Here you go charged......
 

I know that this article will be too much for you to comprehend.... :lol:

Costs, Costs, Costs

by Timothy D. Brady

Jul 6, 2005 4:20 PM

What you need to know to know the value of a load


In the real estate market, there are three things that determine the value of a piece of property – Location, Location and Location. In trucking, there should be a similar saying that determines the value of a load – Costs, Costs and Costs. Without knowing your costs, it is impossible for you to determine what you should be charging for shipments so you see a profit when the load is complete.


According to the Department of Transportation (DOT), hauling rates today are only 1% higher than rates in 1999. Insurance, fuel, and other trucking-related costs have continued to rise at a tremendously faster clip during the same period of time. In fact, these costs have moved over into the hammer-lane and the pedal is to the metal. Although shipping rates and driver pay have both increased on average about 6% to 7%, it has not been enough to reverse the trend of cost increases over the past several years.


In order to calculate what price you need to charge for a product or service, a successful businessperson is required to know two factors:


What is my load break-even point per shipment?
What do I need to charge each customer to reach these points?
As owner-operators and small fleet operators, it’s imperative to know every one of your costs and how they relate to each break-even point. One of the largest misconceptions in the trucking industry is, “All I need to know is my cost per mile and when I’m receiving a hauling per mile rate that is higher than my cost per mile, I’ll make a profit.� Another misconception is, “I don’t have to make a profit on every load to be successful.� It would be nice if it was that simple, but it’s not. Saddled with these two fallacies as a business concept, your trucking operation will fail.

Most drivers figure their cost per mile by taking their entire year’s expense total and dividing it by the number of miles they drove that year. The problem with this method is, if you take that cost-per-mile factor and attempt to relate to a load you are considering hauling today, the results of your calculation will be askew.


The reason is simple and can be answered by one question: “What did you pay for fuel, tires, and maintenance a year ago?� Those numbers are not related to what you will be paying for those items today. Example: Fuel a year ago was $1.79 a gallon; fuel today is $2.40 a gallon: your average fuel cost per gallon for a year would be $2.09½. You’re going to travel an estimated 3,000 miles on the next load you’re considering. Just in your fuel costs alone (based on 5 miles to the gallon), your cost calculation would be $183.00 short of what it will really cost you to haul this load. Add this to the other expenses that have changed over the past year, and you could be taking loads that are a losing proposition and not even know it.

It’s very important to keep up with what it costs you to pick up, transport, and deliver each load you haul and how it stacks up against the money you’ll receive on the load. To do this you must use the most recent figures available in your cost-per-mile categories. These categories include any expense item that occurs once you have turned the key to the ‘On’ position and started your truck engine. You should look at expenses such as fuel, PM service, truck washes, fuel and ton-mile taxes that you paid last month. These should be divided into the actual hub miles you covered in that month. Other cost per mile expense categories like tires, major repairs, non-truck equipment repairs, etc. should be spread out over the expected life of the item.


Example: You purchase a set of steer tires for $700. The tires’ expected useable life is 12 months (one year). You would divide the $700 by 12, so your steer tires are costing you $53.33 per month. Cost per mile is important when calculated in the correct manner. If it’s figured incorrectly, it will only create financial havoc in determining profit potential. To accurately calculate your cost per mile as it pertains to each load, you take the most up-to-date totals of your cost per mile expenses (I suggest last month’s totals), add them all together and divide them by the number of hub miles you traveled that month. The answer is your current cost per mile. It’s very important you recalculate your Cost per Mile at the beginning of each month using the previous month’s cost per mile totals. Now you have the first factor in figuring your load break-even point.


Another area of expense categories needed to calculate your break-even point is the fixed costs, or as I call it, Cost of Ownership. Items which belong in this area would be any outlay that occurs while the truck is sitting idle. In other words, if it has to be paid while you’re on vacation, it’s considered a fixed cost. Some of the items that need to be in this area are: truck insurance, base plate, FHUT (Federal Highway Use Tax), loan and credit card interest, equipment depreciation, internet fees, cell phone, business taxes. Some of these items are paid just once a year, some are paid quarterly, others monthly, and others are even paid out weekly.


The easiest and most effective way of arriving at your Cost of Ownership per day is to list all your fixed cost expenses in the month they occurred in the correct category over the last twelve months. Total all twelve months of each category, and add each of these category totals into a single total of all your fixed costs over the past twelve months. Divide this total by 365 to arrive at your Cost of Ownership per day. Now you have the second factor in figuring your load break-even point.


