Double your Profits with this One Change

After 34 years in the trucking industry, Jamie Hagen knows what it takes to run a profitable business. Ask the owner-operator of HellBent Xpress what he thinks is one of the biggest mistakes rookie truck drivers make when they’re starting out, and he’ll say that not enough drivers are thinking about the costs and expenses—which is how they end up underwater. “There's a breakdown between [truck drivers] who weren't necessarily thinking when they bought the truck they always wanted to drive that they were buying a business,” he said.

It’s easy to lose sight of the possibility that your costs can be greater than what you were paid for your load. “You can cross the country and get paid five, six, $8,000,” Jamie said. “You get that big check. You don't even think about, well, did it cost you $7,000 to cross the country plus expenses? If you just keep cashing checks, you think you're making money. That's one of the big issues in our industry is guys not looking at that cost per mile.”

Know your cost per mile (or CPM).

That’s a phrase that comes up again and again when talking to TruckSmarter customers who are successful owner-operators and trucking industry veterans. Knowing your cost per mile makes it very clear how high you need to set your rates so that you can stay profitable. 

So how do you calculate your cost per mile? Here’s the simple formula:

In practice, you’ll need to track all your fixed and variable expenses, like trucking fuel costs, truck maintenance, insurance, permits, tolls, loan payments, wages and administrative overhead, and divide your total operational costs by the total mileage driven by your truck or fleet of trucks. This includes your loaded and empty (deadhead) mileage.

Track your numbers like a habit.

The only way to calculate your cost per mile accurately, Jamie says, is to get good at tracking every single expense. He says it’s a good reminder to record and track regularly, then schedule going over your numbers and staying organized. “No one really wants to hear about their costs and their expenses. They're operating more on a feeling than they are a business mindset. Cost per mile is work. You’ve got to sit down and go over your stuff every week, then every month, and then every quarter you got to break it all down.”

Trucking company margins can be razor thin, Jamie said, “So if you don't track [your numbers], it's real easy to find yourself upside down, operating at a cost that you're not tracking way above what you're making.”

Josh Vaughn, owner-operator of JD Reliable Transportation LLC and active member of our TruckSmarter community’s weekly Drivers’ Lounge Call on Discord, has been using his decades of experience to help other owner-operators. “Cost per mile is so important, especially because of unexpected costs,” Josh said. “Have the money set aside to not wipe you out for everything that you work for. Pick a lane and dissect that lane, know everything about it.”

Photo courtesy: Jamie Hagen

Do it yourself or get help.

The best way to save on administrative costs is to track everything yourself, but it’s not for everyone. There’s specialty software for trucking businesses with a modest monthly subscription to help owner-operators stay on top of their books. Hiring a qualified accountant who works with trucking owner-operators can also help save money and time down the road, especially during tax season. “That was like my first lesson in life was getting a great accountant who really understood business,” Josh said.

Keith Davis, owner-operator of Davis Freight Solutions, tracks all his expenses himself and calculates his cost per mile using software called Rigbooks. He says he switched to doing it himself after paying a lot more to have someone do it for him who he felt was not as organized as he would’ve been. “Taking my time, looking at [the numbers], I realized I could do this thing on my own,” he said.

Set your rates high enough to cover your cost per mile.

Whether to use per-mile vs. per-day pricing for freight shipping can be subjective. But Josh says when he uses his day rate his target is $1200-$1250 per day, based on his cost-per-mile strategy. “It doesn’t matter if I’m going 15 or 20 miles, for my equipment and services it’s $1200 a day, that’s what I’m worth. You come up with your own average of how many miles you’re comfortable running. But the more miles you run, the more times you're going to have to do service on your truck. More wear and tear and depreciation of your equipment, so keep that in mind.”

Keith is just as firm on how he sets his rates. “I feel like you can’t move the truck unless you know what your cost per mile is. The total price of a load may say it’s $3000, but when you add in load mileage and deadhead mileage that it’s going to take for you to get [to your destination], if it’s below your cost per mile, you lost. You didn’t win a thing. All you did was basically pay the bills of your truck, but you didn’t make profit for yourself.”

Analyze, adjust, and find ways to reduce costs.

When you can peer into all of your costs, it becomes much easier to take corrective action and find areas of improvement to lower your cost per mile, whether it’s to optimize your operations with freight factoring, renegotiate contracts, find better software solutions, or to simply reduce some expenses.

One of the biggest expenses for a truck driver is fuel, so don’t sleep on signing up for fuel discount programs. “Some guys don't even have a fuel card or a discount program of any kind,” Jamie said. “They just buy fuel wherever they want to buy fuel. So if you don't monitor those things, you're going to end up having something you don't track. If you don't know that you paid X amount for something, how do you know that you can get it lower?”

Gain competitive advantage with a cost-per-mile strategy.

When Keith successfully implemented a cost-per-mile strategy for his trucking business, it helped him to more efficiently optimize his operations, and he doubled his profits. “Yes, it doubled. It shocked me, to be honest with you. By paying attention to my cost per mile, I was able to see if I’m spinning my wheels in the mud or gaining some traction. When I could review a whole week, it was a game changer.” 

Jamie said knowing his cost per mile gives him flexibility when negotiating rates with brokers as well. “Let’s say my cost per mile is $1.50 and the broker I’m dealing with is offering me a load that pays $1.40. I need to know that the next load or the load prior was above that and that the loads average out to over $1.50. So you’ve always got to have that number in the back of your mind so you can monitor that in your negotiations,” he said.

“If you're not sitting down and doing the math on what it's going to cost you to run something per mile, you can fool yourself into believing that you're not spending as much as you're spending.” In an industry where margins are tight and competition is fierce, using a cost-per-mile strategy can help your trucking business thrive—not just survive.

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