cost of truck prior to a load

[fl_char]

I been doing allot of reading here..Wish someone will help me figure out what my cost is for the truck prior to me even accepting a load..must be a formular to do this...thank you

[Rev.Vassago]

Your expenses fall in to two categories: Fixed and variable. Fixed expenses happen whether you haul a load with your truck or not. These include, but are not limited to, insurance, truck payment, cell phone, subscriptions, dues, internet, wages, etc.

Variable expenses only happen when the truck is moving. These include, but are not limited to, fuel, repairs, maintenance, etc.

To figure out what your costs are, you should take all your fixed expenses for the month, and divide them by the number of days per month. That will tell you what the truck costs you per day no matter what. Then, prior to accepting a load, you calculate out your variable expenses by the mile. This will give you two expense numbers: one calculated by the day, and one calculated by the mile. You can then determine if a load is paying enough to cover your expenses.

[GMAN]

It is difficult to make exact cost calculations until you have been in business for about a year. However, in addition to what Rev stated I would add a couple of things. I would count on about $0.025/mile for oil changes and pm's and $0.05/mile for tires. Some people figure maintenance costs at somewhere between $0.08-0.15/mile. If you want to check the average fuel prices the government posts those each Monday. I use 5 mpg when doing my calculations. If you get 6 mpg then you could use that to calculate your fuel costs by the mile. You will likely not be running 7 days per week. I would do my calculations on a five day work week if you are going to do some of the calculations based upon a daily rate, as suggested by Rev. Personally, I prefer to break down my costs totally by the mile. In doing mileage calculations I use an average of 10,000 miles per month. You could run more or less but this is a good average amount of miles you should be able to run in an average economy. If you want to consider the current economic situation then you could lower those to about 2,000-2,200 miles per week rather than 2,500. Remember, it is always better to figure costs at a higher rate and income at a lower rate when doing projections. If I were you I would probably use an average number of miles at 2,000-2,200 per week. It will raise your cost per mile of your operation would more reflect the current economic environment.

[Rev.Vassago]

I would do my calculations on a five day work week if you are going to do some of the calculations based upon a daily rate, as suggested by Rev.

I disagree. Doing it this way introduces an assumption that you will be operating 5 days per week, which is introducing an unknown. It is essentially the same reason I do not advocate calculating fixed costs by the mile. One can only assume what ones' future mileage will be, and past performance does not reflect future performance, especially in trucking. If you don't operate 5 days per week, then your calculations are suddenly screwed up, just like if you're not running 100,000 miles per year, your calculations get screwed up if you're calculating based on a "per mile" figure using 100,000 as the base.

By calculating by something that never changes (the calendar), it eliminates the need for speculation on how many days you will operate, just as calculating variable costs only when one is moving eliminates much of the speculation of what your variable costs will be.

If your fixed costs are $100 per day (just an even figure I'm throwing out there), and a load is going to take 3 days to run, you know that you need to earn $300 to cover your fixed costs for that load. If you had 2 days prior that you didn't earn anything, then you know you need to earn $500 to cover your fixed costs on that load. Then once you've removed your fixed costs from the revenue, you can then determine if the load will meet your variable costs, based on the projected mileage.

Calculating based on a 5 day week isn't serving any positive purpose.

n doing mileage calculations I use an average of 10,000 miles per month. You could run more or less but this is a good average amount of miles you should be able to run in an average economy.

In the past month, I've run approx. 6000 miles due to getting stuck in dead areas. If I were calculating based on 10,000 miles per month, my calculations would be 40% off. That is huge, and it certainly isn't something I could have predicted.

[GMAN]

There are times when one could get stalled in a bad area. With this economy it can be difficult to make realistic projections. If you only use a cost per day your calculations will be skewed if you sit for 2 or 3 days. Those days in which you sit should be calculated in your projections if you are going to use a daily cost factor. The travel time for a particular load may only be 2 days, but if you sit for 3 days then those costs should be included in either the load you just dropped or the one you just took. For instance, if your daily fixed costs are $100 and you sit for 3 days prior to getting your next load then you will need to account for the cost of sitting. Your fixed costs will be $300 to sit for 3 days. Unfortunately, you won't know how much sitting you will do until you start running. Fixed costs go on whether the truck moves or not. With the current economy you will do some sitting. You may not sit each week or could sit a day or more per week, depending on whether you can find a load that meets your minimum haul rate. One other expense many forget to include in their projections is the cost of a driver. It would be good to calculate the cost of hiring a driver and put them in your truck. Some just take what is left after expenses without including the cost of a driver and that is their profit.

