How to Calculate Cost for Your Trucking Company

Why is it important to calculate truck shipping costs?

Operating your truck or a trucking company without knowing what it costs to run your truck is a bad business practice and is never a recipe for success. It might work in a hot market where you are being paid well above what your operating costs are. But as soon as the market tightens up or an unforeseen financial event hits your company, it will quickly show that it was necessary to understand where your costs are coming from and how you can find areas where you can minimize your cost to ensure you are still making a profit. We all know that the nature of the market in the trucking industry consists of hot periods or months and it slows down during certain months of the year. Knowing this and preparing your strategy for cost optimization before the market change occurs will allow you to traverse through the ups and downs of the market as they come and go.

What must be considered when you calculate trucking rates?

When you first begin calculating your truck's operating costs or if you are planning to purchase your first truck to start making a profit from your truck running, you first have to gather all the costs that come with running a truck either on paper or using an electronic calculator. Online you can find plenty of calculators to calculate truck freight shipping price that will help you get a clearer picture of what other trucking companies charge to run a shipment. There are also calculators and spreadsheets available that will account for all the ordinary expenses a truck owner can expect to pay for operating their truck. Once you have calculated your truck's operating costs, it will become much easier to understand how much you should charge brokers and shippers when asked to quote your freight truck shipping rates.

What to consider when quoting truck shipping rates?

Many factors come into play when it's time to give a customer or broker your shipping rate to move their products. Knowledge of the day's supply and demand of trucks in the area that you are in will help you to better understand if your truck is needed by multiple parties which increases the rate that shippers and brokers are willing to pay to ensure that their commodity is moved that day instead of losing the opportunity to another party that was willing to pay more. If you are in an area with plenty of trucks that match your criteria and are all willing to go to the locations that you are, brokers and shippers will have plenty of options to move their freight that day. Take this into consideration when quoting your rate because it will be better for you to move your truck that day, make a profit, and have your truck in a different market area the next day. Some days you will make a killing and other days you will need to be competitive with your rate to make a profit at the end of the week or month. Other considerations such as inclement weather conditions affecting the country can create profit opportunities if you are willing to take on work that other trucks are not willing to do. Something as seemingly unimportant as the Super Bowl being played this Sunday can also create an opportunity for extra profit made that day if you are willing to move freight when other drivers are not.

How to Calculate Your Operating Cost

Three factors need to be accounted for when you want to find your "all-in" cost per mile. These factors are called fixed cost, variable cost, and salary if you have an employee running the truck for you. You have to know how many miles that your truck runs on average or the number of miles that you expect to cover in an upcoming time frame such as a month. Once you know this, you can divide any cost that you have by the estimated number of miles to arrive at a "cost per mile" price. For example, let's say your monthly truck payment is $1,200 and your truck runs 8,000 miles per month on average. So your truck payment would be responsible for $0.15 of your bottom line per mile driven. Once you understand how much each of your expenses cost per mile, you can add all the costs together to reach your total cost per mile or all-in cost. You can use programs such as Quickbooks or Xero to help you with all of your accounting needs.

Fixed Costs

Fixed costs or fixed expenses are defined as costs that are constant and recurring, unaffected by the lack or surplus of miles that were driven. Think truck and trailer payments, insurance premiums, many permits, license plates, property leases, and parking expenses. These costs will need to be paid whether your truck drove more miles than expected this month or your truck is in the shop for the month and no revenue was made. For costs that are made yearly, you will divide that cost by 12 to equal what would be a monthly payment. Take license plates for example which are usually paid for every year.

Variable Costs

Variable costs are your costs that will increase or decrease based on the number of miles driven. This category contains fuel, broker fees, tires, maintenance, telephone, and meals. Fuel is the greatest example of a variable cost because the more miles that you drive then the more fuel you will have purchased. The largest variable costs that you will incur will be fuel and broker fees. Working on conserving fuel and optimizing your routes while also making your best effort to work directly with shippers cutting out the middle will be the areas to focus on to lower these costs and keep more of your profit margin. You should calculate your variable costs monthly for more accurate results because the amount of miles that your truck runs is different each week and one week's variable costs could be drastically less or more from the previous week.

Salary

If you operate a fleet of trucks or just have one driver running your truck for you, their salary needs to be included in your accounting as well. This will likely be your largest single expense in your books. Drivers are usually paid per mile so you would just add that on top of your fixed and variable costs to get your total cost per mile.

Once you enter into business for yourself, you can't rely on wishful thinking and hopeful optimism to succeed in business because you don't have the privilege of turning a blind eye towards accounting for your truck's expenses anymore. When you have your truck's expenses laid out in front of you, you will be able to see the key areas that you can focus on to reduce your operating costs and increase the amount of money that you can keep from running your truck. This will also help in allowing you to give brokers and shippers quotes on shipments without wondering if you will make a profit from moving their shipments.