The final area is called Shipment Specific Costs. These costs don’t apply to every load or shipment you haul but come into play on specific loads. This area includes such expense categories as tolls, labor, special equipment costs, special permits, etc. It’s very important to list these expenses separately from your Cost per Mile and your Cost of Ownership. If these expenses were factored in to either one of these areas, the resulting answer would be incorrect, because these Shipment Specific Costs apply directly to the load to which they are being expensed. The importance of separating your costs into the correct area is critical in determining the true profit potential of any load. Now you have the third factor in figuring your load break-even point.


Now that you’ve figured the totals for your Cost per Mile, fixed Cost of Ownership and your Shipment Specific Costs, all that is left is to determine the amount of time and the number of miles required to complete the load in question. The most important item in determining each load’s potential, is knowing how what you will be paid compares to what it will cost you in both money and time to complete.


Ask yourself:


What is the total revenue I will receive for the entire load?

How many days/hours will it take me to complete this load?

How long did I sit between loads? (days/hours)

What are the actual rolling miles to be covered by this load?

What are the Shipment Specific Costs?
By having correct answers to these questions, you will begin to analyze each load’s profit. This enables you to make the ‘thumbs up or down’ decision as to whether a load is worth your time and effort.
You, as the owner-operator, are a trucking business executive. To manage your truck like a business executive, the money you receive for hauling each load must be in line with your costs in order to be assured profit is made when the load is complete. Remember, it’s your truck, your business.


For more information on this subject and other trucking business subjects go to www.truckersbookstore.com

Don't post Tim Brady's stuff. People might figure out where my business ideas come from. :wink:



Rev; has Tim's home phone number in his cell phone, but if Kevin Rutherford gave him his phone number, he'd throw it away.

Kevin Rutherford is a fraud and snake oil salesman.

Are you a POLAR Club member? If so, have you taken part in the workshops? If so, what is your opinion on them? I was thinking of doing the free trial to check it out.

No, I've never done his workshops, but I had lengthy conversations with him when he was first setting them up.

Kevin Ratherfake, what a joke :lol: :lol: :lol: :lol:

Gave me a headache, I sometimes have to do all the analyzing of a load in a few minutes or less. I guess 34 years of practice helps. I figure if it pays 3 to 4 times what it cost me to operate and doesn't go to a bad area then I look a little closer, but you need to figure fast, the good stuff don't last.

In all fairness, it gets easier with time. I remember the first few loads I booked with agents at LS. I'd call them up with my notebook and calculator in hand. Before I could even start punching numbers into the calculator, they were asking me "So do you want the load or not?"

Needless to say, eventually I got to the point where I knew immediately upon hearing the rate if it was worth hauling or not.

If you have to figure it out to the last penney per mile you are cutting it to close. Some people over analyze, to much education can be bad. Kevin has a tendency to micro manage but he can make money on mileage leases,

I prefer to deal in dollars per mile, not cents per mile.
I might not be able to tell you how many miles I ran last week, but I know how many dollars I earned. I here to many O/O's saying they need miles and work cheap just to get miles.

You just said more that a mouth-full right there. :wink:

Nah, I'm just anal.:lol:

When I was still leased to Graebel, I'd call dispatch to get a load, and I'd make them tell me to the penny what everything paid. When I got paid on the load, I'd make them tell me to the penny what it actually paid me. I've submitted revenue disputes over a couple of pennies. :lol:

I agree - I have no idea how many miles I ran last week. I'd have to look at my ledger to find out.

I like the way Heavy Duty thinks. http://i97.photobucket.com/albums/l2...nd10/thumb.gif

I can't speak as an O/O, but I can say after running a construction business 20-some years, I learned a similar lesson. I started out bidding jobs to the penny, (free estimates) and taking jobs cut too close. Then I wised up. I learned to bid fat, and take only work that I knew from experience would profit me well beyond the penny counting. My clientele went from "stealing milk out of a babies mouth", to "money is no object" customers. It was part from learning costs, and part from learning to say no.

No doubt that first couple years is tough. You have to get past the freshman status, and find your confidence to choose contracts quickly. Mistakes in the beginning can hurt you more, because I think any new business counts the pennies, to learn what works for them. Learning to deal with the competition takes time too. As mentioned, the better loads get snapped up quickly.

What is my load break-even point per shipment?
What do I need to charge each customer to reach these points?

That was figured in the last thread according to rev it is $1.22/mi.

The customer needs to be charged $1.22/mi plus whatever it takes to make a decent living. I'd think a decent wage is around $0.50/mi which is approximately $4000/mo. Of course, more is always better.

Once you establish your TRUE operating costs and minimum profit you want to make it is easy to make a decision about a load. Of course, you also need to know something about the area where you plan on running. I have a minimum haul rate for which I will run my trucks. That rate will change according to area of the country based upon how difficult it is to get out of the destination. I will usually know that it is difficult to get out so I will take that in to consideration when taking a load. For instance, Florida and New England are two difficult areas to get loaded out with a decent rate. Sometimes there is little coming out, period. So when I take a load to those areas, my rate goes up considerably over what I would take a load to the Midwest or some areas of the Southeast.

