Many micro and small carriers fail because they focus too much on the rate they’re paid per mile rather than on the total revenue they need to generate monthly and quarterly.
Those who focus on the per-mile rate look at a single, static rate as income per load. The problem with this approach is that a carrier’s cost per mile is influenced by multiple factors:
- Total distance traveled from destination to destination.
- Total elapsed time from destination to destination.
- Cost of fuel.
- Cost of maintenance, tires and repairs.
- Load-specific costs like tolls, labor, and pilot cars.
This requires knowing the figures for several different cost categories (fixed cost per day, operational cost per mile, fuel cost per mile, and load-specific costs per shipment on the truck). The greater the time and the shorter the distance, the higher your cost per mile. The shorter the time and the greater distance the load goes, the lower the cost per mile. Just a 500-mi. difference over a week’s time can cause the cost per mile to go up or down 20¢ to 30¢ per mile. Too few miles over time, and your costs can easily exceed your top per-mile hauling rate.
Not every load will make a profit. A trucker has to work the law of averages and plan loads and freight lanes so each truck meets or exceeds the company’s revenue needs over time. While the carrier may not make a profit every week, it’s important that it does so at the end of the month or, minimally, at the end of the quarter.
Some owners also make the mistake of depending on the profit the company earns to pay their personal salary; this is why many small carriers are struggling. What they fail to realize is an owner’s salary is an expense, just like truck payments, insurance, building rent, etc. The big difference is that the owner’s salary is the most important expense a company has to pay. Why? If the person with the vision and drive to work endless hours isn’t receiving a regular, consistent salary, that person has neither the means nor the desire to continue working. Without an owner, a small carrier ceases to exist.
Three key needs must be provided by a trucking company to keep a trucker happy and in the company’s employ.
These are: - Reasonable compensation for all hours required to perform his duties whether it’s driving a truck, loading/unloading, or waiting to be dispatched.
- Consistent pay from week to week.
- Scheduled time home.
Is it really that different for a micro or small trucking company owner?
If a trucking company owner depends on profit to pay his salary, there won’t be capital available to sustain the carrier in difficult times or for possible expansion in the future. Focus on reserving profit to sustain and grow—not to pay the owner’s salary.
