The Truth to How Trucking Companies Make Good Money

The Truth to How Trucking Companies Make Good Money

Alma Bailey 0 Comments

There is only one way for trucking companies to make money; by driving loaded miles for a paying customer and charging accessorial fees when appropriate. Any other activity will cost the company money. The real question to be answered is; how do trucking companies make good money?

Making Money in Trucking: It’s a Simple Business Model


Over the road freight transportation is a very simple business model; trucking companies charge a per-mile rate to haul freight for shippers and freight brokers. In many cases, freight movement is more involved than simple pick-up and delivery. Trucking Accessorial fees are charged by the carrier to the customer for additional services required to complete the delivery. The most commonly charged accessorial fee with contract pricing is a fuel surcharge. This fee is charged to compensate the carrier for fluctuating fuel costs that would otherwise eat into profits.

Although simple, this business model can be very difficult to manage due to the complex and highly competitive nature of the trucking industry.  

The Key to Making Money as a Trucking Company

Establishing a competitive per-mile rate that attracts customers and supports your company’s bottom line is the key to making money. Every load you deliver will generate revenue and incur costs. This is “where the rubber meets the road”. Your company’s rate needs to be high enough to pay all your operating costs, leave a profit and be competitive. It’s a difficult balance to maintain!

3 Steps to Balance Profit with a Competitive Cost-per-Mile


Step 1- Know Your Company’s Cost-per-Mile:  In order to set a profitable rate, you must first know all your costs associated with the haul; that means both Variable Costs (running costs) and Fixed Costs (overhead). With this costing information you can easily establish your company’s cost-per-mile by using an online Cost-per-Mile Excel Spreadsheet Calculator.

Step 2 – Apply a Profit Margin: Once you have your company’s cost-per-mile rate, it is then a process of adding a profit margin to establish the per-mile rate your company will charge to customers.

Step 3 – Measure Against Competitive Rates
The trucking industry is highly competitive and cyclical. 2012 to 2016 was a particularly tough period in the trucking industry; profit rates ranged from 2.5% to 3.8%. Profit rates surged dramatically in 2017 to an average of 6% and grew higher in 2018. Margins plummeted again in 2019. In order to remain competitive, keep profit margins slim and regularly measure your per-mile rate against your competition.

How to measure against competitive rates:

  1. Select your freight lane
  2. Go to a load board
  3. Select 10 comparable loads going in one direction
  4. Contact the brokers to find out how much they pay
  5. Determine the average price
  6. Add 10% to 15% to get the price brokers charge shippers
  7. Repeat the process for back haul

Once you have compared rates, you may have to adjust your company’s business practices to improve profit margins and remain competitive.

How do Trucking Companies Make Good Money?

There are only three ways for a trucking company to improve profit margins and make good money:

  • Increase the cost-per-mile rate charged to customers
  • Decrease costs
  • Drive more revenue generating miles

Trucking companies are constantly trying to adjust to improve returns and remain competitive. Changes to any of the above-mentioned options will have a ripple effect across your organization and could possibly create a negative impact on profits. To predict how change will impact profit, you must create “what-if scenarios” with the use of a profit margin calculator. This calculator is designed to predict the impact of change based on your company's unique financial data.

For example; what if you trade in your 5-year-old tractor for a new, more fuel-efficient model. Will the savings in fuel costs out way the increased monthly carrying costs of the new equipment? Or, what if you take on that new customer; will adding more trucks and drivers to fulfil the contract return a profit, or create losses?

To improve your company profit margins, each truck needs to operate at maximum efficiency, costs have to be controlled and revenue needs to be maximized. The profit margin calculator makes it easy to crunch the numbers before making any major changes to your business operations. This is far less risky than implementing real action.

In summary – How Much do Trucking Companies Make?

The more miles your company drives, the more money it will make. A 60-truck company will make substantially more revenue than a one or two truck company. The following example illustrates the potential earnings for a large fleet.

Assumptions:

  • Number of Trucks: 60
  • Per-Mile Rate: $1.80
  • Average miles per truck per year: 100,000

 
Revenue Calculation:

  • 60 trucks 100,000 miles = 6,000,000 miles driven per year
  • 6,000,000 $1.80 = $10,800,000

 
In this example, the 60-truck company generates $10,800,000 in revenue per year
To grow, you have to be as smart, or smarter than competition and keep your trucks moving. Large trucking companies require more than a significant customer base, fleet management and a strong driver pool, they also need effective financial management and access to working capital. For growing fleets a factoring line of credit is the ideal funding solution to support expansion.

Trucking is the backbone of the nation’s economy and will always be an essential service. Company owners with the will to work hard, control costs and provide quality service are well equipped to succeed and grow no matter the economic conditions. For those able to navigate the challenges of growth, the money to be made from large trucking companies are well worth the hard work and dedication it takes to succeed. To help guide your growth, Accutrac has created a guide to How to Grow a Successful Trucking Company. Find lots of great tools, resources and easy to use formulas to help your trucking business make good money.

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