Did you know that the average cost of operating a commercial truck is nearly $180,000? Did you know that each truck you own will use an average of 20,500 gallons of fuel each year? That’s not to mention how much it cost you to purchase the truck and trailer, which can run you another $150,000+!
A freight company will be faced with a wide range of trucking expenses that need to be taken into account on a monthly basis. As you can see above, the truck alone will be extremely expensive to maintain — especially considering any repairs due to excessive use. Unfortunately for your freight company, the trucking expenses make up only a portion of your overall expenses.
When properly managing your monthly expenses, you’ll need an efficient way of ensuring your freight company has the cash flow to continue moving forward. If you don’t have the cash to pay for gas, you won’t be able to take on any deliveries. If you can’t pay for food and lodging during your deliveries, you might have to pay out-of-pocket if you want to continue trucking.
While your expense report can get quickly out of hand, even after just one delivery, calculating the cost-per-mile of your freight company can help you consolidate these expenses into one single metric.
If you’ve never been introduced to cost-per-mile, it’s a simple calculation that will tell you how much your company is spending every mile you drive. It’s a highly accurate metric that will take all your expenses into account — not just your trucking expenses.
Why Is Cost-Per-Mile Important?
Chances are you already plan your route each time you accept a new load. You plan when to drive, when to sleep, when to eat, and when you should arrive at the destination. By the time you’re ready to hit the road, you have a solid idea of what you’re doing and how long it will take.
Unfortunately, calculating the cost of that trip can be tricky. You’ll be making several pit stops, buying fuel, buying meals, lodging, etc. Cost-per-mile allows you to simply look at how many miles you’re driving, multiply it by your cost-per-mile, and see how much you should budget for!
When you calculate your cost-per-mile, you simplify the process of clearly seeing which deliveries can turn a good profit and which ones you should avoid. If you’re not currently setting a strict budget for you and your drivers, there could be a lot of money you’re throwing away every month without knowing it.
Calculating Cost-Per-Mile
To calculate your cost-per-mile, first, you need to tally up all your fixed and variable expenses. Fixed expenses are ones that won’t be changing anytime soon, such as truck payments, insurance, permits, office space, etc.
On the other hand, variable expenses will include those that will change each trip but will remain relatively close. Fuel, maintenance, taxes, meals, rooms, and repairs are good examples of variable expenses.
Take a look at how much you spend on each expense every month (on average). Once you add up all the expenses, you’ll have your average monthly expense report. From there, divide that number by the total number of miles you drive every month. Now, you’ve arrived at your cost-per-mile.
Let’s say you have a 200-mile trip coming up and your cost-per-mile is $1.50; you can easily figure out your budget for that trip by multiplying the two. You can expect the trip to cost you around $300 — it’s that easy!
References
Jorgensen, Webster. “How to Calculate Cost per Mile for Your Trucking Company.” How to Calculate Cost per Mile for Your Trucking Company | RTS Financial, 19 Jan. 2019, www.rtsinc.com/guides/trucking-calculations-formulas.