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Fixed Costs
Fixed costs are expenses that your company incurs whether your trucks are hauling a load or are in the parking lot. Fixed costs include expenses like insurance, property leases, permits and other services.
In the chart below, the fictional company Solid’s Trucks Inc. calculates fixed costs by the mile for the month of August. The chart divides each fixed cost by the 10,000 miles that Solid’s Trucks drove that month:
Solid’s Trucks Fixed Costs for August
Monthly Cost Per-Mile Cost
Truck Payment $1,200 $0.12
Collision/Comp Insurance $600 $0.06
Office Lease $1,000 $0.1
Health Insurance $420 $0.042
Permits $350 $0.035
Total Fixed Costs $3,570 $0.357
Variable Costs
Variable costs are the money that your company spends in operating its trucks. These costs include fuel, maintenance, repairs, meals, lodging and other expenses incurred on the road. Variable costs can range greatly from one time period to the next. As you put more mileage on your trucks, you will see the variable costs increase. You should calculate these costs monthly to get the most up-to-date information on how much your company is spending.
Here is how Solid’s Trucks calculated variable costs. Again, the costs are divided by the 10,000 miles the company drove in August.
Solid’s Trucks Variable Costs for August
Monthly Cost Per-Mile Cost
Fuel $1,700 $0.17
Tires $300 $0.03
Regular Maintenance $450 $0.045
Repairs $560 $0.056
Lodging/Meals $380 $0.038
Taxes $275 $0.0275
Total Variable Costs $3,665 $0.3665
Salary
The amount you pay your drivers is likely your single biggest expense. It needs to be part of your calculation of cost-per-mile. Here is what it looked like for Solid’s Trucks in August:
Monthly Cost Per-Mile Cost
Drivers’ Salaries $3,750 $0.375
Total Cost per Mile
To determine the total monthly cost per mile, simply add the fixed, variable and salary costs. Here is the total cost per mile for the fictional Solid’s Trucks in the month of August:
Cost Per Mile
Fixed Costs $0.357
Variable Costs $0.3665
Driver Salaries $0.375
Total Cost $1.098
Knowing your trucking company’s cost per mile benefits you in many ways. It helps identify spending patterns and areas where you can cut back if needed. Cost per mile also allows you to determine an appropriate per-mile rate to charge shippers. Knowing your company’s operating expenses on a per-mile basis gives you the information needed to be profitable.
If your cost per mile seems high, one solution is to take on more work. Not only will this increase revenue, but your cost per mile should decrease. While your variable costs may increase from taking on more work, the fixed costs will remain the same. Here is a fictional illustration of how increased mileage can decrease the cost per mile:
Miles Cost Per Mile
10,000 $1.09
15,000 $0.95
20,000 $0.85
Revenue and Profit Per Mile
To see how cost per mile relates to your company’s income and profitability, refer to our article, How to Calculate Revenue and Profit per Mile.
How to Calculate Revenue and Profit per Mile
There is a proven formula for determining if a load will generate a net profit for your trucking company.
Profit-Per-Mile Spreadsheet
Click here to use our cost-per-mile/profit-per-mile calculator spreadsheet
Your company needs to make money. That's a given. Determining profitability for trucking companies, however, can be a complicated process. As your company grows, it becomes crucial to regularly track how much money is coming in and how much is going out. Calculating revenue and profit per mile is the key to understanding your company’s overall financial health.
Your first step is to carefully track your expenses. You can learn more on how to do that by reading our article, “How to Calculate Cost per Mile for Your Trucking Company.” Once you have a handle on cost per mile, you can examine your company’s revenue. Subtracting cost per mile from revenue per mile will determine the net profit (or loss) of every mile your trucks drive. Accounting software such as QuickBooks, FreshBooks and Xero can help you make these calculations for less than $20 per month. If you have specific questions about calculating revenue and profit per mile for your company, it is also a good idea to consult a certified public accountant.
The following sections use fictional charts to illustrate revenue and profit per mile. These charts serve as examples that may not reflect all your company’s income and profitability. The final section addresses how you can use this information to build a sustainable, growing business.
Revenue per Mile
Revenue per mile determines how much money your company is generating for the services it provides.
In the chart below, the fictional company Solid’s Trucks Inc. calculates revenue by the mile for the month of August. The chart divides the revenue by the 10,000 miles Solid’s Trucks drove that month:
Solid’s Trucks Revenue for August
Monthly Revenue Miles Driven Per-Mile Revenue
$13,500 10,000 $1.35
Profit per Mile
In our article examining cost per mile, Solid’s Trucks added all of its fixed costs, variable costs and salary expenses for August. That added up to a total cost per mile of $1.098 for the month. To determine the company’s profit per mile, subtract the cost per mile from the revenue per mile:
Revenue ($1.35 per mile) – Cost ($1.098 per mile) = Profit ($0.25 per mile)
In the month of August, Solid’s Trucks posted a per-mile profit of 25 cents. That amounts to a healthy 19% profit margin on the $1.35 per mile in revenue.
