The trucking industry is a competitive one, with an operating ratio of 95.2, meaning that for every dollar in revenue a trucking company earns, its operation costs 95.2 cents, leaving a profit of just 4.8 cents per dollar. It can be difficult to make a profit in the trucking business, but it is possible with careful planning and hard work. To be successful and profitable, there are six key steps to consider. A key factor in determining if a trucking business is profitable is understanding what an acceptable profit margin is.
Most truckers should aim for a profit of 6 to 8%. To achieve this, you must plan your earnings by taking into account your annual gross income per truck and then determining your expenses. You can increase your margins by finding loads that pay more, reducing dead miles and learning about the competition in the lanes. Fixed costs are already established and are relatively predictable, whether you're on the road or parked at home. Variable costs occur while you're on the road and can vary depending on where and how far you're driving.
Knowing how much you're spending, including fixed and variable costs, is essential for success. You can reduce fuel consumption by paying attention to your speed and driving habits, as well as ongoing maintenance to prevent costly road breakdowns. Charging senders a higher percentage in addition to your expenses is one way to increase payments. You can also increase your rate per mile by capturing cargo from the main transportation market and bringing it to backhaul markets or reducing dead miles by transporting LTL. Using a known reliable load chart for higher-value loads is another way to increase your options per mile. Reducing detention time is also important for profitability.
Charged miles are when you drive paid cargo, so try to match your routes to the shipper's demand and be willing to carry out return transports to ensure that your trailer is always full. You can also include additional space or “detention pay” in loading and unloading times, as well as avoid carrying loads from facilities or carriers known for their high wait times. Factoring is another way to increase profits. This means that you can sell your bills for a job to an outside financial company, also known as a factor. You keep the money right away (minus the factor fee) instead of waiting the 30 or more days it usually takes for an agent to process your bill.
Meanwhile, the factoring company tracks the broker's down payment so you don't have to. Weighing station bypass systems can also help reduce expenses by allowing trucks to skip weighing stations and continue to their destinations. For those who can face the challenges of growth, the money that can be earned with large transportation companies pays off. Niche selection, cost-reduction strategies, pricing, and cash flow planning play an important role in maintaining a profitable transportation business. With a little planning and easy to use technology, you'll grow your business in no time.