[Rev.Vassago]

Unfortunately, you won't know how much sitting you will do until you start running.

That's why you include the days you sat prior to taking the load in the calculation. No projections needed.

[GMAN]

The op wanted to have a formula to use in calculating costs. I still think it is easier for someone starting out to break down expenses by the mile. Your miles can vary from one week to another but if you project based upon a monthly average you should get close to what your actual expenses should run. I think that if you use daily expenses by the day on some expenses it makes it more complicated for someone new to this industry. If they can break it down by the mile it makes it much easier for them to make a decision on whether a load can be profitable. This industry mostly pays by the mile. If we can break down costs by the mile then it will be much easier for someone to find their actual operating expenses. If someone only runs 20 days per month then their daily costs will be greater than if they ran 30 days, providing they ran each of those days. On the other hand, if you project that you will run 8,000 miles per month then your daily costs don't really make much difference as long as you run 8,000 during the month. You per mile costs will remain the same as long as you run the miles you projected. Granted, your per mile costs can be reduced if you run more miles since your fixed costs will be spread over more miles. I just think it is easier to calculate costs by the mile. You can adjust your operating costs based upon any change in your projections.

[Rev.Vassago]

I think that if you use daily expenses by the day on some expenses it makes it more complicated for someone new to this industry. If they can break it down by the mile it makes it much easier for them to make a decision on whether a load can be profitable. This industry mostly pays by the mile. If we can break down costs by the mile then it will be much easier for someone to find their actual operating expenses.

Once again, I disagree. It doesn't matter if loads pay by the mile. Anyone with a calculator can determine the gross revenue for a load by multiplying the miles times the rate per mile. They can then easily determine if the load will cover their expenses. If someone isn't capable of doing the basic math needed to divide your fixed costs into a daily rate, then they probably shouldn't be an O/O.

If someone only runs 20 days per month then their daily costs will be greater than if they ran 30 days, providing they ran each of those days.

Why would the amount of days you run have any effect on your fixed costs? That's why they are called FIXED COSTS. They don't change. If your fixed costs are $100 per day, they will ALWAYS be $100 per day.

If you are, however, calculating by the mile and you don't meet your mileage projections, your fixed costs per mile can suddenly change after the fact, and you won't know what they will change to until the set time period is already over, thereby limiting your ability to compensate.

On the other hand, if you project that you will run 8,000 miles per month then your daily costs don't really make much difference as long as you run 8,000 during the month. You per mile costs will remain the same as long as you run the miles you projected.

And what do you do when you don't run the 8000 miles per month? Get out the time machine and go back and alter your projections at the beginning of the month?


I just think it is easier to calculate costs by the mile. You can adjust your operating costs based upon any change in your projections.

Look, I totally understand why calculating all costs based on something variable like a per-mile rate is attractive. It's easy to do. But I will go to my deathbed insisting that FIXED costs be calculated on something that is FIXED, and VARIABLE costs be calculated on something that is VARIABLE.

[RostyC]

That's why you include the days you sat prior to taking the load in the calculation. No projections needed.

Ok, here's my question with this method, which by the way, I don't disagree with it, it makes a lot of sense, but none the less here's what popped into my head.

Fixed expenses are 10500.00 per year. (I used some my numbers off the top of my head for example only) So 10500 divided by 365 days = 28.76 per day. I'll use an example also of when your truck was damaged and went to the shop. (It's an extreme case to use I know but it can happen) Say your down three weeks. (I can't remember), that's 21 days X 28.76= $603.96

You can't get that out of the first load you run, you'll price yourself out of the market. So you must spread it out. Like I said it's extreme example but you get my point. Even three days off and you might not get a decent paying load because you need the extra money from the days off.

So do you recalculate how many days are left in the month/year and spread it out over a longer period? That could lead to a lot of refiguring over the course of a year.

[chris1]

Run YTD and carry forward.

[Rev.Vassago]

Ok, here's my question with this method, which by the way, I don't disagree with it, it makes a lot of sense, but none the less here's what popped into my head.

