Tractor-Trailer Ops- Basic Profitability Norms
When you look at books written on business planning and information in this site, you will find that the most important part of any plan is the financial plan. When doing a financial plan, one must not only relate reality to numbers, but also convert them to monthly and annual dollars.
COST PER MILE
You often hear that knowing Cost Per Mile (CPM) is important in your business. This is true for a couple of reasons. First, your major costs are directly related to CPM. In other words, your monthly or annual “dollars” cannot be projected unless you know your CPM. These issues include your revenue, fuel surcharge, fuel costs, road & fuel taxes, maintenance escrows and any on-road payroll.
The second reason CPM is important is that you can easily compare: your numbers to your past experience, between different trucks you operate in your fleet, to others operators, and to industry supplier projections. Attention to your “pennies per mile” is the second largest way to improve profitability behind utilization.
From an operators standpoint, it takes a mix of monthly / annual and CPM numbers to fairly compare different contracts, assess improvements and link that to a driver’s salary. At the end of the day, the most important number is the bottom line DOLLAR income amount.
We have taken the major costs in a typical over-the-road business and converted them to a basic industry format and calculated the norms. They are a result of averaging a significant database of actual fleet and independent contractor operations data, along with that from the various industry suppliers.
Your numbers will vary with your type of operation, number of trucks, age and type of equipment, region of operation, whether services are done internally or outsourced, and also with the qualifications noted in each issue. This information should be used as a planning tool and adapted to your specific operation.
We have segregated our overview by Revenue, Fixed Expenses, Variable Expenses and Net Profitability. Feel free to click into each page (above) and use our information to think through your business.
A NOTE OF CAUTION
Do not be surprised to find that your numbers do not directly compare to other businesses, as others most probably account differently for the various costs than you do. You see this same issue when you try to make sense of published numbers from major fleets. The devil is in the details.
This information should be used as a planning tool and adapted to your specific operation.
Remember the following issues when you compare numbers…
– There is more to profitability than just revenue and deductions
– Profitability is affected the most by utilization (miles)
– Once you have your miles up, then lowering fuel costs have the second largest impact on profits
– Then you can go through the rest of your numbers because the “pennies per mile” do add up
Remember that – FIGURES LIE AND LIARS FIGURE – when looking at others numbers
– The key to success is to focus on what you are good at
– Then create strategic relationships for the rest