(The video above features cost-accounting tips in a discussion with Eric Harley of Red Eye Radio, ATBS' Mike Hosted and Overdrive contributor and owner-operator business coach Gary Buchs, from a talk at the 2023 Mid-America Trucking Show.)
Being able to survive and thrive as a business owner has as much to do with managing costs as it does with generating revenue. Like the chief financial officer of any company, you have to be concerned about rising costs, especially without increases in revenue. Trying to reduce costs, let alone make sense of them, can be a complicated task.
Understanding basic principles of operating costs can save you thousands of dollars a year:
A penny saved is $1,000 earned
The owner-operator who can save just one penny per mile over 100,000 miles driven annually will save $1,000 in a year.
Costs are not the same each month
If 9,600 miles are driven one month and 10,000 miles the next month, there will be two different sets of costs for each month. For example, if your tractor payment is $1,850 per month and you drive 9,600 miles in the month, your tractor payment will cost you 19.3 cents per mile. However, if you drive 10,000 miles, your tractor payment will cost you 18.5 cents per mile. This is one of your major fixed costs while paying off a truck loan.
Fixed costs do not go down over time, but you can reduce your cost per mile by driving more miles. The difference per mile here is only 0.8 cent, which may seem like small change, but remember the “one penny saved” rule. In this example, the difference in fixed cost is $960 per year.
For every dollar of revenue generated, only part of that dollar is profit
But for every extra dollar of cost saved, that entire dollar contributes to your profit.
Costs cannot be understood on a per-mile basis alone
In the example above, the 10,000-mile month results in a lower cost per mile. Also, as the cost per mile was reduced, revenue went up for driving the extra miles -- a double benefit per mile.
[Related: How to be 'as bad as an accountant' to ensure long-term success]
Find more detailed information about ways to simplify bookkeeping and best business practices, among a myriad of other topics, in the Overdrive/ATBS-coproduced "Partners in Business" manual for new and established owner-operators, a comprehensive guide to running a small trucking business. Click here to download the updated 2023 edition of the Partners in Business manual free of charge.