- If You Let Revenue By Itself Drive Your Decisions, It May Cost You!!
- Revenue X Miles = $$$
QUESTIONS OFTEN ASKED
- Who has the best contract?
- How long should I wait until I decide to take a certain load?
Many decisions are based on REVENUE alone. As we all know, miles have a bigger impact on profitability than anything else. YOU have the biggest impact on miles. The key is the right mix of revenue and miles.
We will cover some common sense issues that you should keep in mind.
RATE PER MILE – GENERAL RULES
1.) Any time you look at revenue, you need to look at costing out the complete circle (out and back). Simply take your total revenue dollars and divide them by all miles operated in the circle.
2.) Whether you operate a van, flat, dump, reefer or anything else, the shorter the haul, the higher the rate per mile. Utilization is usually less due to time spent waiting, loading, unloading, etc.
3.) Freight into popular geographic areas have a lower rate per mile due to the laws of supply and demand of freight and equipment availability.
4.) Specialized, tank truck, car haulers and household goods carriers generally have a higher rate per mile, as they require more attention and expertise. Again, utilization is usually less.
5.) There is a simple way to compare taking and running with a load versus waiting for something better. In a typical over-the-road operation, every 100 added miles in a given week puts an extra penny per mile to the bottom line.
In other words, loading today and getting 500 miles under your belt, along with adding that to your weekly miles, will net you the same as waiting until tomorrow for an extra $0.05 per mile load (which may never come). This may get you to an area that you are more familiar with, too.
Since miles have the largest impact on profitability (Item 5), we will discuss it first. Most companies calculate their rates using Household Mover Guide (HHG) miles. This is because shippers and carriers quote rates and then invoice from HHG miles. Also, most fleet settlements are based on HHG miles.
You will see a variance from HHG miles to your speedometer of about 6% up to 12%, depending on where you run and how well you plan. This HHG variance will be higher in the East and lower in the West due to the number of routes available.
Off-route miles (using truck for personal use) will add to these percentages. For planning purposes, the best way to assess your utilization is to take your annual miles and divide them into monthly or weekly averages. The industry average for over-the-road operators is about 2,000-2,300 miles per week (8,000-10,000 miles per month).
ASSESSING AN AVERAGE REVENUE PER MILE
For planning purposes, we base numbers off the industry averages for a typical over-the-road Class 8 eighteen-wheel tractor-trailer. The average revenue per mile is around $1.40 per mile (exc. fuel surcharge) for all miles (including deadhead) for a company operating ~2,000 miles per week. This results in billed revenue over $12,000 per month or almost $150,000 per year per unit.
The shipper is usually billed a rate per mile for the length of the trip using HHG miles. When you cost out an industry average of about 10% deadhead miles to pick up the load, the rate looks something like $1.54 per mile for all loaded miles – again without fuel syrcharge. This could be $1.94 per mile one-way and $1.14 per mile back. While many incorrectly base their plan on the “feel-good” $1.94 per mile rate (plus fuel surcharge of another $0.40+ per mile), the complete story with deadhead miles is the aforementioned $1.54 per mile loaded. Again note: Fuel surcharge will add an average of $0.46 per mile at $4 per gallon diesel to the $1.54 base revenue.
If you are leased to a similarly typical fleet and they cover all “hidden” administrative costs, liability insurance and trailers, the industry average rate per mile will be from $1.04 to $1.08 per mile (plus fuel surcharge) for all miles. In many cases, your rate per mile is fixed and you focus primarily on utilization to maximize profitability.
There are also other operating agreements where you can gross more; depending on what administrative services you may perform in your business, including using your own authority. These lease rates vary from $0.98 to over $1.25 per mile, but your costs are higher.
Other revenue that must be negotiated with shippers includes surcharge, extra stops, tarping, unloading, reimbursed expenses, etc. While surcharge is addressed on our “Surcharge” page, the other often-misunderstood issue is extra stops. Some steer clear of extra stops because they think that they lose money, but in general it is something that successful operators take advantage of.
Looking at a typical 2,000 mile per week operation with just 1 extra stop a week at $30 pay, it adds over a penny a mile. Four extra stops per week adds over a nickel per mile. If you are paid more for each stop, the CPM multiplies.
The only considerations are in operations where utilization is at a maximum and scheduling notably affects it. In general, contrast “$0.01+ per mile for every 100 miles utilization” against “$0.01+ per mile for each stop per week.” You can adjust these to your own numbers, but it adds up.
REMEMBER THESE GENERAL RULES
Look at the combination of revenue and miles
Add in the extra pay – drops, expenses, etc.
Cost out your revenue for a complete “Round”
Assess your “Hidden Administrative Costs”
Think about what you are good at
Utilize relationships for the rest
Remember that 100 miles more per week, puts over $0.01 per mile to the bottom line
ANSWERS TO OUR REVENUE QUESTIONS
Don’t only look at revenue, because miles affect your bottom line more than anything else. Also look at the people you will be working with, because good people take care of each other.
Whether you are getting close to the national average of $1.40 per mile all miles with your own authority or about $0.98 per mile with a typical over-the-road contract today (ex fuel surcharge), your net income will be close to the same.
QUALIFIERS: This is running 2,000 miles per week (105,000 miles per year) with today’s fuel prices and surcharge.
We used a contractor with authority having a truck / trailer payment of $2,500 per month, average contractor insurance rates and normal on-road costs. We compared a contractor leased to a fleet with a truck payment of $2,000 per month and a typical fleet program pulling fleet trailers.
In both cases, each results in a pre-tax income of about $45,000 per year before other approved business related deductions. Having equipment paid down and changing utilization notably affects these numbers similarly.
Feel free to use this thought process to think through your own business and numbers.