It still seems to be a difficult concept for some owner operators to not equate miles with money. There is still a correlation, but when you have to worry about a few cents being the difference between making a profit or losing money, you are already in trouble. I think much of the problem lies in running at a too cheap rate. I have been doing more deadheading the last several months due to cheaper rates. When I look at taking a load, I also check the deadhead miles. If you take a load for $2/mile and you deadhead 25%, then you are actually running for $1.50/mile. If your deadhead is 10%, then you are running for $1.80/mile. There are a lot of owner operators who never give any thought to the cost of deadheading. When you look at what a load pays, you also need to look a the deadhead, on both ends.

I would imagine you also have to take in account how much extra work may be involved in a particular load, vs. another. How much time certain accounts spend to load or unload.

Even as a company driver, I immediately cringe when I hear I'm taking a certain account. I know how much harder I am going to work, and wait.

You are right, Roadhog. I charge extra for tarping a load. Some brokers don't want to pay extra, but it is an added service and should compensate the truck for the extra time. A few weeks ago, I turned down a good paying load because they didn't want to pay me to tarp it. Some owners will take a load for a cheap rate and tarp it for FREE. If you pull a flat bed you should be charging extra for tarping, unless you just like working for free. It can take 2-4 hours to tarp some loads. If it is a high load, there are also risks associated with standing 13' off the ground wrestling with tarps. There are also loads that can rip your tarps. I had one not long ago that ripped two of my tarps. It was an over-sized load and they wanted it tarped. We padded it as best we could, but still had damaged tarps before getting to our destination. Sometimes, you will damage tarps no matter how well you try to protect them. If you don't charge extra for the tarping you will be taking money away from your rate to either replace or repair your damaged tarps.

I do take my time into consideration when it comes to certain accounts. If I know that I will be waiting for a longer time than I should, then I will take that into consideration when I quote a rate. In fact, there are some shippers that I will not do business with because they don't value my time and don't want to pay detention.

Well, no. You're wrong again.


Just because my operating costs is one number doesn't mean daddy's operating cost is the same. You want to take other peoples numbers and call them your own. Get out a calculator and do the friggin math. If you don't know a number, call dad up and ask him. After all, you could easily find that the $1.22 is really $1.30, in which case you are short.

JEEZ. :roll:

Okay, so let's assume his break even is $1.30. The fact is he is making money if he averages $1.31/mi or $2.30/mi.

Why would we "assume" anything?

Of course he would. At $1.31 per mile, I, plus every other taxpayer, would end up paying him because he would be a welfare recipient.

$0.01 per mile X 108,000 miles per year = $1080 per year for wages, $0.00 per year profit.

Still sounds like you are trying to justify hauling cheap.

You Dad should be getting at least $2/mile in the areas where you stated that he is running. I have been getting a lot of calls in those areas the last couple of weeks, in the $2/mile range, without any negotiating.

I assume because I do not handle his books. I know his major costs truck payment and insurance and some of the small costs, but do not know how much for example his last oil change cost or the exact amount he spent to change out a tire he blew last week.

If I were planning to enter the business I would have no idea the exact expenses I would incur. However, I could assume my expenses would be similar to what your are or similar to what my fathers are.

I'm really not even sure what the definition of cheap freight is, but if cheap freight is less than the break even my father won't haul it unless it gets him to better freight. I absolutely know he will not deadhead over 100 miles unless the freight needs to be picked up now or the freight pays to cover the deadhead.

Dad's probably not going to be collecting welfare anytime soon. He has rental property in three States. He just bought some property in WA where he'll be building a home to retire.

He got $2.30 last week going from Nashville to FL.

He doesn't post his truck on the boards he just calls or has me call or has mom call.

He'll be between Decatur and Springfield IL on Tuesday so he'll be looking for some $2/mi freight. He doesn't like to tarp, can't haul steel coils, and prefers not to run hills. He also doesn't like short haul stuff. For example I know he will want to go from there to near the max of his radius because he doesn't like to wait for shippers to load.
I report on what he gets and what he gets it for.

I would not go to Florida for $2.30/mile. I am curious, though. You say that your Dad doesn't tarp, doesn't want to drive in hills, can't haul coils and doesn't want to haul short runs? Why is he pulling a flat bed? With so many restrictions, I am surprised that he is even in this business. I would say that at least 50% of the flat bed loads require a tarp.

