Partners in Business: Understanding your earnings

Understanding your real earnings means looking beyond pay per mile and will help you steer your business in the right direction.Understanding your real earnings means looking beyond pay per mile and will help you steer your business in the right direction.

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

While pay per mile can be a vital factor, it’s not a cure for every ill. Nor does it mean a big settlement check is coming your way. Why? Because pay per mile always must be considered in balance with gross revenue. Gross revenue is the total revenue paid to you by a carrier. It can include flat mileage pay, mileage pay that varies by length of haul, percentage of revenue pay, loading/unloading pay, detention pay, stop in transit pay, fuel surcharge, toll or scale reimbursement, and etc.

In the following example, Carrier 1 pays a dollar per mile and pays the owner-operator a fuel surcharge and for unloading. Carrier 2 pays 70 percent of the revenue of the load, but no other expenses. Which carrier would you work for?

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 @ $1 per mile = $1,120
Unloading pay = $45
Fuel Surcharge of 33 cents per mile = $370
Gross revenue to driver = $1,535
Gross pay to driver = $1,535 divided by 1,120 miles = 1.37 cents per mile

Carrier No. 2 pays percent of revenue:
$2,032 gross revenue to carrier on load
Percent of revenue pay = $2,032 x 70% = $1,422
Gross pay to driver = $1,422 divided by 1,120 miles = 1.27 cents per mile

It would appear before doing the calculation that you are better off driving for the company that pays a percent of revenue. However, after figuring your percent of revenue pay, you make more than $100 less, or 10 cents less per mile. This example doesn’t mean mileage pay always is better. Rather, it illustrates how pay can differ among carriers. The point is a complete comparison of revenue and expenses must be taken to analyze what carrier and scenario is best for you.

Too often, operators overlook the importance of gross revenue. Some will change carriers for 1 cent per mile difference, sacrificing $10,000 of gross revenue by making the change. By focusing on just one element of revenue, you can miss the big picture.

Pay per mile, unless your carrier offers bonus mileage pay for shorter hauls or other variations, usually is consistent from month to month and year to year. Gross revenue is far less consistent, and any changes can have a disastrous effect on your fortunes as an owner-operator. Variables affecting gross revenue include weather, national and local economies, seasonal factors such as fresh produce hauling, changes to aspects of your company such as its sales and marketing personnel and customer base, communications, lanes of operation, competition, regulation and average length of haul.

While you have no control over most of these, some of the ways you can help manage your gross revenue are:

DETERMINE A REASONABLE NUMBER 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 or trailer, and may include estimates of average length of haul. Once you have established a reasonable number of miles to run each week, month and year, you have goals to work toward.

MEASURE YOUR RESULTS FREQUENTLY. Does your performance match your capacity? Does it match your goal? If it doesn’t, find out why and how 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/DISPATCHER. Trust is essential to success and is achieved through on-time pickup and delivery as well as good communication.

MISCONCEPTIONS ABOUT REVENUE

Be aware of common revenue myths; failure to do so can handicap your business.

MYTH 1 – Concentrate only on increasing revenue because costs will take care of themselves. After reaching your break-even point, only a fraction of every extra dollar of revenue goes into your pocketbook, while 100 percent of every extra dollar saved stays in your pocket.

MYTH 2 – More revenue per mile is the answer to all problems. Revenue per mile doesn’t change much from company to company, but there can be a big difference in miles, gross revenue, reimbursements and fees.

MYTH 3 – All you have to do to be successful is run hard and get a lot of miles. Revenue is only half of the profit equation – costs are the other half. It’s possible to generate a lot of revenue yet spend $1.10 to make every dollar. Furthermore, in percentage of revenue pay programs with self-dispatch options for experienced operators, choosing loads to maximize revenue on the shortest number of miles is the best strategy to financial success.

MYTH 4 – You can tell how well you’re doing by the size of your settlement check. The settlement check is only a small part of the success picture. Miles driven, loads hauled, conditions, mechanical problems, time off and, especially, costs all have to be considered.

MYTH 5 – Your company can control how much it pays you per mile. Your company has limited influence on the rates it charges shippers because it is its analysis of the marketplace that dictates the rates.

The Business Manual for Owner-Operators
Overdrive editors and ATBS present the industry’s best manual for prospective and committed owner-operators. You’ll find exceptional depth on many issues in the 2022 edition of Partners in Business.
Download
Partners in Business Issue Cover