How This Helps Your Business
Knowledge is power in the fast-changing trucking industry. You need to identify what markets to serve and which lanes that will generate the most revenue. It is equally crucial to know how much money your trucking company needs to charge in order to post a profit. Understanding how to calculate cost, revenue and profit per mile arms you with information you need to successfully negotiate rates with shippers and brokers.
While the example of Solid’s Trucks focuses only on the month of August, you need to know your company’s financial position over the course of several months. Industry factors like seasonal demand, weather conditions, fluctuating fuel prices and deadheading miles all need to be taken into account. For example, your company might have operated at a loss in January and February due to maintenance costs and severe weather. That means you need to adjust your rates for the summer months to ensure your company makes up for those losses.
There are several aspects to financial management for your trucking company. It all starts with knowing what it takes to be profitable. Calculating cost, revenue and profit per mile is a key step to putting your trucking company on the road to success.
Basic Accounting For Trucking Companies
You do not need to be a financial wizard to run a successful business but understanding the basics of accounting is definitely important.
No matter your fleet size or how long you have been in business, it is crucial to understand basic accounting terms and financial documents. Accounting explains your company’s financial history, health and overall performance. Without a good understanding of this information, you won’t know if you are succeeding or failing. That limits your ability to make informed decisions, operate effectively and position your company for future growth.
Common Terms
To get started, here are a few basic accounting terms and definitions:
Assets
An asset is something of value that your company owns and can be converted into cash. This can include current assets such as accounts receivable, inventory and available cash. It also includes fixed assets like real estate, buildings and equipment.
Liabilities
Liabilities are the debts and obligations of your business. They can include money owed on a loan, accounts payable, employee wages or taxes.
Equity
Equity is your ownership interest in the business. In accounting, equity is calculated when a company’s liabilities are subtracted from its assets. Whatever remains from that calculation is your equity. When liabilities are larger than assets, negative equity exists.
Revenue and Gains
Revenue is the amount of money that a company receives over a given period of time for the services it provides. On an income statement, revenue is also known as top line or gross revenue. Gains are one-time increases in revenue that are not part of a company’s regular operations. Some examples of gains include the sale of equipment or real estate.
Expenses and Losses
Expenses are what it costs the company to perform its main operations. Losses are one-time transactions in which the company sells an asset for less than the amount it spent to acquire the asset.
Financial Statements
Understanding financial management involves some familiarity with financial statements. The three most common documents that companies use to gauge their financial health and performance are the balance sheet, the income statement and the cash flow statement.
A balance sheet is a snapshot of your company’s financial standing at any given point in time. It measures the relationship among assets, liabilities and equity. It also calculates your company’s debt load and overall financial health.
Solid’s Trucking Company: Balance Sheet, January 1, 2020
ASSETS
Cash $900
Accounts Receivable $1,400
Equipment $6,000
Real Estate $10,000
Total Assets $18,300
LIABILITIES
Notes Payable $1,200
Accounts Payable $600
Accrued Wages $800
Total Liabilities $2,600
OWNER'S EQUITY
Kevin Smith $15,700
Total Liabilities/Owner's Equity $18,300
The income statement shows how money flows through the company over a period of time. It measures sales against costs. Unlike the balance sheet, the income statement covers a certain time period (usually a month, a quarter, or a year).
Solid’s Trucking Company: Income Statement 2019
REVENUES AND GAINS
Revenues $50,000
Gain on Sale of Equipment $5,000
Total $55,000
EXPENSES AND LOSSES
Expenses $40,000
Loss on Sale of Equipment $500
Total $40,500
Net Income $14,500
A cash flow statement shows how much actual cash the company has on hand. It also projects future cash flow. This is an important statement for small businesses and entrepreneurs because it shows a company’s day-to-day financial health. While the income statement shows how your company performed in the past, the cash flow statement shows how cash is being generated or used. A company can show a profit on its income statement, yet still go out of business because of a temporary negative cash flow.
Solid’s Trucking Company: Cash Flow Statement, January 2020
OPERATING CASH FLOW
Net Income $14,500
Depreciation $1,000
Gain on Sale ($4,500)
Change in Receivables $1,000
Operating Cash Flow $12,000
INVESTING CASH FLOW
Proceeds on Equipment Sales $6,000
Equipment Purchases ($600)
Investing Cash Flow $5,400
FINANCING CASH FLOW
Payments on Loans ($7,000)
Distributions to Owner ($4,000)
Financing Cash Flow ($11,000)
NET CASH FLOW
Operating Cash Flow $12,000
Investing Cash Flow $5,400
Financing Cash Flow ($11,000)
Net Cash Flow $6,400
Using Accounting Software
Using software for accounting can help you manage the different components you need to determine the financial well-being of your company. For smaller or growing companies, it may allow you to operate without needing an in-house accounting department or accounting personnel.
