For carriers who mean business, it pays to follow this basic business principle.
When it comes to getting advice on how to survive and thrive as an owner-operator in today’s trucking industry, it pays to listen to the experts, those who’ve put in the miles, paved the way, and learned a thing or two along the road. That’s why we recently sat down with Kevin Rutherford to talk about the costs that go along with the gig, and the importance of understanding how they impact your profitability.
Kevin’s 30 years in the biz as an owner-operator, author, and superstar mentor firmly positions him as the go-to guy when it comes to talking about the cost of doing business as an owner-operator.
First, let’s look at costs in broad strokes: fixed costs and variable costs.
Fixed costs are exactly what they sound like: expenses that, for the most part, don’t change and that you have to pay whether or not your truck is hauling loads and earning money for you. Some examples of fixed costs include insurance, truck lease or loan payments, permits, accounting services, and load board subscriptions.
Variable costs are the costs associated with operating a truck and being on the road. These costs vary monthly, like the term implies, and are subject to market conditions. According to Kevin, fuel and maintenance are the highest costs truckers face, so for this discussion, we’ll focus on those two.
Kevin says: Approach fixed costs with your eyes wide open.
Since fixed costs are locked in, the most critical decisions an owner-operator can make is knowing how much you can afford to spend on fixed costs. The easiest example, and probably your highest fixed cost, is your truck payment.
Let’s say your monthly truck payment is $3,000. You know you have to make at least $3,000 to cover your truck payment and even more than that to cover your remaining fixed costs for the month. The higher your fixed costs, the more money you need to make and the more you’ll be pressured to hustle for the right loads.
Make sure big decisions like buying a truck are made within a pre-determined budget, so you know what you’re in for and how much money you need to make to even break even, let alone turn a profit. You might fall in love with a shiny new 2019 truck, but if you go down a few years to a perfectly nice 2010, you could save tens of thousands of dollars and not have to work such long hard hours away from home.
On the other hand, if your truck has seen better days and it’s costing too much in maintenance and repairs, raising your variable costs and preventing you from working, it might be time to shop for a new truck. Just do your homework first, have a set budget, and make sure you know you can cover your payment with the amount of loads you’re willing and able to haul and still have money to pay yourself.
Kevin says: When it comes to variable costs, history is your best teacher.
As stated earlier, fuel and truck maintenance are the two most important variable costs trucking owner-operators should focus on. Other costs are easier to control, like food, lodging, and incidental expenses while you’re on the road.
Kevin says tracking your variable costs is absolutely critical in telling you where the money’s going. You may be working your tail off day and night and weekends, but still can’t seem to make ends meet. The first step in tackling this and turning it around is to track your monthly expenses. And he doesn’t mean looking back a month or two.
The best way to get a clear view of the road ahead when it comes to making “enough” money is to track your costs compared with your income going back at least three years. The only way to make changes and cut costs is first knowing what the big-picture overview of your expenses looks like. It reveals your spending habits and captures the categories where spending might be out of control, and reveals areas that need your due diligence and extra discipline so you can start making more money, and more importantly, bring more money home at the end of the day.
Kevin’s super simple best practices for controlling costs.
It’s all well and good to say you are going to track your trucking expenses, but surprisingly few truckers actually do it. (They’re usually the successful ones.) Whether you track your costs manually with a notebook and pen or use software to help, the one ingredient most often missing is self-discipline. Kevin’s best practices? Surprisingly simple:
1. Commit to it. The biggest barrier is yourself. Just do it, Kevin says. It’s really not optional if you’re serious about making more money as an owner-operator.
2. Invest in software that does it for you. Good trucking software gives you access to the long view: your history. Armed with the reports generated by the software, you have an objective, realistic view of your income and your expenses, both fixed and variable. That’s usually all it takes for truckers to start making changes and cost adjustments.
3. Make changes according to what your history reveals. If you’re spending too much on fuel, start thinking of ways to economize or choose alternate routes where fuel prices are lower. If you’re spending too much on truck maintenance, you can run the numbers and find out how a new truck could improve your financial situation by keeping you on the road and out of the repair shop. Weigh a new truck payment against the money you’re spending on repairs to see what you can afford. Then, budget accordingly.
If you’re ready to handle your business like a pro, Truckstop.com can help. Check out our comprehensive offering of specialized business tools for the freight industry, designed to keep you moving forward and in the money.