Fixed expenses are 10500.00 per year. (I used some my numbers off the top of my head for example only) So 10500 divided by 365 days = 28.76 per day. I'll use an example also of when your truck was damaged and went to the shop. (It's an extreme case to use I know but it can happen) Say your down three weeks. (I can't remember), that's 21 days X 28.76= $603.96

Correct.

You can't get that out of the first load you run, you'll price yourself out of the market. So you must spread it out. Like I said it's extreme example but you get my point. Even three days off and you might not get a decent paying load because you need the extra money from the days off.

Correct, but you know BEFORE you book a load that you're going to be forced to make up the difference, rather than knowing at the end of the month that you didn't meet your costs. I'd much rather know BEFORE I book a load that I need to adjust than after the fact.

[GMAN]

I am not necessarily disagreeing with you in the way you calculate your fixed cost, Rev. However, the majority of your expenses in running a truck are variable. For instance, fuel is our biggest expense. Fuel can vary from day to day. When the truck isn't running then you are not spending money on fuel. Other expenses such as oil changes and tires are also things which don't cost unless you are running the truck. About the only fixed expenses are insurance and truck payments. If you use an average of miles run per month then your costs should average out if you figure according to miles run. Initially, you are only talking about estimates. The only way to accurately calculate costs is to use historical figures. It would be more important to use a daily cost when you are sitting for a number of days. If you take a week off then it isn't costing anything to operate your truck. On the other hand there are fixed costs which continue whether the truck moves or not. Whether you estimate 8,000 or 10,000 miles per month, you can incorporate your fixed costs into the mileage rates.

[Rev.Vassago]

I am not necessarily disagreeing with you in the way you calculate your fixed cost, Rev. However, the majority of your expenses in running a truck are variable. For instance, fuel is our biggest expense.

My biggest expense is wages, which are a fixed cost.

Fuel can vary from day to day. When the truck isn't running then you are not spending money on fuel. Other expenses such as oil changes and tires are also things which don't cost unless you are running the truck.

Which is why they are not included in the "per day" calculation, and are calculated by the mile. Fixed costs calculate by the day, variable costs calculate by the mile. Variable costs don't really change based on the amount of miles you drive per month. If I drive 4 miles per month, then I use 4 miles worth of fuel. If I drive 10,000 miles per month, then I use 10,000 miles worth of fuel. The same holds true for oil changes, tires, etc. Your estimated costs remain constant this way.

About the only fixed expenses are insurance and truck payments.

Truck payment
Insurance (truck, work comp, health)
Phone
Internet
Wages
Dues, subscriptions, and fees
Plates
Permits
Interest
Depreciation
ROI
FHUT

Every single one of those things occurs even if the truck doesn't move an inch. For those who would say that wages don't occur if the truck isn't moving, you do pay yourself even if you have a driver in your truck, don't you? And your home bills still happen even if you aren't moving, don't they? If you're not paying yourself a wage, then there's no reason to even be in business.


If you use an average of miles run per month then your costs should average out if you figure according to miles run. Initially, you are only talking about estimates. The only way to accurately calculate costs is to use historical figures. It would be more important to use a daily cost when you are sitting for a number of days. If you take a week off then it isn't costing anything to operate your truck. On the other hand there are fixed costs which continue whether the truck moves or not. Whether you estimate 8,000 or 10,000 miles per month, you can incorporate your fixed costs into the mileage rates.

And if you don't meet your estimate of 8000 or 10000 miles per month, then you didn't meet your expenses for the month you already finished. Whereas, if you are basing your fixed costs (that huge list I just posted above) on a calendar, it is much easier to adjust your rates when you are running less days per month. You can adjust it on the fly.

I totally understand what you are saying, and I agree it is an easier way to do accounting. I simply don't agree that it is the correct way.

