Owner Operator Net Profitability

Owner Operator Net Profits

Owner Operator Net Profitability

Owner Operator Net Profits

Class 8 Owner Operators – Compare “Apples To Apples” When Looking At The Bottom Line

The best comparison is with “net dollars”

OVERVIEW

The primary reason we work is to make money. As we noted on our “Home Page,” true success depends on your priorities with respect to money, a home life and whom you work with. If you think about it however, money influences what goes on in both the home and work environments, too.

It is important to know your “Net Profitability” for a number of reasons. The first is to make sure that your personal financial issues are addressed so that you have enough left to plan for the future. Next is to compare it to industry norms and track your improvement.

We strongly suggest that you have a personal budget laid out (See “Basic Planning – Personal Success” Question 7). This is simply because – if your net business profitability is less than your home expenses, you will not be happy – no matter where you are at. In fact, many people switch companies for this reason, or if the money misses their personal expectations.

When comparing your net profitability to “anything,” you need to make sure that you are comparing “Apples-to-Apples.” Many often try to contrast their after-tax income against that of a drivers’ rate per mile, an hourly rate of pay or salaries. This is not fair. As most know, operating your own business has many tax advantages, which makes comparisons more difficult.

PAYROLL AND TAX PLANNING

We have included payroll and taxes on this page, as many of you get what is left after all of the bills are paid. For those of you with office employees, you would most probably list these costs as fixed expenses. For those with drivers, these would be variable expenses. The general planning rules discussed are the same wherever they are noted.

– Payroll, Advances & Per Diem – A combination of these can affect your taxes, and they can be complicated if mixed together. Whether you have your own authority or are leased to fleets, if you have employees, you must manage this process (especially advances). If you follow the rules on per diem, it can be advantageous to you, your company and any drivers you may have. Today per diem is $38 per day for every night out ($40 per day for tax year 2003), of which 65% is deductible (for tax years 2002 and 2003).

Many successful operators offset the market pressures of a higher pay per mile with premium equipment and personal attention. The industry average for pay depends on experience, location, type haul, miles, etc. A good planning number today is approaching $0.30 per mile. Just 10 years ago, that average was about $0.20 per mile, and the equipment and type loads have improved a lot.

– Taxes – The amount of Federal, State, Social Security and Unemployment taxes you owe is based on taxable income. For you and / or your business, this is after all of your deductions with the appropriate allowable (%) amounts are factored in. You must also submit these taxes for any employees.

For a typical operator with a taxable income of $40,000 or less, we plan 15% of taxable income for Federal taxes. We then add another 15% of that same taxable income, for Social Security and Unemployment taxes. For those with employees, you deduct and submit their Federal taxes. In addition with employees, you deduct and submit half of the Social Security and Unemployment tax from the employee, along with your matching half from your business. Your State, local and any other taxes would add on, but are most probably relatively small in comparison.

Therefore for planning purposes, we use a “Rule of Thumb” of 30% of taxable income as a good overall tax-planning amount. Even though these numbers will get you in the ballpark, remember that they are for “cash flow” and profitability projection purposes only. You should consult with your tax specialist to get your specific planning amounts.

TYPICAL COSTS FOR “NEW” OPERATION WITH OWN AUTHORITY

To look at profitability, we took $1.20 per mile overall revenue at 10,000 miles per month. We adjusted this gross using an average combined factoring and brokerage rate of 5%. We rolled in a fuel surcharge of $0.05 per mile against an average pump price of $1.50 per gallon. We used a tractor-trailer with an insured value of $110,000, with a payment of $2,500 per month and getting 6 miles per gallon.

We used typical costs as noted in the fixed and variable cost pages for fuel / cash transaction fees, road and fuel taxes, servicing costs, licensing costs and collision / physical damage insurance. We also included that for liability / cargo insurance and typical office management / administrative costs.

