11 Essential Owner-Operator Expenses
Being an owner-operator not only offers a flexible schedule and work autonomy, but also the ability to earn a good living. And while driver pay ranges vastly depending on experience, location, availability, and type of loads, all owner-operator expenses must be considered get an accurate idea of your yearly income.
Truck driver expenses fall into several different categories and managing them is vital to the success of your small business.
Here are the essential owner-operator expenses to consider to accurately calculate your income and improve your profitability.
11 essential owner-operator expenses
There are many possible expenses that an owner-operator might incur. Expenses are dependent on your equipment type, the loads you carry, the runs you choose, and even your personal habits. However, there are some expenses that are universal for all drivers.
Here are the 11 essential owner-operator expenses to account for to run a profitable business.
1. Fuel expenses
Fuel is the largest expense for 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 multiplying by the number of miles you plan to drive.
Although you may 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.
Top ways to lower your fuel consumption are:
- 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 five miles per hour (MPH) you drive above 60 MPH is like paying an additional 24 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 around 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 doing what you can to eliminate deadheads and driving empty miles.
- Negotiate fuel surcharges – With fuel charges in constant flux, negotiating the fuel surcharge with every contract can save you from losing money.
2. Truck purchase or lease cost
Your truck payment is one of your top fixed monthly expenses. Some drivers choose to lease or rent their truck while others buy it. Regardless of what you decide, you must be sure your monthly income accounts for these payments.
If you own your truck, you’ll no longer need to worry about this monthly cost once it’s paid off. But you will need to consider maintenance and repair costs to extend its lifetime.
3. Truck maintenance and repair
Truck maintenance and repair is going to happen. But if you have a preventative maintenance plan, and a rainy day fund to help cover the cost, you will be less likely to take an unexpected hit to your monthly budgeting. Additionally, you’re required by law to maintain your truck in safe operating condition.
In general, you can expect truck maintenance and repair to total approximately 10% of your overall expenses, including $1,000 to $4,000 for tires each year.
4. 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
- US DOT registration
- Motor Carrier Operating Authority registration
- Unified Carrier Registration
- Vehicle inspections fees
- State transportation permit
- International Fuel Tax Agreement (IFTA) decal
- HVUT fee
5. Insurance expenses
Insurance is a necessity but can range greatly in coverage expense. The more coverage you have, the higher your monthly premiums will be. But the less coverage you have, the more risk you are assuming.
There are two basic types of insurance for owner-operators to consider: truck insurance and health insurance.
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 various types of coverage and make an informed decision as to what you need. Also, make sure you understand what’s not covered.
Your work is dependent on you being healthy. Health insurance should be top of your priority list to make sure you have access to care if and when you need it. There are several insurance companies that are specialized for trucking needs that can help guide you to the best plan.
You may need to find coverage for just yourself or your whole family. Regardless, you’ll 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. You can visit Healthcare.gov for information about applying for individual health insurance through your state or national insurance exchange.
Both state and local government 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 IRS.gov, the self-employment tax rate is 15.3% (12.4% for Social Security and 2.9% for Medicare).
- Federal and state income tax: As an owner operator, you are responsible for estimating If you think you’ll owe at least $1,000 after subtracting withholding and credits, you must make estimated quarterly payments of self-employment and income taxes. These are often made in the range of 20-30% of the net income you earn over the quarter to avoid incurring a tax penalty.and paying federal and state income tax.
If you think you’ll owe at least $1,000 after subtracting withholding and credits, you must make estimated quarterly payments of self-employment and income taxes. These are often made in the range of 20-30% 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 significantly when it comes to tax time.
7. Food and drink expenses
When you’re on the road, you have to eat and without proper planning, the cost can add up quickly. Carriers can deduct a portion of your meals on the road from your taxes under a deduction known as per diem, but you’ll still want to keep your food budget reasonably low.
Maintaining healthy eating on the road can help you cut costs and calories. Consider investing in a small refrigerator and a microwave for your truck rather than exclusively dining out.
8. Broker fees
Freight brokers can match you with more hauls. But their service comes at a price. If you choose to partner with a freight broker or brokers, be sure to properly vet their services, reputation, and cost. Every broker(age) sets their own rates, but in general you can expect to pay 10% to 20% of the gross margin on each load.
9. 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. Consider these costs when you tally up your monthly expenses.
10. Factoring expenses
Freight factoring is an alternative way to help keep your money flowing more consistently and get you paid faster. Once you’ve completed a haul, you can submit the invoice to a factoring company, for a small fee, which will expedite your pay. Then they work to collect the unpaid invoice balance from your broker.
The fee for this service ranges from 2.5% to 5% per invoice, depending on business volume. But it can be well worth paying to cut down on accounting work and chasing invoices.
There are two types of factoring: recourse and non-recourse.
With recourse factoring, the factoring service will make a reasonable attempt to collect on the invoice. But if it isn’t paid, you’re on the hook to pay back the factoring service and attempt to collect the debt yourself. Recourse factoring is typically less expensive since the factoring service is assuming less risk.
Non-recourse factoring costs more, but it protects you from non-paying clients. Some factoring services only protect you if the client goes bankrupt, while others will cover the cost of virtually all non-payments. Non-recourse factoring costs more than recourse factoring, but you will assume less risk.
11. Transportation management system (TMS) subscription
A transportation management system, such as the Truckstop ITS Dispatch, dramatically reduces the amount of paperwork you need to manually fill out. For a small monthly fee, you’ll be able to automate most of your processing, from single-click invoices to detailed customer agreements to International Fuel Tax Agreement (IFTA) reporting. You’ll also be able to bring up detailed reports to help you make smarter business decisions.
Being an owner-operator in the trucking business requires considering 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 optimize operations, reduce costs, and pave the way for long-term success.
Get paid when you need it.
Freight factoring gets you paid faster with less risk. It help you avoid inconsistencies in your cash flow and reduce your stress so you can focus on hauling freight.
Truckstop Factoring makes it simple. Haul a load, submit your paperwork, and get paid within 24 hours of the invoice verification. Get started today!
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