Creatures of habit
Henderson, N.C.-based Edward Burt
Any successful business is a product of successful practices. An examination of respondents to the 2007 Overdrive Owner-Operator Market Behavior Report – and especially those whose net income ranks in the top 25 percent – reveals highlights on the road to success. The typical high-earning owner-operator is a little more than 50 years old and has been in business as an owner-operator since he was 30. He makes more than $70,000 a year after expenses and is three times as likely to be leased as independent. The carrier he’s leased to typically subsidizes his fuel costs with surcharges. If he’s independent, he sets – and receives – his own surcharge.
As with any linkage of income and other factors, a given practice – say, computing cost per mile or performing oil analysis – might not produce several thousand dollars of extra income year after year. But those behaviors do save money, and often are indicative of a broader business-oriented mind-set that pays off in the long run.
On the surface, the high-earning owner-operator isn’t much different from average and below-average earners. Look closer, though, and you’ll see a combination of characteristics that many owner-operators don’t have. The following seven practices, based on this year’s Behavior Report, should provide a few ideas to help boost your income.
- WORK FOR A PERCENTAGE OF GROSS
O.J. Luster of Macon, Ga., leased to Cross Country Express of Sparks, Nev., pulls a company reefer with his aerodynamic Kenworth T2000. He prefers getting paid a percentage of gross revenue because it allows him more control. “I have much more latitude as far as what I’m doing, where I’m going, and how much I make,” says the 15-year owner-operator.
Overdrive research bears him out. While the average income for percentage operators is only about $2,000 higher than the average for per-mile pay, a significantly greater share of high-earning owner-operators are paid this way.
Crucial is your ability to find expensive freight because those on percentage pay often must find their own backhauls, Luster says. A produce hauler, he specializes in East Coast regional delivery, often to cities where many truckers don’t want to go, including New York City. “I’m not afraid of that,” he says. “I’ll do all five boroughs.”
If you can minimize empty miles, says Chris Brady of Commercial Motor Vehicle Consulting, author of the Behavior Report, “You’re probably going to have higher income because your rate per mile is higher. If you’re not successful in keeping down your empty miles, you’re not getting paid for those miles, which somebody on a per-mile basis might be.”
Better managers, particularly those booking their own loads, will rise to the top under percentage pay, Brady says, as will independent owner-operators who deal directly with shippers.
“If you’re negotiating directly with the shipper, you’re not sharing any revenue with the carrier obtaining the load for you,” Brady says. “The key to that is you’ve got to have loads all the time.”
With high returns, however, come high risks. Consider an operator hauling exclusively on a dedicated run from the same plant. “The downside to working directly is if they close down that plant,” Brady says.
- BUY YOUR OWN TRAILER
A little less than half of Behavior Report respondents own the primary trailer they pull. That same half makes at least $6,000 more yearly than owner-operators leasing trailers or pulling a carrier-provided trailer.
“If you provide your own equipment, they’ll generally pay you a better rate,” Brady says.
Owning a trailer also might allow you to adjust your operation to seasonal fluctuations in freight. For example, an owner-operator who owned a dry van might haul Christmas trees during the season and return to a more lucrative operation requiring a different trailer come January, Brady says.
Those pulling reefers, tankers and high-weight platforms (including flatbeds, step and drop decks, low-boys and goosenecks) have the highest earnings. Those trailers are pulled by more than half the high earners, a higher concentration than among the general owner-operator population.
- INVEST IN AN APU
Auxiliary power units drastically cut idling time, especially in applications that require a lot of waiting or that involve lots of overnight hauls in northern states. Increasingly, they’re proving themselves as fuel- and engine-savers.
“The guys that are buying them are the leaders of the pack in terms of being willing to invest in new technologies,” says Amy Egerter, spokeswoman for gen-set manufacturer RigMaster Power, based in Toronto.
Will Watson, vice president of sales and marketing for Reno, Nev.-based Auxiliary Power Dynamics, manufacturer of the Willis APU, says some fleets have “taken their trade cycles and have gone from a five-year to an eight-year trade” based on the extended engine life their system provides.
Owner-operator Ron Boudreaux of Lafayette, La., pulls a reefer for Raider Express of Fort Worth, Texas. Putting an Alliance APU on his Freightliner was a “real smart thing to do because it saves the life of the engine,” Boudreaux says. “To rebuild one of them, you’re looking at $12,000 to $15,000.”
According to the Behavior Report, a third of owner-operators have APUs and average $7,000 more in income than those who don’t.
The U.S. Environmental Protection Agency estimated in 2004 that installing an APU could save $2,000 a year in fuel. Based on the $3-plus per gallon prices in late 2005, a RigMaster costing $7,500 (including installation) would pay for itself in less than a year just in fuel costs, Egerter says, adding that if you factor in engine maintenance savings, and even at lower fuel prices it would recover its costs in a year.