The results follow for 2,300 miles per week, 10,000 miles per month or 120,000 miles per year:

“OWN AUTHORITY” PROFITABILITY SUMMARY

Monthly Annual CPM
Income $11,400 $136,800 $1.140
Surcharge $500 $6,000 $0.050

Total $11,900 $142,800 $1.190

Fixed Expenses
Equipment $2,500 $30,000 $0.250
Licensing / Permits $167 $2,000 $0.017
Federal Use – 2290 $46 $550 $0.005
Collision Insurance $275 $3,300 $0.028
Workers Comp $120 $1,440 $0.012

Variable Expenses
Fuel / Taxes / Fees $2,795 $33,535 $0.279
Liability Insurance $456 $5,472 $0.046
Cargo Insurance $120 $1,440 $0.012
Servicing $100 $1,200 $0.010
Repairs $500 $6,000 $0.050
Tires $300 $3,600 $0.030
Office $1,500 $18,000 $0.150

Total Expenses $8,879 $106,537 $0.888

Taxable Income $3,021 $36,263 $0.302

NOTE: Profitability will improve when factoring / brokerage use decreases, equipment gets paid down, liability insurance experience gets established and maintenance costs are minimized.

BUT real profitability comes from miles (same operation):

– 3,000 miles per week, 13,000 miles per month or 156,000 miles per year:

Taxable Income $5,350 $64,204 $0.412

TYPICAL COSTS FOR “NEW” OPERATION CONTRACTED TO FLEET

To look at profitability, we took $0.83 per mile overall revenue at 10,000 miles per month. Other income included extra stop pay (2 per week at $30 per stop). We rolled in a fuel surcharge of $0.05 per mile against an average pump price of $1.50 per gallon. We used a tractor only with an insured value of $90,000, with a payment of $2,000 per month and getting 6 miles per gallon.

We used typical costs as noted in the fixed and variable cost pages for fuel / cash transaction fees, road and fuel taxes, servicing costs, licensing costs and collision / bobtail insurance. This average contract includes liability / cargo insurance and no charge for typical office management / administrative costs.

The results follow for 2,300 miles per week, 10,000 miles per month or 120,000 miles per year:

“LEASED TO FLEET” PROFITABILITY SUMMARY

Monthly Annual CPM
Income $8,300 $99,600 $0.830
Extra Stops $260 $3,120 $0.026
Surcharge $500 $6,000 $0.050

Total $9,060 $108,720 $0.906

Fixed Expenses
Equipment $2,000 $24,000 $0.200
Licensing / Permits $167 $2,000 $0.017
Federal Use – 2290 $46 $550 $0.005
Collision Insurance $225 $2,700 $0.028
Bobtail Insurance $100 $1,200 $0.010
Workers Comp $120 $1,440 $0.012

Variable Expenses
Fuel / Taxes / Fees $2,795 $33,535 $0.279
Servicing $100 $1,200 $0.010
Repairs $400 $4,800 $0.040
Tires $200 $2,400 $0.020

Total Expenses $6,153 $73,825 $0.615

Taxable Income $2,907 $34,895 $0.291

NOTE: Profitability will improve when equipment gets paid down and maintenance costs are minimized.

BUT real profitability “HERE TOO” comes from miles (same operation):

– 3,000 miles per week, 13,000 miles per month or 156,000 miles per year:

Taxable Income $4,503 $54,037 $0.346

WHAT DO WE LEARN FROM THIS???

As noted throughout our site, the key to profitability is miles (utilization) regardless of the type of operation you have. The numbers are BIG!!!

If you compare your taxable income to that of a driver, remember to ADD IN any escrows for maintenance, as our planning numbers have those fully costed out. In addition, ADD IN the equity from your equipment.

The decision to operate with your own authority versus contracting to a fleet comes down to RISK versus REWARD. As noted on our comparison page, the money is one thing, but remember that successful people work hard and focus on what they are good at.

Also for most, especially new contractors, working through fleets or others lets fleets do what they are good at. We must agree that their costs and programs are hard to beat.

If you compare your income to other industries, note that the National average income in the US is $28,000 per year.

Average household income is $36,000 per year with many spouses working. If you are like most in the trucking industry, yours is higher than both.

Trucking is a lifestyle. If it is for you, where else can you have more freedom and profit potential.

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Fuel Surcharge