Partners in Business: Understanding revenue

THIS ARTICLE IS FROM the 2006 edition of the Overdrive Partners in Business manual, co-written by American Truck Business Services, presenter of the Partners in Business seminars. The program is sponsored by Freightliner Trucks and Castrol. The next seminar will be 2 p.m. March 24 at the Mid-America Trucking Show.

Most owner-operators are paid on a per-mile basis or on a percentage of revenue. The per-mile basis is the most popular and tends to dominate discussions about money because it is easier to measure, but pay per mile often is wrongly used as the deciding factor in leasing to a carrier.

While pay per mile is very important, it alone is no cure-all. Nor does it mean a big settlement check is coming your way. Why? Because pay per mile must always be kept in balance with gross revenue – the total revenue paid to you by a carrier. It can include mileage pay, percentage of revenue pay, loading/unloading pay, detention pay, stop-in-transit pay, fuel surcharge pay, and toll or scale reimbursement.

In the example in the box, Carrier No. 1 pays 84 cents per mile and reimburses the owner-operator for expenses such as scales, tolls and unloading. Carrier No. 2 pays 70 percent of the revenue of the load, but no expenses. Which carrier would you work for?

You could assume you would be better off driving for the company that pays 84 cents per mile and reimburses for everything. However, when gross revenue is calculated, you make $41 more on the percentage scale, or almost 4 cents more per mile.

This example doesn’t mean percentage pay always is better. This is just one example of how pay can differ among carriers. Revenue and expenses must be fully calculated to determine what carrier and scenario are best for you.

Too often, operators focus on revenue per mile and overlook the importance of gross revenue. A few operators will change carriers for a difference of a penny per mile, while sacrificing $10,000 of gross revenue. Dwelling on just one element of revenue can throw your business out of balance.

Pay per mile usually is consistent from month to month. Gross revenue is far less consistent.

Variables affecting gross revenue include weather, the seasons, the national and local economy and a host of variables specific to your company: sales and marketing, customer base, personnel, communication, lanes of operation, competition and average length of haul.

While you have no control over most of these factors, you can do some things to help manage your gross revenue:

DETERMINE A REASONABLE AMOUNT OF MILES YOU EXPECT TO RUN. This requires careful consideration of factors such as your age, experience, motivation, financial goals, health, personal and family needs, and the condition of your tractor.

Once you have established a reasonable number of miles to run each week, month and year, you have goals to work toward.

FREQUENTLY MEASURE YOUR RESULTS. Does your performance match your capacity? Does it match your goal? If it doesn’t, find out why and determine what you need to do to correct it.

MANAGE YOUR TIME. You are your own boss and in control of how you use your time. The time you spend driving and delivering loads determines how much you get paid.

ESTABLISH A RELATIONSHIP AND IMPROVE COMMUNICATION WITH YOUR FLEET MANAGER. Trust is essential to success and is achieved through on-time pickup and delivery as well as good communication.


COMPARING DIFFERENT METHODS OF PAYMENT
Load from Stillwater, Okla., to Jacksonville, Fla: 1,120 miles

Carrier No. 1 pays by the mile:
Mileage pay = 1,120 miles @ .84 per mile = $940.80
Unloading pay = $45
Scale reimbursement = $6
Toll reimbursement = $25
Gross revenue to driver = $1,017
$1,017 [

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