How To Figure Out Operating Costs...
 

Folks i'm sorry but i just can't stop flirting with the idea of buy my own truck 2 to 3 years down the line... I know this has probably been discussed plenty of times on this board but i couldn't actually find a thread containing the information i was looking for so could someone break this down for me... For example..

if i went out got a truck for lets say 25,000 with down payment of 4,000 (with interest i guess payments be about for a three year range 600-650 a month) a decent flat bed trailer for around 4,000 cash or maybe less... how would i figure out my operating cost?? I've been playing on the Load Broads lately and in and around the Virginia area most of the loads that post dollar figures are paying around 1.60 and up.. is that good?? i remember GMAN i believe saying to make a profit $2 is a min!!

One more thing is how do i figure out the deadhead cost per mile??

Please i'm just a young lad trying to get led in the right direction, i just truly want to be my own boss and maybe even own a small fleet of trucks one day (All flat top pete's that is lol)

Good question Hawkjr. I would kind of like to know all of that stuff and more myself. Also, I don't quite understand fuel surcharge.

There are many ways to figure out your cost, that's why rates are all over the board. Some strictly figure cost per mile. I do not think this is a wise choice, as it does not take into account multi-drop loads or short hauls. Deadhead should always be figured in cost, as you're paying for this.

What works good for me is having fixed costs figured per day, and variable costs figured per mile. It works like this:

Days on road per month - 20

Truck Payment - $1600
Trailer Payment - $800
Insurance - $800
Other(accountant, etc..) - $300

So now we're up to $3500 per month, and we haven't even turned the wheels. We divide that amount by how many days we're out(on average):

$3500 / 20 = $175 per day

Now figure in variable costs:

Fuel @ 2.50 a gallon and 6 mpg = 42 CPM
Maintenance = 15 CPM
Driver = 45 CPM (figuring in drop pay, as well as source deductions)
etc..

Let's use 105 CPM for variable costs

Say it is Monday morning, and you want to pick up a load going 1000 miles, and it delivers Wednesday morning, how much is it going to cost?

$175 per day X 2 days = $350
1000 miles X 105 CPM = $1050

$350 + $1050 = $1400

Keep in mind this is oversimplified, and I've neglected many costs that you might have. But the basic calculation is correct. Too many people calculate cost simply based on cost per mile.

Do you plan on going out on your own? I would suggest maybe go on with landstar first, they are about the best way to get a feel on rates/lanes etc..

As far as deadheading, or a "backhaul rate", you always have to look at the big picture. If you're going up to Fort Mcmurray there's at least a 240 mile deadhead out of there, and even then the rates are ****. You always need to average it out. Pad the cost of heading out of Florida on the rate going in. Better get a good rate going in!

To avoid confusions, that might be costly, I'd suggest you treat all miles(actual) the same. Whether it loaded, empty, or personal. It's still a mile, you'd have to run.

I would not expect to find a good flat bed for $4,000, but with the down economy you never know. I would expect about $8,000. If you have the cash and can get to an auction you could find one for much less than you may from a dealer. A motivated owner is another way to get a good deal. Rates are fairly low these days. Rates will vary according to where it goes and how badly they need it moved. I don't recall having said anything about a $2/mile net on a load. There aren't that many loads these days that are paying that much gross before any expenses. There is no way to accurately predict how much profit any single owner will earn because everyone has different expenses and various levels of management expertise.

There are a few things that come to mind that I don't recall being listed. Pm's and tires. I usually allow about $0.025/mile for pm's and $0.05/mile for tires. There can be times when you may spend more, but we are talking about averages and projections. For instance, I recently had a driver who blew 3 tires on one trip. One tire was new. He drove less than 200 miles when he blew the third tire. There were other expenses on this trip and he is no longer with us. When you own and drive the truck you will likely take greater care than a driver.

One other cost that I would recommend are related to major expenses. One reason so many owner operators go out of business is that they fail to put aside enough money to take care of major breakdowns. Transmissions, clutches, turbo's, rears and engines are major costs that will happen when you own a truck. I have had several former owner operators who have lost everything when they had a major component failure. When the breakdown happens they didn't have the funds to make the repairs. Some allow from $0.08-0.15/mile for their maintence account. This is for major expenses such as those listed.

I think he meant $4000 down...

Then you gotta worry about a company going broke and leasing on to Martin cause they were the only one hiring but only getting 6,000 miles in 26 days.Thats only a little over 1600 a week.Now I have to find another place to lease on to or never go home so they cant take your truck

I'm to where I just about can't stand the guy, but start listening to Kevin Rutherford. Maybe even get some of the DVD's he sells or attend one of his seminar/class type thingies.