[GMAN]

Unless you pay yourself a set salary each week, your driver's wage is variable. If you pay yourself by the mile or percentage it is a variable expense since it will not be exactly the same each week. I have a friend who pays himself $2,000/month. In his case, his driver wages are a fixed cost. Wages used to be the number one single expense running a truck. With the higher fuel costs the highest single cost is more likely fuel. As far as ROI is concerned, that is also not a fixed cost. It can vary according to what profit you make in a given month or year. You can have a projected ROI, but the economy can shatter any of those projections. I think many companies like to use a percentage as ROI. The percentage may or may not work at the same figure. Again, it will vary according to the level of profitability. If you have a lot of repairs in a given time period your ROI can go out the window. I suppose that if you use a flat fee per load as a ROI then you could assume that it is a fixed cost. For instance, you could use $100 per load as a ROI. In that case it could be fixed. The only problem with that is that you could have 3 loads one week and 1 load the next. Breaking it down by the day won't give you an accurate way to do your calculations for ROI.

[GMAN]

I been doing allot of reading here..Wish someone will help me figure out what my cost is for the truck prior to me even accepting a load..must be a formular to do this...thank you


We do tend to ramble on, Charlene. I suggest you add up all of your total known costs and divide by the estimated miles you plan on running per month. You need to include base plates and permits, equipment payment, insurance (either workers comp or an accident policy, bobtail or unladen liability if you lease to a carrier, liability and cargo if you run your own authority. You also need to include collision which runs about 2 1/2-4 1/2% of the stated value of your equipment). I calculate my fuel usage based upon 5 mpg. If your truck gets more than 5 mpg then you are ahead of the game. If fuel runs $2.50/gallon and you get 5 mpg then your fuel costs will run $0.50/mile. In calculating annual costs I find it easier to use 100,000 miles per year. Since you are normally paid by the mile for any loads it makes it much easier and simpler to calculate costs.

Base plates and permits $1,800-2,200/year $0.018-0.022/mile
App policy $150/month x 12 months=$1,800 yr 0.018/mile
Truck payment $12,000/yr 0.12/mile
Maintenance @ $8,000/yr 0.08/mile
Fuel ($2.50/gal /5 mpg) $50,000/yr 0.50/mile
Collision Insurance ($20,000 truck @ .045) $900/yr 0.009/mile
Bobtail @ $60/month = $720/yr 0.0072/mile
Drivers wages @ 0.30/mile = $30,000/yr 0.30/mile
Taxes on wages @ 25% = $7,500/yr 0.075/mile
Tires $5,000/yr 0.05/mile
PM/oil changes @ $250 x 10/yr = $2,500/yr 0.025/mile
Accounting @ $50/month = $600/yr 0.006/mile
Phone/Internet @ $170/mo =$2,040/yr 0.02/mile


*These are most of the expenses you will incur when you run a truck. Some of these figures will vary according to the amount you paid for your truck and how much it is insured for on collision. If you lease to a carrier you will need bobtail insurance. I have seen costs from about $30-60/month. I did not include the cost of liability or collision insurance. You only need that insurance if you run your authority. I assume that you will lease to a carrier. There are other expenses which may be charged by some carriers such as cargo insurance (some charge a percentage or flat fee per load, others don't charge anything), transflo, trip pak, transaction fees for loading or using your fuel card, etc., Those are usually minor expenses. I am sure that I have missed some costs but these are the basics and will give you something from which to begin to base your costs. Your monthly truck payment will vary according to the amount length of time you financed and interest rate. Your collision will also vary according to how much you paid for your equipment and the factor. I used 4 1/2% since that is usually the highest that I have heard discussed. The maintenance figure is for major expenses such as an engine overhaul or other major expense. I usually recommend that regular maintenance items come out of weekly profits rather than dipping into your maintenance money. When you add all of these costs up and break them down by the mile you should come up with a reasonable cost of running your truck.

[chris1]

I doubt that many "independents" operate on a variable wage.(% or mileage) You have fixed costs at home. If it's the choice between a set of tires or house payment i have no doubt of the choice thats made,even if it exceeds your supposed variable wage.
If you have drivers they expect a certain amount of income per year or they go elsewhere. Why would you operate any differently? Slowdown of freight doesn't reduce personal expenses. If you can't bring home at least what you could make driving for someone why bother being in business for yourself?
As far as profit being variable you should be operating on at least a set minimum amount of return per year regardless of the amount of miles driven. Do you make other investments without expecting a return?

[GMAN]

You don't include household expenses as part of running your truck. That should come out of the wage you pay yourself. You could take a percentage of those costs as rent your business pays, but your house expenses are not part of your business. You should have enough profit or wages to take care of household expenses but that is not part of the cost of running your company.

