But like most of the things in trucking business first sight is not always something that provides the best information you need to have in order to manage your company costs. Every trucking company owner should have few things in mind when dealing with fixed costs:
- Cost Structure – it is very important to have in mind what is the structure of your variable cost. Now days companies that offer you products and services are very creative when it comes to making variable cost a fixed one. For example your business goes up and you decide that you need another license for your software for the extra staff you hire. If they require a 3 year contract in place with every month payments – you just generated a new variable but indeed fixed cost. Watch for these proposals.
- Variable Cost Acceleration – a lot of companies feel excited when the business starts to accelerate, there is a lot of new opportunities, new possibilities to hire new drivers, sign new contracts or to find a dozen of great loads. But be carefully not to accelerate your variable costs faster than your business is accelerating and creating new revenue. Calculate the amount of variable cost in your trucking company and compare it to the revenue growth. Each 1% or revenue growth increase less than 1% the amount of your variable cost to stay positive and profitable in trucking business.
- Variable Cost Deceleration – having a possibility to quickly reduce the cost when the business goes down or slows down is crucial part of managing a trucking business. Have in mind if your business slows down for any of possible reasons (3 drivers quit, truck accident, contract with your client expired, dispatcher quits) how fast can you decelerate (quit or stop) variable cost. Not just how fast but also at what cost. For example If you use GPS service for your trucks and you need to cancel 3 subscriptions – how fast can you do it and how much you need to pay to do it.
Variable Cost Examples
There is at least five times more variable costs that can be mentioned compared to the fixed ones meaning that there is a special approach required to this segment. Simply once you start operating your trucking company and the money starts coming there is a lot of different ways how to spend it.
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I will not mention all the cost that exist but from my point of view and experience I will mention few of them that are most important and that can create losses if not monitored properly.
- Office Staff – Even though it may look good and fancy or it can present your company in better way try to avoid over staffing your company. Being a trucking company owner is all about hard work so if you go and try to find people managing job duties instead of you it may drive you to bankruptcy. Instead of hiring accountant outsource it for $500 a month, use IFTA software to generate IFTA automatically instead of paying for it. The list is huge – pay attention to this.
- Diesel Fuel – The more you drive the more you spend. The biggest expense every trucking company has. Up to 35% of all your income goes on one single expense – diesel. In order to control the costs try to use fuel cards that will get you either huge discounts or cash back or even better the ones that can get you both of these things.
- Maintenance – Maintaining trucks when the business is booming is a real challenge. Having trucks on the road all the time without coming back to the company usually results in skipped maintaining checks and expensive over the road repairs and towing. Crazy expensive services can be avoided by using warranty and maintenance plans from large truck lease/rental companies. You just buy they maintenance plan and you reduce the pricing up to 30% and have hundreds of locations over the country to maintain the truck.
Conclusion
Being able to effectively control and manage your cost is an important part of managing any trucking company and being able to forecast them gives you a power to control where your trucking business will go and allows you to position your company in the highly competitive market as a leader.
I urge you all to focus on this segment of your business and spend a lot of time on cost monitoring. Ask your accountant for a detail weekly cost report and two of you take an hour to sit together and make a quick analysis. It will help you to know the right situation and allow you to have a clear picture what is going now plus it gives you information what to do in the near future.
Just remember the gold rule and every time you ask yourself this question before generating new cost: Is this cost going to save me money or create new value for my company?
