Comparing pay packages is a time-consuming endeavor. The key is to start with an understanding of how much you need to make each month to cover expenses. Only then will you know whether a pay package is a good deal for you.
Figure your total cost per mile by adding fixed and variable costs for the year and dividing by 12 to get the average per month. Divide that by average monthly miles to determine your cost per mile. This is your break-even point.
Be sure to include non-revenue miles, such as deadhead or a trip to the shop, in your monthly estimate. Those miles also cost money.
Profit margin (net income as a percentage of total revenue) for independent owner-operators without a carrier partner hovers at about 40% for owner-operators who do not include pay to themselves as a business expense, such as you would in an S Corp arrangement.
In your evaluation of compensation, you ideally want to beat the averages. Overdrive research has shown that more than 40% of owner-operators try to hit a profit margin target above 40%, when not considering their own pay on the expense side of the cost/revenue income equation. Taking self-pay into account, 20% for a profit margin is a common ballpark target.
For some elements of a pay package, such as detention pay, it’s also helpful to know your revenue per hour of driving. To determine this, multiply your per-mile rate by your average driving speed. For example:
Knowing your hourly rate helps you determine whether the detention pay you’re offered adequately compensates you for the revenue you lose sitting on a load. At once, more owner-operators consider income per-mile, plus fixed costs, as more appropriate inputs for a fair detention rate per hour, given variable costs aren’t incurred at the same high levels when you’re sitting.
