Owner-Operator Costs of Doing Business: Essential Expenses to Consider

Being an owner-operator offers a flexible schedule, work autonomy, and the ability to earn a good living. While truck driver pay ranges differ depending on experience, location, availability, and type of loads, all owner-operator expenses should be factored in when calculating your yearly income and take-home pay.

Keeping track of trucking expenses throughout the year can make a big difference in your business’ profitability. Read on for a trucking cost breakdown, from fuel expenses to insurance premiums. Also, learn how to calculate your income accurately to improve your profitability.

5 essential owner-operator expenses

While owner-operator expenses can vary depending on your equipment, cargo, routes, and even personal needs, some essential costs apply to all truck drivers. These are five critical owner-operator expenses to factor in for running a profitable trucking business.

1. Fuel expenses

Fuel is the largest owner-operator expense and often the most difficult to project. However, on average, you can expect to spend between $50,000 and $70,000 each year filling up your truck. To get a rough estimate of your cost-per-mile, divide your truck’s miles per gallon (MPG) by the current cost per gallon for fuel and then multiply by the number of miles you plan to drive.

Although you might not be able to significantly reduce your fuel expenses, there are some actions you can take to minimize your fuel consumption. When performed in conjunction, you can squeeze out additional profit margins.

Here are the top ways to lower your fuel consumption:

• Make an informed tire purchase: Consider the long-term costs when buying tires. Look for those that deliver excellent traction, long tread life, and rolling resistance, which will improve your fuel economy.
• Control your speed: Every 5 mph you drive above 60 mph is like paying an additional 20 cents per gallon for fuel, due to wind resistance and increased tire rolling resistance. Adding a few minutes to your trip can add dollars to your wallet.
• Find your engine’s “sweet spot”:The “sweet spot” is the most efficient revolutions per minute (rpm) to run your engine, which reduces the amount of fuel you burn. A good sweet spot is 1250 – 1350 rpm.
• Use a fuel card: Fuel cards let you purchase fuel at a discounted price, and the savings add up. Find a card that offers the best savings and benefits for your needs.
• Plan your routes: Make the most of every mile by eliminating deadheads and avoiding driving empty miles.
• Negotiate fuel surcharges: With fuel charges in constant flux, negotiating the fuel surcharge with every contract can provide stability in predicting and covering fuel costs.

2. Truck purchase or lease cost

Your truck payment is one of your top fixed monthly expenses. Some drivers choose to buy their trucks, while others lease or rent. Regardless, you must be sure your monthly income covers these payments.

If you own your truck, you’ll no longer need to worry about this monthly cost once it’s paid off. However, you will need to consider maintenance and repair costs to extend its lifetime.

3. Truck maintenance and repair

Truck maintenance and repairs are necessary. If you have a preventive maintenance plan and a rainy day fund to help cover the costs, you will be less likely to take an unexpected hit to your monthly budget. Additionally, you’re required by law to keep your truck in safe operating condition.

In general, truck maintenance and repair will account for approximately 10% of your overall expenses, including $1,000 to $4,000 for tires each year.

4. Insurance expenses

Insurance is essential, yet the specifics vary widely. More coverage leads to higher monthly premiums, while less coverage means taking on more risk.

Owner-operators should carry two primary types of insurance: truck insurance and health insurance:

• Truck insurance: Navigating the details of commercial truck insurance can be complex. You’ll need to carry mandatory minimums, but you can also choose to increase your protection. Take the time to understand the types of coverage and make an informed decision. Also, make sure you understand what’s not covered.
• Health insurance: Your work depends on your health, so it stands to reason that health insurance should be a top priority. Many insurance companies specialize in trucking and can help guide you to the best plan. Whether you need coverage for yourself or your entire family, you will have a monthly premium. However, since owner-operators are self-employed, you can claim a 100% deduction of your health insurance premiums if your spouse does not have company-offered insurance through their employer.

Visit Healthcare.gov for information about applying for individual health insurance through your state or national insurance exchange.

5. Taxes

State and local governments require you to pay taxes. You can plan on paying the following:

• Self-employment taxes: These taxes are like the Social Security and Medicare taxes paid as a company employee. According to the IRS, the self-employment tax rate is 15.3% to 12.4% for Social Security and 2.9% for Medicare.
• Federal and state income tax: As an owner-operator, you are responsible for estimating what you owe. If you think you’ll owe $1,000 at the end of the year after subtracting withholding and credits, you’ll need to make estimated quarterly self-employment and income tax payments. These are often made in the range of 20% to 30% of the net income you earn over the quarter to avoid incurring a tax penalty. Since you are self-employed, you can claim several tax deductions that will save you money at tax time.

Additional trucking costs to consider

In addition to the typical owner-operator costs, you should consider the following trucking expenses when budgeting.

1. Annual licensing, permits, and documentation

Don’t forget to account for your annual licensing and permitting fees. These are set by law and may vary by state. Check with the relevant government authority for current pricing.