Owner-operator Jerry Knight of Lyons, Neb., who’s leased to CRST Malone of Birmingham, Ala., recently paid $7,000 for a RigMaster. “It uses 1.5 gallons of diesel every 10 hours,” he says. “The engine uses that every hour.”
In January, after only 35 hours running the RigMaster, Knight estimated he already had saved at least $100 in fuel. “That’ll add up,” he says.
There are other technological options for auxiliary in-cab power, some much cheaper. Some fleets, for example, are ordering Webasto or Espar in-cab heaters on their new trucks.
- MAINTAIN A SIZABLE SAVINGS FUND
Of all the financial practices that can help an owner-operator, one of the most critical is maintaining an emergency savings fund for major maintenance expenses. Less than half of owner-operators surveyed maintained such a fund, but they averaged nearly $9,000 more in income.
This variance can be explained by different factors, Brady says. “You might naturally be a saver. It could be a personality thing.” On the other hand, he adds, it makes good business sense to insure your business against the high cost of taking on debt in a crisis. Those who can avoid the cost of paying off the debt will have higher income over the years.
Owner-operator financial advisers recommend a cash reserve of $5,000 to $10,000. A workable rule of thumb for saving for major maintenance takes into account your truck’s age and the miles you run. It ranges from saving 2 cents per mile for a new truck up to 7 cpm for a 4-year-old truck; for older trucks, 10 cpm is recommended.
The absence of an emergency fund is one of the main causes for owner-operator failure. Many of those without a strong savings plan today won’t even be running their own truck in a few years, while those who plan for emergencies will survive.
- DO REGULAR OIL ANALYSIS
Successful owner-operators stay on top of preventive maintenance to avoid downtime and get the most out of their equipment, whether they trade every three years or every 15 years.
Regular oil analysis stands out as a practice of high earners in the 2006 Behavior Report. “It can give you a heads-up as far as things going wrong in the engine,” says Luster.
On average, owner-operators performing oil analysis, about half of the total population, made $7,700 more per year than those who didn’t.
- BUY NEW EQUIPMENT
A new truck isn’t right for every owner-operator. Those new to the business, with little or no equity to help reduce the truck loan and its monthly payment, and without the miles or volume to guarantee enough income to cover the high monthly payments, usually do better starting out with used equipment. From there, they can build experience and equity. According to the Behavior Report, those who do buy new typically make $7,000 more than those buying used and $12,000 more than those leasing.
A new truck means less downtime, and strong warranties from new-equipment manufacturers save time and money on repairs when it breaks down. A buyer of new trucks whose trade cycle matches the warranty term never has to drive a truck that’s out of warranty.
- KEEP DETAILED RECORDS
Owner-operator Jerry Knight keeps track of cost per mile by charting his expenses in detail. “My wife does most of that,” he says. “It’s important.”
Tracking his costs and other operating information enables him to know exactly how his business works and helps him make sound decisions – for example, he says, his recent installation of a gen-set.
This is perhaps the key characteristic of high earners, Brady says. Making money comes from an awareness of every piece of the puzzle, from whether a shipper’s paid the fuel surcharge you asked for, to the fuel economy you’re getting after that in-frame overhaul, to what the level of metals in your oil means.
“I think guys who do oil analysis and things like that tend to be more focused on operating their business,” Brady says. “Also, the guys who record their business expenses and maybe analyze it a bit: ‘My insurance is too high. Maybe I’ll look around for a different carrier.'” These owner-operators have the information they need to separate best practices from stuff that just doesn’t work, thus boosting their take-home dollars in the end.
Knight puts it this way: “To know where you’re going, it’s best to know where you’ve been.”
The 2007 Owner-Operator Market Behavior Report saw leased and independent owner-operators running almost even in average income, a mere $1,400 putting leased operators on top. In the prior year’s report, it was independents whose average income was highest.
The current report is based on surveys conducted in 2006, with respondents stating income for 2005.
Independents’ drop in 2005 income might have been caused by the wide availability of freight, analyst Chris Brady says.
“In a pretty good freight environment, the guys looking to expand will go independent,” he says. “The successful business managers among the independents will drop from our data as they develop small fleets and lose the time to operate a truck of their own.”
Behavior Report income stats primarily are based on single-unit owner-operators. As small-fleet independents exit the stats, they leave behind less successful independents, who bring down the average. This, coupled with wage gains among leased owner-operators in recent years, might explain the disparity.
The surge in freight demand during 2005 contributed to a third straight year of increase in overall owner-operator income in spite of the post-Hurricane Katrina spike in diesel prices. That demand continued in 2006, Brady says, but in 2007 it may subside.
“Owner-operators probably won’t see the wage increases they’ve seen over the last few years,” Brady says. “Not because the supply has increased dramatically due to higher wages, but because freight is growing at a slower rate, so the need for carriers to expand capacity also has lessened. If they’ve seen 5 percent annual growth to now, it might be 2 percent this year.”