Trucking Industry Cost Introduction
Trucking industry is one of the most complicated industries where overall profit margins are really low. On average trucking companies make around 5% net profit of their entire annual income.
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It is also high volume business meaning that you have huge amounts of money to control and if you are very well experienced and careful you are on the road to create a big and stable company. On the other hand it is very challenging to keep the head clear and manage and run the company trough existing situation and guide it to a success in the future as well.
On average you trucking company if it is very well managed generates up to $250.000 annual income per class 8 truck if they have they own drivers (not owner operators) so having in mind that $237.500 of that money are costs provides a better picture and understanding how difficult it is to be in trucking company manager shoes.
One of the most difficult situations when it comes to managing costs is also because of the nature of the business – to be a part of this business you need to own (or lease) trucks and they are very expensive. Saying that means you need to have a lot of money or be able to lend a lot of money.
That generates in most cases huge costs which can be divided into two biggest groups. On one side you have costs that are fixed costs and on the opposite side you have variable cost. It may sound hard to understand and follow to the guys looking to start their own trucking business but in fact it is quite simple. Please read the next lines to have a detailed insight what is it about.
Trucking Industry Fixed Costs
As said fixed cost present one side of the total cost any trucking company generates and they are the one that can be equally dangerous as variable. The most important features is just like they name says that they are fixed and can’t be avoided or postponed.
No matter how big or how small your trucking business is they are always the same. If you expand your business or create more revenue they are still the same. We could say that they are a minimum cost any trucking company can have in order to operate on the market.
They are very hard to reduce, I would say even impossible and for that reason they require a very careful approach but not at the end – on the beginning when creating or generating them. I mean that when you start your trucking company you should be very careful when choosing to buy equipment, hire people or rent the office because all these things represent fixed costs.
As a trucking company owner/manager you need to always ask yourself is that cost I’m about to make really necessary for the company and is there a way it can be avoided. Is there a way I can choose a cheaper option for my company or what is the return on investment if I make that cost. For example if I decided to spend $10.000 what will be the benefit of that cost.
Being in that saving mode will help you to have the fixed cost at very minimum and to stay in business even when some unexpected or not planned thing occur. Being a successful trucking company owner is all about being prepared (and well funded) in cases when bad things happen.
If you are well funded when your insurance rate goes up or truck gets broken in the middle of nowhere you have a big chances of staying in the business and in long term have a successful company.
Trucking Industry Fixed Cost Examples
There is a huge number of possible fixed costs examples that are linked to the trucking industry but I will mention only most important ones among them. I’m sure guys all of you are familiar with them and every month you go trough a nightmare of paying them and making sure you have enough money on your company account.
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I know from my personal experience that this is never ending story and that those bills just keep coming. It is like a nightmare. What do you say, do you sometimes feel the same? Here are some examples of the fixed costs you might have in your trucking company:
- Insurance – one of the biggest expenses as you all know. It is mandatory to pay these bills no matter what number of miles your truck drives. Once you sign the policy you are required to pay every month.
- Office Staff Wages – another one in the row. I know it is very easy to hire extra people to do some work in stead of you but hiring more people than you should have is a safe way to bankrupt. These kind of fixed costs will hunt you all the way to zero dollars on your bank account. Be careful when hiring and be extra careful when negotiating salary with your staff.
- Truck or equipment Leasing/Truck Monthly Payments – make sure that every time you buy or lease/rent a new truck you will have enough loads to cover that trucks so that you can have 100% covered truck on every day. Prior to making a decision of adding a one more truck to your fleet try to think about it in advance and ask yourself: Am I or my dispatching team capable to cover that truck 100% day after day.
- Utilities (Electricity, Office Rent, Phone Bills, Software Expenses) – they may seem like a small in amount but the nature of these expenses makes them tricky. The reason is that they are usually tied up with a multi year contracts in place so please be careful when generating them because they are almost impossible to reduce in case of situation.
Trucking Industry Variable Costs
Variable cost in simple words mean that they go up if your business goes up and if your business goes down they go down as well. Compared to fixed cost this put them and your company in a better position on a first sight.
