You might have decided on a trucking career because you like the idea of being your own boss. You can set your own hours and be independent out on the road instead of in an office.
But is the trucking business profitable? On the surface, the statistics suggest not. And the National Association of Small Trucking Companies noted that only 15% of new trucking companies will make it past their first year of business.
But you don’t have to be one of those statistics. Whether you’re an owner-operator or a truck driver for hire, you can create a profitable trucking business with careful planning (plus hard work and dedication). Here are six of the most important things to know to be a successful and profitable business owner.
Average profit of a trucking company
One key to determining whether a trucking business is profitable is to understand what’s an acceptable U.S. industry profit margin. While carrier revenue and profits vary depending on their unique situations, most truckers should aim for a 6%-8% profit.
Plan your profit by considering your gross annual income per truck, then determining your expenses (more on that later). You can then increase those margins by looking for higher-paying loads, reducing deadhead miles, and being aware of the competition in lanes.
What factors hurt profitability?
Though numerous factors determine how profitable a trucking business is, the two main factors to keep in mind are fixed and variable costs.
Fixed costs are already in place and relatively predictable, whether you’re on the road or parked at home. They’re costs you need to pay, no matter how much you earn.
- Insurance. At the very minimum, you must carry primary auto liability (federal law) and general liability (state law) insurance. You will likely want to go above the basics and include coverage for physical damage, cargo, underinsured motorists, and rental reimbursement.
- Truck mortgage payments. If you have a loan on your truck, this is another fixed cost you must pay monthly.
- Licenses and permits. In addition to your commercial license, you’ll need to pony up funds for federal DOT and Motor Carrier Authority numbers, Unified Carrier Registration, and an International Registration Plan tag. These licenses and permits may require regular updates, which could mean extra fees.
- Cell phone. Because you’re on the road often, you’ll need a way to communicate with everyone, from your family to your clients. Having a cell phone with unlimited calling and data is a basic necessity.
- Professional fees. Most small businesses need to hire out regular help for specific areas like website development and hosting, accountants, and attorneys.
Variable costs happen while you’re on the road and can differ based on where and how far you’re driving. They also affect cash flow, so it’s good to estimate on the higher end.
- Fuel. Gas prices change from state to state, city to city, and even from season to season. Even if you have a general idea of how much you’ll pay to haul cargo through Texas versus the Eastern Seaboard, count on fuel costs to fluctuate.
- Maintenance. Ongoing vehicle maintenance can vary widely by year, depending on what you need to keep your truck running smoothly. One month you might need a whole set of tires, while another you might only need an oil change.
- Lodging. Like fuel costs, lodging expenses change based on region and season. Even if you can sleep in your truck, you may want to find a place to shower and rest, especially for long hauls.
- Food. Food (and coffee) are must-haves. But food prices depend on the area, food, and restaurant type. Fast food is cheaper than sit-down restaurants, as are snacks from the grocery store versus the gas station.
- Tolls. Depending on your lane, you’ll find that many U.S. interstates double as tolled turnpikes. In larger cities, “paid” toll lanes could mean less traffic, but that convenience might come at a cost — an unpredictable one.
How to increase profitability as a trucking business
After tallying all these costs, you might be asking yourself again, “Is trucking a profitable business?” The good news is, it can be when you keep the following six steps in mind.
1. Lower your cost-per-mile.
The best way to do this is to know how much you’re spending, including both fixed and variable costs. For example, you can reduce fuel consumption by paying attention to your speed and driving habits. Ongoing maintenance can prevent costly on-the-road breakdowns, and careful planning can decrease out-of-route miles.
2. Increase your rate-per-mile.
Charging shippers a higher percentage on top of your expenses is one way to increase payments. Also, picking up headhaul market loads and bringing them to backhaul markets could boost that rate-per-mile. Reducing deadhead miles by hauling LTLs would also help. Using a trusted load board known for higher-value loads is another way to up your per-mile options.
3. Find high-paying truck loads.
You can build a great reputation and boost your revenue by taking on shipments that are more difficult to transport or require more skill or time. You can also target shippers who need freight moved immediately; urgent loads command premium rates. The best way to take advantage of high-paying loads is to be flexible and use load boards like Truckstop.com.
4. Increase “loaded” mileage.
Loaded miles are when you’re driving paid cargo. But sometimes, empty trailers happen. Try matching your routes with shipper demand and be willing to take backhauls to ensure your trailer is consistently full.
5. Reduce “detention” time.
There’s nothing more frustrating than waiting at a pick-up or delivery point longer than you planned. While shippers allow for a two-hour detention delay, sometimes it can stretch to three hours or more. That’s time you’re not getting paid. Worse, it might put you behind on other jobs. The best way to reduce detention time is to build extra space or “detention pay” into loading and unloading times. And avoid taking loads from facilities or shippers known for high wait times.
6. Use factoring to get paid faster.
Factoring means you can sell your invoices from a job to a third-party financial company, also known as a factor. You walk away with the money right away (minus the factor fee) rather than waiting the typical 30-90+ days it takes a broker to process your invoice. Meanwhile, the factoring company tracks down payment from the broker so you don’t have to.
Book more high-paying loads.
So, is trucking a profitable business? It can be, especially if you book higher-paying loads to maximize your capital. One sure way to do this is to use Truckstop.com’s Carrier Load Board to find quality loads at great rates. To get on board, call us or book a free demo to see how it works.