[chris1]

I know houshold expenses are not part of the cost. But everyone will take enough money to pay them regardless. So that is a part of your wages. If you have to use profit to pay yourself enough to cover your personal expenses there is no true profit,you might as well have a job.

[Rev.Vassago]

You don't include household expenses as part of running your truck. That should come out of the wage you pay yourself. You could take a percentage of those costs as rent your business pays, but your house expenses are not part of your business. You should have enough profit or wages to take care of household expenses but that is not part of the cost of running your company.
My wages ARE my household expenses. So yes, they are included as part of running my truck.

Wages used to be the number one single expense running a truck. With the higher fuel costs the highest single cost is more likely fuel.

100,000 miles per year / 6 mpg = 16667 gallons X $2.60 per gallon = $43,334 per year. Sure, back when fuel was $3.00 - $4.00 per gallon, it was the highest expense. But so what?

I know I pay myself more than that per year. My home expenses dictate it.

As far as not including home expenses in your cost of operation, what is the point of running a business if said business doesn't meet your home expenses? You'd be further ahead working for someone else.

The fact still remains that it makes no logical sense to calculate fixed costs by a variable number, just as it would be foolish to calculate variable costs by a fixed number. If one is incapable of punching a couple extra keys on their calculator, then perhaps they shouldn't be in business for themselves. It isn't tough to do.

EXAMPLE: Your fixed costs are $100 per day, and your variable costs are $0.75 per mile, and you've been sitting over a weekend. You get offered a load that will take 3 days to complete, and will go 1000 miles. You then know that you need to earn $500 to cover your fixed costs, and $750 for your variable costs. So if the load pays more than $1250, you are earning profit. If it doesn't, then you are either breaking even, or running at a loss. There's no rocket science in this.

[GMAN]

My wages ARE my household expenses. So yes, they are included as part of running my truck.



That is why it is good to pay yourself a flat salary. If you only want to earn a minimum amount to meet household expenses then it is easy to simply pay yourself $500, $1,000 or whatever you need to cover your household expenses each week or month. It makes it cleaner to just pay yourself a salary if that is what you want to do.



As far as not including home expenses in your cost of operation, what is the point of running a business if said business doesn't meet your home expenses? You'd be further ahead working for someone else.




You are correct in that your business should meet your household expenses and hopefully a profit. However, you can meet your household expenses by paying a salary or driver wages. You can take out as much or little as you wish. Household expenses are not a part of your business expenses. If that were the case then you could write all of your household expenses off your taxes. It is best to keep personal and business expenses separate. That is one reason I prefer a corporate structure. As an employee of your corporation you can draw a salary or wage and keep business expenses within the company and pay household expenses out of your salary.

[Rev.Vassago]

That is why it is good to pay yourself a flat salary. If you only want to earn a minimum amount to meet household expenses then it is easy to simply pay yourself $500, $1,000 or whatever you need to cover your household expenses each week or month. It makes it cleaner to just pay yourself a salary if that is what you want to do.

Which is a fixed expense.


Household expenses are not a part of your business expenses.

But a salary is. My salary is equal to my household expenses. They are one in the same. Now we're simply arguing about what it is called.

If that were the case then you could write all of your household expenses off your taxes.

Accounting for tax purposes and accounting for purposes of determining cost of operation are two completely different things. A sole proprietor can't write off wages on his taxes. I suppose there's no reason to include them then?

[GMAN]

If you pay yourself a flat salary each week or month then it would be considered a fixed expense. If you pay yourself on mileage or percentage then it will be variable since it will change from one load to another.

A sole proprietor cannot write any money off that he pays to himself since any money over and above actual expenses are considered profit. Do you calculate your wages or profit in your operating costs? I believe that wages should be considered in your operating cost estimates. I think the original poster was hoping we could offer her a simple means of calculating operating costs.

[fl_char]

Just want to thank GMan and the Rev and all others...
I decided to use all my fixed expenses that I have, either I run the truck or not...I use my monthy expense and divide that by 26 which gives me a daily figure what it cost daily.. Basically I need atleast 1 day off a week to reset my hours so I find this way better..
As far as fuel I use 625 miles a day and use 5.5 mpg get my cost their...So I have 1 section that tells me what it cost per day to run the truck or not and the other with the fuel added in...
Once again thank yall

Charlene

[Rev.Vassago]

A sole proprietor cannot write any money off that he pays to himself since any money over and above actual expenses are considered profit. Do you calculate your wages or profit in your operating costs? I believe that wages should be considered in your operating cost estimates.

