Managing cash and controlling costs are important elements to building a successful trucking operation. Today’s trucker must use every tool at his or her disposal to ensure they are operating as profitably as possible. One of these tools is the ability to calculate both revenue per mile and cost per mile.
To determine cost per mile for overall operation, divide your total cost of operation by the number of miles you ran. This should be calculated monthly and year-to-date to get the most accurate figure. Once you determine the cost per mile to operate your truck, you can use that number to determine when a particular trip or load is profitable. Let’s assume your cost per mile is 79 cents.
Next you’ll need to know how to calculate your revenue per mile. Take your total revenue (income) and divide by your total miles. This calculation will give you the revenue per mile, or in other words how much you make for every mile you run. Let’s say your revenue per mile is $1.40.
Now that you know both the revenue and cost per mile, you can calculate profit per mile. Take your revenue per mile of $1.40 and subtract your cost per mile of 79 cents. That would tell you the average profit per mile is 61 cents.
Now, with these calculations you can always determine in advance the profitability of a load. Take the total amount a job pays (this is your total revenue), then divide by the number of miles the trip will take and you will have your revenue per mile. Let’s say a load pays $2,500 and the trip is 2,350 miles; the revenue per mile is $1.06. You now know it costs an average 79 cents per mile to run. If you accept this job, you will only make 27 cents per mile, that’s less than half of what is needed to match your average profit per mile. When doing these calculations be sure you include all the miles traveled including deadhead. If you don’t include unpaid miles you won’t have an accurate number.
The cost to operate your business is something you want to continually review. The more accurate your expense records, the more successfully you can manage your business. You must be able to project needed revenue vs. expenses. Will you have enough cash flow? Are you within budget? Will you be able to qualify for a loan? Is your cost per mile creeping up each month? Why? The only way to increase your profit is by either cutting costs, increasing revenue or a little of both. A few cents shaved off your cost per mile can mean a lot if you run 100,000 miles a year.
It is important to be able to identify all costs in relation to your operation. All business expenses, no matter how small, should be tracked even though they may not be deductible for tax purposes. For example, for meals on the road, you may use the per diem allowance for tax purposes, however, when calculating cost per mile you will need to keep track of your actual meal expenses.
You should break down costs into three types: fixed, variable and individual variable. Fixed costs stay the same regardless of the miles you run. Examples would be equipment payment, taxes, license, permits, insurance, etc. Variable costs are mostly operating expenses, and these will vary month to month. Examples would be fuel, oil, repairs, maintenance, tires, tolls, scales, etc. Individual variable costs differ with each individual operation. In general, variable costs apply to most trucking operations whereas individual variable costs do not. For example, you may pay driver wages or lumpers, and another trucker may not. You may do your own bookkeeping, but your buddy may pay an accountant to do his. Even if you’re not entirely sure what category to use, be sure to keep track of every expense.
Now that you know what to do, how do you use it? Aside from using your calculations to determine the profitability of loads you can also use the numbers to predict future costs, analyze past performance and cost out equipment purchase comparisons. When it comes to being successful, you have to operate smart and use all the tools available to you. Consult your tax advisor for more information.
This article has been presented by PBS Tax & Bookkeeping Service, a company that has been providing income tax and bookkeeping services to the trucking industry for more than a quarter century. Contributions to this article were made by Shasta May, Director of Business Development for PBS. If you would like further information, please contact us at 1-800-697-5153. Visit our web site at www.pbstax.com. Please remember, everyone’s financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult with your own tax or accounting professional.