He has the basic idea of how to be a successful O/O pretty well wired. He's so far off base on his politics- telling people to read Ayn Rand so they can see how glorious capitalism is, that I want to puke. But I believe he does know how to run a truck.

It almost makes me wonder if GMAN is Rutherford in drag.

My idea of how to be a successful O/O in this economy is to keep my money in the bank and not buy a truck.

DRAG???!!! Hardly. You do know that it is just an avatar? It isn't real. Besides, I have more hair. :smokin:

Im shocked no one said anything about steve booth yet:confused:

Bad part about Kevin is he teaches you to haul cheep freight.

There is no need to mention him. As far as I know he is no longer in the business. It is a difficult industry with a very high failure rate.

Whoops- sorry I found a tender spot- lol

I don't see anything wrong with hauling "cheap" freight as long as you can do it profitably.

Rates will be "cheap" as long as the transportation industry remains deregulated and without significant barriers to entry.

The low cost producers will thrive, the others will perish. It's how capitalism is supposed to work.

I haven't communicated with him in a bit, but I know he still has his truck & the last I heard Mr. Hobby Trucker Himself was planning on being back out on the road by now.

Very well put, and I'm glad to finally see someone who is calculating by the day rather than simply calculating by the mile. The only thing I would add to what you've put above is rather than calculating based on projected days per month you plan to run, use the entire calendar to calculate your cost per day.

In your example, you used $3500 per month as your fixed expenses. Take $3500 and multiply by 12 months, to get a yearly fixed cost of $42,000. Then divide by 365 to get a cost per day of $115.07.

Now say you're going to run that load on Monday that delivers on Wednesday. Add in the two days it will take to run the load, PLUS any days prior to the load when you weren't operating. Let's say you ran your last load on the Friday before. You'd use 5 days to calculate your fixed costs (Friday through Tuesday). That would give you a fixed cost of $575.35.

Basing your fixed costs off of something constant like a calendar eliminates the guesswork of projecting how many miles you'll run per week/month/year. That way you know EXACTLY how much it will cost to run a load when you add it to your variable costs, which should always be calculated by the mile (since the only time you have the variable costs is when the truck is moving).

Doing it this way will eliminate any miscalculation if you don't run your projected days per month, as the calendar stays constant. Except of course for a leap year.;)

I agree. A lot of people don't seem to get this.

Fixed costs should calculate by a time period (Day, week, month)

Variable costs should calculate by the mile (or kilometer).

If you run lots of miles you actually reduce your total cost per mile because you amortize your fixed costs out over more miles. That's why you can afford to run cheaper if you run more miles.

I might add that your "driver wages" should also be on the daily cost. You need X amount per week/month for personal expenses.
When you "loan" yourself the money to pay cash for equipment you should also have those "loan" payments and interest in your daily cost.

There are fixed costs that go on whether the truck moves or not. Payments and insurance are a couple of costs that some don't consider until it is time to pay the bill. If you take a few days off those costs don't change as far as the monthly bill. They can affect your calculations if you use mileage. When I calculate numbers using mileage I use a monthly rate for 10,000 miles. If I only drive 5,000 then my per mile costs will double. From other posts many are not getting nearly as many miles so you need to use figures that are close to actual numbers. For instance, if you plan on leasing to a carrier and they are only averaging 2,000 miles per week for the fleet, then I would use those numbers in doing projections. If you can still earn enough and pay all expenses then you may be able to make it work. If not, then you need to find a way to either lower monthly costs or wait until the economy improves.

Basing costs per mile is only accurate for the past. At best it is a WAG for the future. With tens of millions of miles of data i still only use it for past costs.

Exactly right. And if there's one thing that is certain in the trucking industry, it's that past performance doesn't dictate future opportunities. Basing your future projections off of something that is completely uncertain is foolhearty.

Although, the business model of "I have money in the bank, so I must be turning a profit" has its allure.

Many don't understand that turning a profit doesn't mean that you're not going broke.

I think you mean cash flow. I have known owners who have had cash flow but went broke due to not making a profit. If you are making a profit you should be able to survive, providing you have included all of your costs or expenses.

I would have said cash flow if that's what i meant.
I'm speaking of someone who's business structure doesn't include an actual payroll(fed,state,SS,medicare,UMC,WC) Your assumed "profit" includes your money's for work. So many go broke turning a profit.

If you have a sole proprietorship you can show a profit without actually having a formal payroll. The business may show a profit, but you could still go broke from not having enough profit to take care of your living expenses and taxes. Of course, if you are not showing enough profit to live then you won't need to worry about taxes.

