One of the most important things you can do before you start your trucking business is to estimate your cost per mile. Knowing this cost, along with estimating how much you will make, enables you to estimate your expected profit. Your profit is how much you keep, after paying all expenses. The following steps will help you determine your cost per mile:
Step 1: Determine how many miles you will drive
The most important number for this calculation is the total number of miles that you will drive in a given month. This number of miles includes compensated miles and deadhead (not compensated) miles.
The spreadsheet and following examples assume that the average trucker drives around 8,400 miles per month. However, for this example, we will assume that the owner-operator has driven 10,000 miles. Obviously, this mileage varies by owner-operator, most owner-operators report driving around 100,000 miles a year.
Step 2: Calculate fixed expenses
Fixed expenses are expenses that stay the same from month to month regardless of how many miles you drive. For example, truck payments are considered a fixed expense. They stay the same regardless of how many miles you drive. Insurance, license plates, and many permits are also fixed expenses.
Some costs are paid yearly as a single payment, rather than monthly. For example, license plates are usually paid once a year. We estimate a yearly cost of $1,500, which equals $125 ($1,500/12 = $125) per month. This method helps estimate the “all-in” cost per mile more easily.
Step 3: Calculate variable expenses
Variable expenses are the direct costs associated with driving every mile. They increase and decrease based on the number of miles you drive in a given month.
For example, fuel is a variable expense. You need to buy fuel for every mile you drive. If you drive more miles than usual in a week, your fuel costs will increase proportionally. And if you don’t drive any miles in a given week, you won’t have to pay for fuel that week.
Examples of variable expenses include fuel, meals, telephone, tires, maintenance, and so on. The following table shows examples of variable expenses for an owner-operator.
Step 4: Calculate cost per mile
The last step is to put everything together. Using the number of miles, the monthly fixed costs, and the monthly variable costs we can calculate your costs per mile. To calculate the “cost per mile,” divide the cost by the number of miles you drove that month.
To determine the total monthly cost per mile, simply add the fixed and variable costs. Here is the total cost per mile used in this example:
One important detail to notice is that – because your fixed costs don’t change – your “fixed costs per mile” decrease as the number of miles you drive increases. Your “variable costs per mile” tend to stay the same regardless of the number of miles you drive.
Knowing your trucking company’s cost per mile benefits you in many ways. It helps identify spending patterns and areas where you can cut back if needed. Cost per mile also allows you to determine an appropriate per-mile rate to charge shippers. Knowing your company’s operating expenses on a per-mile basis gives you the information needed to be profitable: using this information, we determine that, if you drive 10,000 miles per month, getting $1.093 per mile will allow you to meet all your expenses. Every cent above $1.093 becomes your profit.