Trucking Costs: Are You Tracking Them - the Right Way? Part III

First let me say that the examples in this message are strictly hypothetical. They are only used for discussion purposes and there may be better ways to calculate costs and rates. But here we go anyway.

In Part I, I mentioned how ALL costs need to be tracked, not just fuel costs. And these total costs need to be recorded, monitored and analyzed. In Part II, I mentioned� that by knowing your costs, you can bid competitively rather than out of ignorance or emotion. And you may actually outbid your competitors by knowing your costs.

So, here in Part III, I want to give you a formula for cost-based bidding. Again, the following are just hypothetical examples.

Your basic formula is:

Fixed costs
+ Variable costs
= Total Costs
+ Profit
=Gross Revenues

Your fixed costs are those expenses you have even if you are just sitting at home. Fixed costs include:

• your truck payment,
• insurance (including health insurance),
• licenses and permits,
• accounting and office,
• plus others and
• I'm going to include the fixed portion of the driver's salary.

Your variable costs are those you have as you are "on the road". So when you are "on the road", you have both variable AND fixed costs to cover. Variable costs include:

• tractor and reefer fuel,
• tires,
• maintenance and repairs,
• telephone,
• meals,
• lodging,
• tolls,
• plus others and
• I'm going to include the variable portion of the driver's salary.

So, let's plug in some figures. Let's say you drive 120,000 for the year. Your fixed costs are $109,200, your variable costs are $91,655 and your total costs are the sum - $200,855. Now, these total costs include a driver's salary of $48,000 - $36,000 in the fixed costs and $12,000 in the variable costs.

Then you want to add a profit on to your total costs. After all, that's what you are in business for. Some people would just consider the driver's salary as the profit. But driver's salary is an expense and there needs to be a profit on top of all your costs.

So, the profit could be anywhere from 5 to 20%, for example.� Let's say you want a 10% profit on top of costs. So 10% of $200,855 is $20,085.

Now let's plug these figures into your formula:

Fixed costs - $109,20
Variable costs - $91,655
Total costs - $200,855
Profit - $20,085
Your gross revenues should be $220,940

Now, you take your $220,940 and divide it by the number of miles driven, 120,000, and you come up with a billing rate of $1.84. This is what you need to charge to cover total expenses including driver's salary and profit.

So what if you are tendered a load that pays only $1.54? Do you take it? The answer depends on how much flexibility you have on your driver's salary and profit. Sometimes in a bad economy, a company is squeezed not only on their profit, not only on their salary but also on their vehicle expenses.

Many trucking firms can't even figure to have a decent salary let alone a profit on top of that. But this is where recording, monitoring and analyzing your total costs will give you the ammunition to carve out a better future either by raising rates, lowering costs or both. But knowing where to "slice and dice" is the secret but it is also a skill that can be learned if you make the effort.

If this has been helpful, let me know. Thank you.

Comments

[John D. Thomas]

Thanks Stephen for your comment. I appreciate it.

Yes, many shippers will not work directly with a trucking firm because they think the trucking firm will be under contract with a broker which prevents the trucker from going directly to the shipper for loads.

This is easy to overcome. For example, in our training we encourage trucking clients to set up a separate company outside their trucking company.

Then, as a freight broker, you can go directly to any shipper without having to worry about violating any contract that your trucking company may have.

Be sure to ask questions here if this is not clear.

[STEPHEN BRADLEY]

TO JOHN AND READERS,

John you are correct in this. the cost of trucking has gone up so much its hard to survive in the world of trucking. The format that you laid out is the format that a lot of truckers dont know. They go out and buy a truck and think they know it all. In fact they dont know anything. They think that just because they buy a truck they will be ok, If fact those are the Truckers that hurt the rest of us.Because they take loads at low cost then the brokers think that they can get everyone to take the loads at that cost and hurts the rest of us. The bad thing about it is the brokers are getting the fuel surcharge from the shippers and they dont pass it on to us. I know you proberly thinking well just go direct to the shipper and dont us brokers,well the shippers dont want to let us in. Ive been trying to get in direct with some shippers for over 3 years now. Most of the time i here you dont have enough trucks, well i own 3 trucks and 4 trailors but they insist on having brokers do the loads. Whats wrong with this picture. My CPM is well less than that of a broke. But back to your artical if more truckers would do the math and find out their CPM they would stop hualing CHEAP loads.

steve