These include but are not limited to:

• Business licenses
• Driver’s license renewal fees
• United States Department of Transportation registration fees.
• Motor Carrier Operating Authority registration fees
• Unified Carrier Registration fees
• Vehicle inspection fees
• State transportation permits
• International Fuel Tax Agreement (IFTA) decals
• Heavy vehicle use tax fees

2. Food and drink expenses

Food costs can add up quickly on the road, especially if you aren’t planning ahead. Carriers can deduct a portion of their meals on the road from their taxes under a deduction known as per diem. Still, you’ll want to keep your food budget low if you want to save money.

Eating healthily during trips can cut costs and calories. Rather than exclusively dining out, consider investing in a small refrigerator, travel cooking equipment, and a microwave for your truck.

3. Broker fees

Freight brokers can help connect you with more hauling opportunities, but their services come at a cost. If you decide to work with a freight broker, it’s important to evaluate their services, reputation, and pricing carefully. Each broker determines its own rates, but typically, you can expect to pay between 10% and 20% of the gross margin for each load.

4. Load board subscription

Load boards help maximize your profits by allowing you to quickly find and book loads. A monthly subscription fee is required, and you may want to access more than one to expand your options. Load boards with special features, such as Truckstop’s Load Alert Notifications, help you maximize your time and efficiency, allowing you to get the higher-paying loads you’re looking for. Consider subscription costs and benefits when you tally up your monthly expenses.

5. Factoring expenses

Freight factoring offers an alternative way to maintain a steady cash flow and get you paid faster, which is especially helpful when margins are tight. After you’ve completed a haul, you can submit the invoice to a factoring company for a small fee. They’ll expedite your payment and handle the collection of the unpaid balances from the broker.

The fee for this service typically ranges from 2.5% to 5% per invoice, depending on your business volume and the factoring company. While it involves a cost, the convenience of reducing accounting efforts and chasing invoices often makes it worthwhile.

There are two types of factoring: recourse and nonrecourse:

• Recourse factoring: In recourse factoring, the factoring service will try to collect on the invoice. However, if they’re unsuccessful, you’re responsible for repaying the factoring service and attempting to collect the debt yourself. Recourse factoring is typically less expensive since the factoring service assumes less risk.
• Non-recourse factoring: Nonrecourse factoring might cost you more up front but protect you from chasing down payments you haven’t received. Some factoring services only protect you if the client goes bankrupt, while others will cover the cost of virtually all non-payments. These upfront costs allow you guaranteed payment without the risk.

6. Transportation management system (TMS) subscription

A transportation management system (TMS), such as Truckstop ITS Dispatch, dramatically reduces the amount of manual paperwork on your end. For a small monthly fee, you can automate most of your processing, from single-click invoices and detailed customer agreements to IFTA reporting. You’ll also gain real-time visibility with detailed reports to help you make smarter business decisions regarding route optimization and operational processes.

Tips to maximize profitability

After considering your expenses, you’ll want to strategize ways to ensure the profitability and success of your trucking business. Various management and operational strategies can help improve your bottom line and increase overall income.

Accurately calculate your income.

The first step in maximizing your profits is accurately calculating your income. Detailed records of your revenue and expenses will provide clear insights into your financial performance and reveal ways to improve. Accounting software can make this easier by tracking your cash flow, monitoring expenses, and generating financial reports.

Review profit margins.

Calculate your profit margins accurately by subtracting your total expenses from your total revenue and dividing the result by your total revenue. Knowing this percentage can help you make informed decisions about pricing, cost control, and revenue generation. Regularly review these metrics to see trends and change your strategies to stay competitive in the market.

Look for ways to save time.

Efficiency plays a huge role in profitability. You can use technology to simplify your workflow, plan better routes, and reduce downtime. These tools and strategies can help with efficiency:

• Proper load planning
• Regular maintenance
• Effective communication with dispatchers and clients
• Route optimization software
• TMS solutions

Use technology solutions like a TMS to manage your administrative tasks, track your hauled loads, and find ways to do it all faster. Invest in route optimization software to reduce fuel use and idle time while maximizing load capacity.

Invest in preventive maintenance.

Preventive maintenance is critical to a successful trucking business. This essential task can help you reduce your repair costs and extend your equipment’s life span. Be sure to schedule regular inspections and services, which will reveal any issues before they turn into costly repairs. A proactive approach will save you money in the long run and ensure your truck stays in top condition. When you care for your equipment, you lower the risk of disruptive breakdowns.

Get paid when you need it.

Being an owner-operator in the trucking business requires lowering essential expenses to increase profitability. These expenses include fuel costs, maintenance and repairs, insurance, permits and licenses, taxes, and other business expenses. By wisely tracking and managing these expenses, owner-operators can simplify business tasks, reduce costs, and pave the way for long-term success. Want to get paid faster and worry less about your cash flow? Try Truckstop Factoring. It’s easy! Haul your load, email your paperwork, and get paid in as fast as 24 hours of verifying your invoice. It’s as simple as that. Say goodbye to stress and hello to faster payments. Freight factoring gets you paid faster with less risk, so you can focus on hauling freight. Get started today!