There are many owners who think that as long as they have cash flow they are making money. I am not sure most owner operators who operate as a sole proprietorship pay themselves a salary or wage. They just spend what is left after they pay the bills. A friend of mine has a sole proprietorship and pays himself $2,000/month. I don't think most sole proprietors do that. I think it makes it easier to distinguish costs when you have a corporate structure. It makes it easier to pay yourself a salary or wage.

That's why i said you can go broke while still making a profit. I think many O/O's would find they are working far below wages if they ran comparison books with payroll and all the other associated costs including the items they fail to consider.

Is there any software out there that can help organize/simplify the operating costs?

Lots of programs for trucks designed by truckers using trucker math and accounting. Much better to use real accounting programs instead.

LOL! I like that answer.

Interesting...

Big difference between a sole proprietorship and a Sub-S Corp. Mainly in the SS taxes, and the scrutiny the books end up getting.

I've been running a Sub-S for almost a decade (non-trucking/home office). Back when we HAD an economy and there WAS CASH FLOW - I'd pay everything except my mortgage, child support, food shopping & medical (doctors & scrips) - out of my corporate account and take whatever $$ I needed for my "personal" expenses as "distributions" - which my accountant would straighten out at the end of the year as W-2 income. I make a payroll tax deposit of whatever my (accountant estimated) personal tax liability (since Sub-S's have no liability - any black ink goes on 1040 sched E) and go from there.

In discussions with my accountant - if I DO decide to go O/O right away - I'm going to run it similarly. Business (corp) pays for everything - EXCEPT - doctors/scrips, rent or storage (since I'm losing my house) - accountant will figure out my personal liabilities at the end of the year. As long as all the BILLS GET PAID, and I get FED - I'm not looking for a helluva lot OVER THAT for the first couple of years (especially in THIS ECONOMY) anyway.

Rick

Actually in an S-Corp you can use the money for any purpose you want. It just has to be adjusted between business and personal at the close of the year.
Regardless of the tax structure if you omit numbers and/or items you will never have an accurate accounting of true profit/loss. There is a difference between accounting P/L and tax P/L. If you don't run a comparison of total payroll cost(one of many items omited) you have an in-accurate accounting of cost. That's why many operate at sub-par wage yet still believe they are at a profit.

this thread makes my head spin...! :confused:

If you don't think like a trucker it won't spin.:)

Actually you will find the same thing in any business. People want to believe they are making money even if they're not.

You should be careful mixing personal and corporate money. It could cause your corporate status to be challenged. If you constantly mix corporate and personal expenses you could be considered a proprietorship if someone wanted to challenge you, such as the IRS or some legal eagle. I have had corporations for well over 30 years. Most have been set up with the S election.

I'm still pretty confused on all of this. I was wondering if somebody could give me some guidelines or links on where I can educate myself better on the topic. Thanks!

There are quite a few trucking specific software packages. Some do more and are better than others. Truckers Helper seems to be a good program. It will do most anything you want in this business including your payroll. They have several versions available depending on whether you are a company driver, owner operator, run your own authority or have a fleet of trucks. www.truckershelper.com. Two that I have are EasyTrucking and TrucknPro. Easy Trucking will do about everything except your payroll, including your fuel taxes. It is not as user friendly as I would prefer. TrucknPro is one that I like. It will do everything except payroll and your fuel taxes, although you can put in your miles and it will print it out for you. All you need to do is put the figures into the state supplied form and do the calculations. www.trucknpro.com and www.easytrucking.com are the two websites. All three should have an online demo or trial. There are others, but these are the three I am most familiar. One thing that I like about all three of these programs is that they will automatically give you your mileage rate for which you are running. Each has their own set of features. All of them will help you keep the books current.

Other than things like equipment payments and insurance, the only way to be accurate on projections is to estimate using some average costs. If you want complete accuracy you will need historical data. When someone is starting out they have no basis on which to do projections or estimates other than using averages from others. I still prefer to look at costs based upon miles since that is the way most of us are compensated. It helps to know your operational costs by the mile so that when you are quoted a rate you will know whether you can profitably take the load or not. It is simple and easy to use. There are some who use a day rate to figure costs. I guess we can each use what is most comfortable for us.

I'll check these out, thanks GMAN.

Is this still good for percentages of the load?

I think so. Your operational costs should not change dramatically per mile. When you work percentage you know before hand where you need to be per mile to break even. When you look at your share of the load you know right away if it is going to work for you or not. If your break even is $1/mile and your percentage only pays $0.90 then you know it will not be profitable for you to take that load. On the other hand if the load pays $1.50 then it may be profitable to take the load. If it goes to an area that has a lot of tolls then it may not be worth it to take that load due to the extra costs of doing business in that area. Your fixed costs can be broken down by the mile or day if you prefer. Since everyone's operation is slightly different each must do some fine tuning to make sure everything works as planned.