on whether it is performed by the operator or serviced externally and can be calculated by dividing the total service cost by the miles driven between maintenance intervals. Repair costs fluctuate depending on factors such as equipment age, mileage, and recent repairs. New trucks under warranty generally have lower repair expenses but higher fixed costs due to larger payments. For estimation purposes, an annual repair cost of $15,000 translates to a per-mile cost of $0.15.

Don’t Forget Your Compensation

Consider your own compensation. It is common for individuals to underestimate the amount they should charge in order to meet their personal financial obligations. As both the driver and the person responsible for managing the business, compensation should reflect not only driving but also operational duties. Payment rates among customers have varied from $0.50 to over $1.00 per mile.

Keep It Simple but Consistent

In summary, it is essential for any business to have a thorough understanding of its costs. Once these costs are identified, expenses can be effectively optimized. Advanced accounting systems are not always necessary; for example, I worked with a client who utilized a straightforward method involving 12 manila envelopes, one for each month. He created columns on each envelope to categorize expenses and, at the end of each month, would file the corresponding envelope at home. This practical approach allowed him to maintain accurate financial records and consistently understand his financial position, demonstrating that bookkeeping can be both simple and cost-effective.

Ready to Take Control of Your Trucking Business?

Understanding your costs and planning ahead is the first step to success as an owner-operator. Don’t leave your future to chance. The team at Eckert & Associates, P.A. is here to help truckers protect their livelihoods, recover what they’re owed, and navigate the business side of trucking. Call us at 1-800-DOWNTIME or visit DowntimeClaims.com today to schedule your free consultation.