If you do not know the cost of each mile your trucks drive, you can run your trucking company out of business before you even know it. Tracking and controlling costs will require some bookkeeping but they are figures you already report for taxation purposes. It only makes sense to use this same data for your own benefit. Knowing what your operational costs are on a per-mile basis allows you to manage expenses more efficiently and determine an appropriate per-mile rate to charge shippers. For trucking companies, this form of cost control provides the essential information needed to be profitable. Well first discuss how to calculate your operational cost-per-mile in Part 1 of this article. In Part 2, well discuss how to use this information to streamline your operations to make more money. Part 1: Know your Costs (how to calculate cost-per-mile) Identifying your companys cost-per-mile is a simple calculation: Total operating costs in a given period / Total miles driven during same period = Cost-per-mile Monitoring your operational costs on a per-mile basis is like tracking a moving target, as variable costs are a large factor of the calculation. It is important to do the calculation regularly based on historical data and to test the results against actual costs as they occur. If performed weekly, keeping a vigilant eye on your costs in this manner will provide a clear view of your companys financial status in close to real time. Whether you operate one truck or a fleet, all operating costs fall under two general categories; fixed and variable costs. Collectively, these expenses represent the total costs required for the calculation. Fixed Costs Fixed costs are expenses your company incurs no matter whether your truck(s) is hauling a load or parked idle in your yard. The two largest expense items in this category are equipment financing and the variety of insurances needed. Other items include licenses, permits, accounting services and property leases if applicable. Your company has daily exposure to fixed costs expenses 365 days of the year. Maximizing equipment utilization is key to reducing the negative impact of fixed costs on your profitability. Variable Costs Variable costs are expenses directly related to the running operation of the truck(s). These costs include fuel, tires, repairs, maintenance, tolls, road taxes, other miscellaneous items plus driver wages. Unlike fixed costs, the more you run the truck the more these expenses increase. By definition, variable costs can range greatly from one period of time to the next. You should monitor these costs weekly to best control your variable operating expenses. Calculating Costs Determining cost-per-mile isnt a difficult calculation; its simply a case of identifying all the expenses associated with your fleets operation and dividing by the total mileage driven in a given period of time. Weekly is the most accurate time frame as your fleet is constantly on the move incurring costs. The key is to ensure you have accurately accounted for ALL costs, including miscellaneous one-time expenses, such as a computer purchase or replacing shop tools. Once all expenses have been identified, record them in an Operations Expense Sheet, similar to the example in Figure 1, then perform the calculation. Not any one trucking company shares exactly the same outlay, so adapt the expense sheet to meet the specific costs associated with your unique operations. Generally, fixed costs are payable on a monthly basis. To determine the weekly amount for these costs; multiply each cost item by 12 months and divide by 52 weeks. example: Truck Payment = $2,500.00 per month weekly cost = ($2,500.00 x 12 months) divided by 52 weeks = $576.92 Once you have established a regular and disciplined routine of tracking your companys cost-per-mile, you now control the ability to manage expenses efficiently. This control allows you the capability to fine tune operations to maximize profits. This will be discussed further in Part 2 of this article. About Accutrac Capital Accutrac Capital is an invoice factoring company that specializes in the trucking industry. Our Flat Fee Factoring and Factoring Line of Credit products are designed specifically for trucking companies to improve cash flow, deliver professional AR Management and provide risk mitigating tools and services. Trucking companies that work closely with an industry specific invoice factoring company benefit with immediate access to working capital and ongoing support from a team of experienced financial advisers. With this support, truck company owners are free to focus their attention on running their fleet knowing that the financial end of the business is supported by efficient and convenient services to maximize profitability. For more information about invoice factoring, contact Accutrac Capital. Call 855-790-0906 today.