I absolutely include them. But you brought the whole "tax purposes" thing as the basis for what can and can't be included into it, and wages cannot be included doing tax accounting, but are still included in calculations for cost of operation.

I think the original poster was hoping we could offer her a simple means of calculating operating costs.

Both methods are simple. I just think my method provides a more accurate bottom line.

[GMAN]

Just want to thank GMan and the Rev and all others...
I decided to use all my fixed expenses that I have, either I run the truck or not...I use my monthy expense and divide that by 26 which gives me a daily figure what it cost daily.. Basically I need atleast 1 day off a week to reset my hours so I find this way better..
As far as fuel I use 625 miles a day and use 5.5 mpg get my cost their...So I have 1 section that tells me what it cost per day to run the truck or not and the other with the fuel added in...
Once again thank yall

Charlene


I think using 5.5 mpg is a reasonable figure to use. However, it is doubtful that you will average 625 miles per day for the entire year, especially with the current economy, unless you are running coast to coast. But you need to start somewhere. One thing that I find helpful with my mpg is using a quarterly average. For instance, I used to run east to west most of the time. My fuel mileage has been over 7.1 and as low as 4.99 on one truck. My quarterly average is around 6.29. That is a more accurate figure since it covers a wider time frame. You can make adjustments as you go along. I would either use a spreadsheet or one of the trucking specific software packages to help keep track of expenses. You can purchase most of them for less than $200. Most of the trucking software will automatically break down your costs by the mile which can help you easily check your profit on each load and year to date. Starting out there are a number of unknowns. As you move forward you will have real numbers and a better picture or your operating costs. Keep in mind that everyone runs a slightly different operation. Rev and I may disagree on some aspects of how to do these calculations, but in the end there may be little difference in the actual numbers. It might be good at some point to compare the two side by side. Good luck. Keep us posted on your progress.

[Rev.Vassago]

Rev and I may disagree on some aspects of how to do these calculations, but in the end there may be little difference in the actual numbers. It might be good at some point to compare the two side by side.

No, there really isn't much difference in the numbers as long as things stay constant. But in the trucking industry, consistency is a pipe dream. What happened a week ago is not guaranteed to happen tomorrow.

[GMAN]

That is very true. Change in this business seems to occur daily.

[YerDaddy]

So if I I have met my fixed expenses for the day I can take a no profit load? The logic I'm seeing here says I can!

My own experience of 14 years sole proprietor says no I won't haul a no profit load! I need a profitable minimum rate per mile! Why should shipper B get load hauled cheap just because I met my daily expenses hauling for shipper A?

In local construction work you can break expenses down into periods of time because that's how they pay!

If you get paid by the mile you figure costs by the mile. Why in the world would a per mile operation calculate costs on a daily basis? Especially when the only costs based on time are licensing and insurance (and possibly truck payment but that disappears after final payment). The major expenses are based on miles - fuel, tires/maintenance, driver pay, taxes.

As far as I'm concerned, all my costs are fixed. Nothing varies much year to year to worry about except for that $5/gal fuel runup. Then you just had to watch your DH miles. FSC covered the paid miles.

The name of the game is to get the highest rate per mile you can. There's always gravy left over.

If you gotta waste time every day figuring if 1.20/mi is gonna break you but the 1.21/mi load will cover your daily expense you need to shoot for higher rates! Try another .25/mi and see if that works and if so don't even consider cheaper loads.

If you can't find profitable loads then you are one of the trucks we statistically call "over capacity"! Park it or sell it!

...and ...oh yes please state your qualifications or name the business school you attended Mr. "advocate"!

[chris1]

...and ...oh yes please state your qualifications or name the business school you attended Mr. "advocate"!

First business opened in 1973,still maintain a 20% ownership. Graduated Northwestern in 1975.

[Rev.Vassago]

So if I I have met my fixed expenses for the day I can take a no profit load?

You can do whatever you want. That's the neat thing about being in business for yourself.