Your company needs to make money. That's a given. Determining profitability for trucking companies, however, can be a complicated process. As your company grows, it becomes crucial to regularly track how much money is coming in and how much is going out. Calculating revenue and profit per mile is the key to understanding your company’s overall financial health.
Your first step is to carefully track your expenses. You can learn more on how to do that by reading our article, “How to Calculate Cost per Mile for Your Trucking Company.” Once you have a handle on cost per mile, you can examine your company’s revenue. Subtracting cost per mile from revenue per mile will determine the net profit (or loss) of every mile your trucks drive. Accounting software such as QuickBooks, FreshBooks and Xero can help you make these calculations for less than $20 per month. If you have specific questions about calculating revenue and profit per mile for your company, it is also a good idea to consult a certified public accountant.
The following sections use fictional charts to illustrate revenue and profit per mile. These charts serve as examples that may not reflect all your company’s income and profitability. The final section addresses how you can use this information to build a sustainable, growing business.
Revenue per Mile
Revenue per mile determines how much money your company is generating for the services it provides.
In the chart below, the fictional company Chuck’s Trucks Inc. calculates revenue by the mile for the month of August. The chart divides the revenue by the 10,000 miles Chuck’s Trucks drove that month:
Chuck’s Trucks Revenue for August
|Monthly Revenue||Miles Driven||Per-Mile Revenue|
Profit per Mile
In our article examining cost per mile, Chuck’s Trucks added all of its fixed costs, variable costs and salary expenses for August. That added up to a total cost per mile of $1.098 for the month. To determine the company’s profit per mile, subtract the cost per mile from the revenue per mile:
Revenue ($1.35 per mile) – Cost ($1.098 per mile) = Profit ($0.25 per mile)
In the month of August, Chuck’s Trucks posted a per-mile profit of 25 cents. That amounts to a healthy 19% profit margin on the $1.35 per mile in revenue.
How This Helps Your Business
Knowledge is power in the fast-changing trucking industry. You need to identify what markets to serve and which lanes that will generate the most revenue. It is equally crucial to know how much money your trucking company needs to charge in order to post a profit. Understanding how to calculate cost, revenue and profit per mile arms you with information you need to successfully negotiate rates with shippers and brokers.
While the example of Chuck’s Trucks focuses only on the month of August, you need to know your company’s financial position over the course of several months. Industry factors like seasonal demand, weather conditions, fluctuating fuel prices and deadheading miles all need to be taken into account. For example, your company might have operated at a loss in January and February due to maintenance costs and severe weather. That means you need to adjust your rates for the summer months to ensure your company makes up for those losses.
There are several aspects to financial management for your trucking company. It all starts with knowing what it takes to be profitable. Calculating cost, revenue and profit per mile is a key step to putting your trucking company on the road to success.
For more on how we can help your business thrive, contact RTS today!
Sources: OOIDA.com, TheTruckersReport.com.