In 1998, I hired One on One Marketing of San Diego to conduct extensive surveys of both the owner-operators and the trucking companies to which they were contracted. The owner-operator surveys included an interview with each respondent, along with a six-page question sheet. The purpose of the survey was to assure my co-author, Esta Klatzkin, and me that our business manual for truckers, Driven 4 Profits, would be on the money both literally and figuratively.

From hat survey, we found a staggering percentage of owner-operators had no plan with which to manage their revenue. Most thought the settlement check was their “paycheck” or “money to the house." They thought cash flow was what happened if a bag of money was dropped in a fast-moving river. And a budget is a place to rent a car!

On the other side of the coin, there were a number of trucking companies with only a vague concept of what the true costs of ownership and operations were, as endured by the owner-operator. (In my ever-to-be humble opinion: If the people making up the rates and the people providing the end service are trying to do business with incomplete data and lacking simple business management skills, where does that leave the industry as a whole?)

I'm sure you’ve heard of trickle-down economics; how about trickle-down economic failure? Only sometimes we feel it's more like that bag of money that was thrown in the raging river. We see it; we can almost touch it, we grab for it, then it disintegrates and all the cash disappears.

I myself believe in ‘trickle-up’ economics-- business conducted in a manner under which the owner-operator’s costs and reasonable profit margin are factored into the rates, along with the same consideration for each rung up the ladder at the trucking companies and brokers.

To quote James B. Larson's Profitmover's Guide to Business Success, "To be successful you have to sell your products or services for more than they cost you to produce."

That's all well and good, but what about Company XYZ and the $300 difference they were quoted for trucking services. Your fee is higher, and matching the competition’s lower rates spells no profit to you. As hard as it is, owner-operators have to learn to pronounce two letters correctly, and at the right time. Those two letters are N and O. The trick here is knowing the correct time to say NO.

If the sentence starts, “There's NO profit in this load, but....” the answer to that deal has to be NO. You have to make a decision. Is Company XYZ a charity? Are you, the owner-operator, feeling charitable? You understand the shipping needs of Company XYZ. But doesn’t Company XYZ and your other customers want you to be in business in the future? Are they interested in getting their product to destination in the same condition in which it left? And on time? There’s always someone who will give them a lower price. Is the shipping and receiving customer getting real value for their shipping dollar? Are the trucking companies and owner-operators receiving value for the service they provide? If they either don’t know all their costs, or aren’t factoring their costs and a reasonable profit margin into their shipping rates, the answer is NO. And without knowing what your costs are, you won’t know when to say no to a shipment lacking in profitability.

The problem with most trucking companies and owner-operators is they try the one-size-fits-all approach to determining cost and profitability of each piece of equipment they own.

Does it cost the same amount to own and operate a 1995 International 9400 as a 2005 379 Peterbilt? Of course not. The ’95 International is most likely paid for or its payments are significantly lower than those for the ’05 Peterbilt. But on the other hand the maintenance and upkeep cost is considerably higher on the ’95 model tractor.

You must also consider the experience of the vehicle’s driver. The experienced, veteran trucker will be more efficient, but will expect and deserve a higher wage. While the less experienced driver gets paid a lower wage, his inexperience creates less efficiency in the operation. The range of costs with each unit must be considered when dispatching a load to a particular truck and driver combination.

In accounting, this is called “activity-based costing,” a method used in manufacturing for many years. In trucking, each driver and truck has Fixed Costs; i.e., Cost of Ownership (equipment depreciation, lease payments, taxes, etc.). To be effective in developing a profit plan, each driver and truck must be assigned a unique Fixed Cost Burden Rate. This rate is based upon the individual trucks annual “Fixed” Costs (Cost of Ownership) which are divided by 365 days. This provides you with your Daily Cost of Ownership. This Burden Rate establishes your Daily Break-Even Point for expenses that don’t stop when the truck does.

Variable Costs in trucking are divided into Cost of Operations, Rolling Costs per Mile (fuel truck maintenance, tires, etc.) and Shipment Specific Costs (tolls, special permits, labor, etc.). These Variable Costs are calculated on a per mile basis. Each of these costs varies from truck to truck and driver to driver. The Variable Costs are expenses that exist when the truck is in operation mode. These are on a per mile basis. While most owner-operators have a good idea of what their cost per mile is, most lack the knowledge of the cost per day benchmark.

The number of days devoted to a load has a much greater effect on the profitabilty of that load than how many miles are required to complete a specific load. By knowing this information you can then measure the effect of time, distance and increased productivity on a daily basis-- thus knowing what your true profit level is. You develop a real game plan by knowing exactly what your daily revenue goal needs to be.

Remember—it’s your company, your truck!

CONTEST: What is the four-letter word for success? What is the two-letter word for profit? Both words appear in this article. The first person to answer these two questions correctly wins a copy of Driven 4 Profits. Send your E-mail entry to contest@truckersbookstore.com.

Keep your headlights pointed here for Tim’s soon to be released Gearing Up 4 Profits, An Owner/Operator’s Guide to Load Profitability. ©2004 Tim Brady Send an e-mail to tdbrady@truckersbookstore.com to be notified when the Gearing Up 4 Profits book and Load Profit Analysis v2.02 software are released.