With the rapid development of the freight sphere, commercial truck drivers often start their independent business journey, trying to increase profit. Being an owner-operator is a challenging task due to tight profit margins. A clear understanding of different expenses is necessary for mindful management to cut spending and increase profit. Here, we will explain how to optimize budgets for experienced operators and those preparing to enter business.
The Importance of Cost Reduction
More than 90% of the gross revenue of an owner-operator goes for covering expenses like fuel, driver food, truck maintenance, health insurance, and variable permits. Such a high percentage of spending makes even small cost-saving actions very beneficial.
Types of Costs
Those expenses that don’t fluctuate often are fixed. These are license fees, monthly rental payments, truck and health insurance, and tests. Variable spending may change due to the amount of work, season, or hardly-predicted conditions. Distinguishing these two types of costs is important for successful financial management and increasing owner-operator salary.
Detailed Costs Breakdown
Here we’ll examine each item of expenditure in detail.
Fuel
Fuel expenses are the core element of owner-operator financial planning. They are not only the largest expense but also a major factor in the estimation of the price for trucking. Knowing an approximate number of orders and expected miles, it’s easy to determine fuel spending, by multiplying its price by mileage.
Vehicle Expenses
Seasonal tire replacement and vehicle maintenance are quite costly. Vehicle expenses depend on a truck’s size, model, and technical conditions as well as mileage and load weight. To avoid financial strain, it’s better to set maintenance funds ahead. Choosing high-quality, durable tires helps to save money, as they can serve much longer.
Insurances
The price of truck insurance depends on coverage extension. Three types of insurance are widely chosen by owner-operators and transportation businesses:
- Accident coverage
- Bobtail security
- Freight protection
Health insurance is another important requirement for commercial freight operations. Its price starts from approximately $3,400 annually.
Meals and Beverages
Surprisingly, dinners and snacks are the third biggest type of expenses for owner-operators. Truck drivers often use food to pass the time and to stay alert. Truck stops and gas stations offer different snacks and drinks. All these stimulate owner-operators to spend more on food. Equipping trucks with refrigerated food storage and microwave ovens may help to reduce spending on overpriced dinners in roadside restaurants.
Load Sourcing
Finding loads may require spending some money. This may include paying a percentage to brokers, buying ads, or loading boards. Leasing to a company may be an effective solution to reduce some expenses. While transportation companies take extra commission, they also offer significant advantages, like saving money on permits, operational costs, and insurance, as well as providing more stable income.
Regulatory Fees and Official Documentation
License fees and permits for the transportation of different materials are another important part of owner-operator’s spending. In addition, some states may require extra documents and permits due to stricter regulations.
Lodging
Dealing with long-distance transportation consider spending for overnight lodging.
Earnings Calculator
Calculating expenses and expected profit may take a lot of time. Commercial income calculators or similar software help to plan, analyze, and manage finances more easily and accurately.
Conclusion
Focusing on cost reduction is a key to fast profitability improvement. Knowing basic spending like fuel, vehicle maintenance, lodging, insurance, and food helps to manage both fixed and variable costs. While some expenses can’t be reduced, others can be minimized through smarter practices like equipping a truck with a fridge or sleeping place, improving driving skills, or choosing more durable tires.
