Know your costs, revenue and net profit not just by the mile, but by the hour, to get the most bank out of rate negotiations and shift the paradigm toward compensation better tuned to the time and effort put in.There’s no shortage of complaints about the hours of service rule, given time is often perceived as the first limiting asset in the quest for higher incomes. Yet I have come to believe that it’s not just time that is the limiting factor, but the inaccurate way that time is valued, that truly limits our income opportunities as owner-operators.
We’ve all been there. We have calculated our pay and asking rates by the mile. We arrive at the shipper and they tell us that it will be two hours to get unloaded and it turns into four. The wait cuts into the time you had planned to pick up the next load and the problems just compound from there. This why I try to ask every question possible with a goal of complete and accurate information for the dispatch. And often before I even depart for the shipper’s location I call and confirm that information with both shipper and receiver to avert problems.
Doing so has allowed me to reschedule on occasion. For instance, a delivery is presented as first come, first served, but when I call I’m informed I need an appointment and learn I can’t make the appointment. It’s best to know this before I load, so if necessary I can renegotiate the rate to be paid for my time. Sometimes that can’t be accomplished, so I move on to another opportunity.
I don’t want to pay for another company’s problems with my lost time or lost income. Nor do you.
There has been a growing sentiment that with required use of electronic logging devices for hours accounting, the mode of payment should transition from rate per mile to hourly rates. But how many of us, if asked, could accurately quote what our time is worth, per hour, based on actual and complete data?
No emotion, no pie in the sky guessing, just the cold hard facts.
Until we can do this, it is difficult for us to negotiate optimal payment for the loads we accept. It is difficult for us to even know what we are worth as a unit of time.
A good place to start is to examine your accounting and calculate your gross revenue, fixed costs, variable costs and finally the net income – dividing each by the number of hours you worked to get it — or spend it, in the case of costs.
I have begun calculating this more often to measure my efficiency. Also, knowing these real-life numbers is beneficial and I am more confident when examining the changing marketplace and negotiating prices for the services requested.
Just last week, I discussed some of my income and expense calculations with another owner-operator. In terms of net profit per hour (income over my expenses — pay to myself as driver not included in expense numbers), I averaged around $45 last year. With changes in the market this year I’ve been hitting around $70/hour. My friend, who was used to looking at per-mile rates, was shocked: “We can’t charge that much! No one would pay it!”
I tried to help her see that the reality is we do, and must, charge this much to cover our value as drivers and business owners.
At once, each of our business models are different, so it may be very difficult for us to compare or benchmark against one another. For example, I pull a company van and tend to focus on loads of shorter miles that require more customer service and/or multiple stops and driver assist. I average 50 percent deadhead, or empty miles. You surely work a different business plan. There are hundreds of ways to be successful and finding what works best for yourself is important.
If you begin honestly tracking your per-hour rate — not just profit per hour but also revenue and costs — it will help you when negotiating with customers, including deadhead/empty miles, detention pay per hour and driver assist rates. Without figuring all time spent delivering a load into your per-hour rate, you will have created an inaccuracy that will eventually lead you to devalue yourself as an owner-operator.
You must remain profitable yet competitive to thrive.
