A commenter posting as “Wayne Victory,” responding under the recently-run poll above, echoed the words of so many in the trucking community when he noted he believed too many owner-operators (7%, according to our polling) just “don’t know how to figure” the cost-per-mile number.
It’s not, however, he added, “as complicated as you think.”
For the majority of those here, bear with us. Here’s the basics:
Take your fixed costs — regular costs that don’t change according to your use of the truck and time, such as your insurance, monthly truck and trailer payments, “phone, internet, office,” Victory added, and I’m sure you can think of others. (Is battery replacement a fixed cost?, owner-operator Chad Boblett recently pondered in the Rate Per Mile Masters Facebook group … more on parts like these later.)…
Take those fixed costs for a given year, add them up for a unit of time, and divide them by the miles you ran during that time. That’s your fixed cost per mile for the given period.
Do the same for your variable costs (fuel, all maintenance routine and non-routine, non-financed replacement equipment/parts investments and the like) and add that to your fixed cost per mile to get your total cost per mile.
Your variable costs might be trickier to account for, depending on how often you compute them and your own system for record-keeping to do so.
Plenty owner-operators maintain a routinely-updated monthly or weekly accounting in a profit and loss statement (some designing their own in a custom spreadsheet, some using other software or paying a service provider for the purpose). A P&L can get very detailed, tracking individual categories of expenses and how they stand on their own in a per-mile cost calculation, such as for perhaps the biggest of variable costs for an owner-operator — fuel — down to the smallest. A detailed P&L (find an example in Chapter 2 of our most-recent Partners in Business manual, downloadable in full at this link) is helpful to increase understanding of just what you’re making. But it’s also a tool to use over time to spot issues when a particular cost trends upward, possibly illustrating a problem.
Variable costs for maintenance/unforeseen repairs are square in the somewhat-tricky-to-consider category, too, and perhaps the most complicated to account for given high variability and record-keeping intensity to make the calculation. See Boblett’s pondering question above about a battery, for instance, an item that for many may be replaced on a regular interval at a cost that can be relatively stable. Though it may seem a fixed cost, thus, maintenance and parts investments are generally considered variable given calculation of them in any regular accounting will only illustrate their ultimate cost over a long amount of time.
Doing monthly P&Ls, a big investment in replacement tires or batteries in a single month will show a spike in cost-per-mile the month they are purchased. Averaged out over the life of the tire, however, those tires contribute a great deal less to an average cost per mile over the course of a year, or two, or three.
The same applies for major work like an engine rebuild (unless borrowing money to do it, in which case it could well become a fixed cost for a time with a monthly payment), or heck even the down payment or cash purchase of a replacement truck or new trailer. Over the life of that engine post-rebuild, the cost of the build holds less weight in an average cost-per-mile calculation the more time goes by with no issues. Making the decision to do the rebuild in the first place, though, can be weighed more easily if you understand just how much investment in the build will impact your longer-term cost per mile and thus earning potential over its expected life.
You can’t estimate that if you don’t know where your per-mile cost is tracking at any given time against the revenue you’re bringing in. An average business profit margin (net income as a share of revenue) tracks at about 40% for owner-operators not including a salary for themselves in the cost category, according to our past polling as well as the business consultants at ATBS. If you’ve been clicking along at $1.50 on average for cost per mile over the last year (again, regular accounting will tell you that), to hit 40% profit you’ll need to turn an average $2.10 a mile for revenue.
Can you afford a shop rebuild, or would you have been better served having taken the time in past to develop, like commenter Jim Hinerdeer, skills to do the maintenance work yourself at a much lower cost and your own time spent (that has an opportunity cost, too — more on that via this link)?
Hinerdeer gave this example, illustrating rising costs but also the value of knowing your own. Ten years ago, he said, he rebuilt his engine at a “parts cost of $2,000. October 2019 — the same rebuild cost $9,000.” Hinerdeer runs short haul today, but for the sake of an example, let’s assume 100,000 miles a year run pretty consistently (I know — not how the real world works). A million miles on a $2,000 parts cost would put the rebuild at a cost-per-mile of a fifth of a cent per mile. If the $9,000 investment then can be expected to last just as long, that’s a full cent per mile. Hinerdeer noted the high $40K figure he’d heard from some others on rebuilds performed in a shop — that’d stick you with 4 cents a mile for the next 10 years, all things being equal (yeah, they never are). That’s another chunk of haggling with brokers — 25 bucks on every single 600 mile load, say — you’ll be stuck with to offset the cost with revenue for the next 10 years. Or that’s one way to think about it, in any case.
As for your own pay — note that average 40% profit margin figure above as a potential target to beat. Some owner-operators are able to hit a much higher margin, like one commenter whose ultra-low costs (given his equipment is all long paid off, among other things) allowed him to rake in near 100% profit even in last year’s declining rate environment. He averaged 80 cents/mile in take-home income on all miles, he said.
Maintenance know-how for such operators, as a different small fleet owner-operator told me yesterday, delivers another big advantage in a time like the current one.