He can tarp, but he'll take a load that pays less so he doesn't have to tarp. He'll take loads going to the mountains, but only if it pays more than a load staying on the flat land. He'll take short runs to get home or to get to better freight.

charged,

Why no coils, insurance restriction?

Progressive doesn't let him haul steel coils because he is brand new. I'm not sure when the 500 mile restriction and the coil restiction will be lifted. I'm guessing after a year or two.

Well I call BS on what some of you are saying...

Tarped loads generally pay more anyway and trying to get MORE for a tarped load is almost impossible. There are people who say they get more to tarp but that is BS most of the time.

Also the going to FL deal....BS on over 2 bucks a mile. Some of you may be getting it NOW but a year ago you were not....I would NOT go to FL for less, but some on here have went for MUCH less than that. Even though the fuel is higher now than a year ago does not make a difference with FL. That should have still been at least 2 bucks a mile.

Some of you need to practice what you preach.... :roll:

tootie

I didn't think about Progressive restricting him to haul coils. That makes sense. From what others have posted I would think that they would eliminate that restriction after a year. Coils can be tricky. They need extra care when securing them. I would try to have someone show me how to properly chain them down before getting involved with them. To tell you the truth, coils haven't been paying that much for a while. They have done well in some areas, but are still nothing to brag about. Now is a time to start making contacts and establishing relationships. Your Dad is in a good position to get some regular runs and work with the same people. He might even get a dedicated run. A few years ago I had a driver on a regular run coming out of Chicago going to Birmingham and back again. It paid very well. The problem was with the driver. He lived in south Georgia and it was too much of a hassle to get him home along with the extra expense. If I had someone living close to the travel lane, it would have been perfect.

My dad is a nice guy. He isn't as abrasive as I. He keeps notes of brokers who paid well and calls them for loads when looking. When he was thinking about becoming a driver he went out with a friend of a friend for a week. That man hauled coils. So, I'm pretty sure he knows how dangerous they are and how to secure. He's talked about getting some coil tarps when he is finally able to haul coils.

Those coil tarps are great if you haul a lot of them. He could also buy a side kit. If you haul a lot of steel you can't beat a side kit. When I regularly pulled it, I rarely pulled the kit down. I have had a couple of drivers who preferred to keep it down and tarp. There are some good paying loads which require side kits. It can save a lot of tarp time.

GMAN, You get paid to tarp, but do you untarp for free, a $50 tarp charge is only 25 on 25 off :D :D :D
I have a very good deal with the shipper I haul for quite a bit, I pay them to tarp and when I arrive my piece is wrapped up and ready to go and the consignee get to keep the tarp.(blue throwaways) I don't like to get hot and sweaty like notsteve.

Another Hobby Trucker?

And therein lies the million dollar question: Does he know what his costs are? If so, you should know as well, since you are booking loads for him. If not, then he needs to figure out what they are for his specific operation.

He knows what comes out of his check book. He doesn't have a spreadsheet ann plug in all of his expenses when he incurs them and checks daily what he must haul for to make money. Do I subscribe to that method? Not really. I like to know what comes in and goes out. To me it really doesn't matter though as long as one is making a decent wage.

He says he wants $2/mi yet he nearly always takes less. When I have time to look for loads I don't look for loads that pay $2/mi. I look for loads which are close so he doesn't have to deadhead, loads that go into an area where I can get him a load out, if it is close to a weekend make sure the load passes through Nashville. All the while taking into account weight, tarping and running in the mountains. Taking all that into account I have never booked him a load paying less than $1.40/mi and most have been in the $1.80-$2.00 range.

Trucker math at its finest....... :lol: :lol: :lol:

But one doesn't know if one is making a decent wage when one has no idea where the money is going. It sounds as if he subscribes to the Hobby Trucker Method - just do the job and whatever is left over is left over.

Hobby trucker it is then.

Then Steve's the man to give you advice, and I'll leave it up to him from now on. :wink:

Maybe charged should post his queries at other boards, such as TUSA, trucknet, kevin rutherfords board and get other opinions from other O/O's......

Let's see.....


TSUSA: They'll have tons of advice and will be very encouraging. Then they will all eventually reveal that they are no longer O/O's, after having to sell off their trucks due to the cost.

Trucknet: The post will be ignored completely, and will soon be drowned out by political threads.

Kevin's board: One person will post something constructive, and the next 300 posts will all attack that one person who posted something constructive.

I'm throwing Truckers Report in there as well, even though that one is finished already.

Truckers Report: The thread will go along nicely, with lots of debate, and then a modulator will suddenly ban you because they "think" you are a troll.

Looks like I picked the best board to hang out on. :) I signed up at truckers report while I waited for activation here and it only took me a day to get banned because I called another member "slow".