If you do not know the cost of each mile your trucks drive, you cannot know the best per-mile rate to charge your shippers. This makes it difficult to post a profit.
To ensure accuracy in calculating your costs per mile, you must account for your company’s expenses. These expenses fall under three categories: fixed costs, variable costs and salaries. Omit just one cost of doing business from your calculations and you will not have a complete picture of your company’s bottom line. If you do not use accounting software, products such as QuickBooks or ProTransport trucking software, can help report all of your costs. If you have specific questions about calculating cost per mile, it is also a good idea to consult a certified public accountant.
The following sections use fictional charts to illustrate each cost category. These charts serve as examples that may not reflect all of your company’s expenses. The final section brings all the costs together to calculate a company’s total cost per mile.
Fixed costs are expenses that your company incurs whether your trucks are hauling a load or are in the parking lot. Fixed costs include expenses like insurance, property leases, permits and other services.
In the chart below, the fictional company Chuck’s Trucks Inc. calculates fixed costs by the mile for the month of August. The chart divides each fixed cost by the 10,000 miles that Chuck’s Trucks drove that month:
Chuck’s Trucks Fixed Costs for August
Total Fixed Costs
Variable costs are the money that your company spends in operating its trucks. These costs include fuel, maintenance, repairs, meals, lodging and other expenses incurred on the road. Variable costs can range greatly from one time period to the next. As you put more mileage on your trucks, you will see the variable costs increase. You should calculate these costs monthly to get the most up-to-date information on how much your company is spending.
Here is how Chuck’s Trucks calculated variable costs. Again, the costs are divided by the 10,000 miles the company drove in August.
Chuck’s Trucks Variable Costs for August
Total Variable Costs
The amount you pay your drivers is likely your single biggest expense. It needs to be part of your calculation of cost-per-mile. Here is what it looked like for Chuck’s Trucks in August:
Total Cost per Mile
To determine the total monthly cost per mile, simply add the fixed, variable and salary costs. Here is the total cost per mile for the fictional Chuck’s Trucks in the month of August:
Cost Per Mile
Knowing your trucking company’s cost per mile benefits you in many ways. It helps identify spending patterns and areas where you can cut back if needed. Cost per mile also allows you to determine an appropriate per-mile rate to charge shippers. Knowing your company’s operating expenses on a per-mile basis gives you the information needed to be profitable.
If your cost per mile seems high, one solution is to take on more work. Not only will this increase revenue, but your cost per mile should decrease. While your variable costs may increase from taking on more work, the fixed costs will remain the same. Here is a fictional illustration of how increased mileage can decrease the cost per mile:
Cost Per Mile
Revenue and Profit Per Mile
To see how cost per mile relates to your company’s income and profitability, refer to our article, How to Calculate Revenue and Profit per Mile.
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Sources: OOIDA.com, TheTruckersReport.com