Growing a successful trucking company takes a lot of hard work and dedication. But, above all, it takes a disciplined approach to make the right decisions and take the right actions.
This article helps Canadian owner-operators and small fleet owners accomplish this goal. It summarizes the seven key steps to take to grow your trucking fleet effectively. The first four steps are the most critical. You need to manage them correctly before your company is ready to handle growth.
Step #1: Determine your rate per mile
Knowing your rate per mile is key to running and growing a trucking carrier. It helps you determine how much you can charge for your services. Ultimately, this determines your profits.
Rates per mile vary based on the equipment you have, the lanes you work, your selected markets, and other variables. Because of this complexity, determining your expected rate per mile takes some work.
You can get an idea of the rates you can charge by averaging ten quotes for these kinds of loads. This calculation gives you an estimate of how much you can charge per mile. You can get this information from a load board. Keep in mind that loads from boards pay the lowest rates. You should be able to get better rates by working directly with shippers.
(Note: the article in the link includes a spreadsheet to help you work out the costs)
Step #2: Determine your cost per mile
Without an accurate idea of what your cost per mile is, you will never know if you are charging enough to pull a load. You will not know if you are working at a loss until it is too late and your company loses money.
Calculating your costs per mile takes some effort. This is why many truckers avoid figuring it out. This is also why many truckers go out of business.
To determine your cost per mile, decide the number of miles you plan to drive, figure out your fixed costs, and calculate your variable costs. Use these figures to determine how much it costs you to pull a mile.
(Note: the article in the link includes a spreadsheet to help you work out the costs)
Step #3: Does your business model work?
With your “per-mile” costs and rate, you can determine if the business model works for you. Simply subtract your cost per mile from your rate per mile. Does it generate enough profit to make the business worthwhile?
If your business model does not work, fix it. Make changes until you find something that works for you. Otherwise, you could have serious problems. The last thing you want is to grow your fleet if your business model that does not work well.
Step #4: Get control of fuel costs (and IFTA)
One of the major expenses of running a trucking carrier is the cost of fuel. Fortunately, it is a cost that you have some control over. Adapting your fuel strategy may allow you to decrease costs, which increases your profits.
Calculating the cost of fuel for a trucking company can be complex. The actual cost varies based on your route and where you purchase the fuel. Additionally, you have to consider IFTA and calculate taxation and rebates.
Step #5: Find profitable loads
Finding shippers and loads is the toughest part of running a trucking company. Many owner-operators look for loads using a load board. This approach has some advantages. A load board allows you to choose loads that match your equipment and preferred routes.
However, load boards are usually not worthwhile for truckers in the long run. Load boards are extremely competitive, especially for popular routes. As a result, you need to charge low rates per mile. You need to be very careful to ensure that pulling a particular load will be profitable.
Also, using a load board usually does not lead to a long relationship with the shipper. Consequently, you are always working with new clients. This process can be time consuming and frustrating.
The better strategy, especially for owner-operators, is to use a load board only as a starting point. You have to find your own trucking contracts with direct shippers. Begin making sales calls so you can build relationships with direct shippers. It’s hard work, but it’s rewarding. This is the only way to succeed in this industry. In our research, we have found that:
- Truckers who use load boards earn about $10,000 per truck, per month
- Truckers with shipping relationships earn about $20,000 per truck, per month
As you can see, you can double your revenues by building the right relationships with shippers. The numbers should convince you that building relationships is the right way to grow a trucking business.
Step #6: Manage cash flow and handle issues
As you have seen from the first four steps, profit margins can sometimes be tight. This makes it hard for some truckers to build an appropriate cash reserve for the business. Unfortunately, it’s not unusual for truckers to have cash flow problems early on.
Unless your shippers offer quick pays, they will pay their invoices in 30 to 60 days. This delay creates a dilemma for you. You must cover all the expenses of picking up and delivering the load, and then wait a month or two to get paid. Few trucking carriers can afford to wait that long for payment.
You can solve the cash flow issue by factoring your freight bills. Freight factoring can be an effective way to finance a new trucking company.
Factoring provides you with an advance for your slow-paying invoices. Instead of waiting 30 to 60 days to get paid, you get paid shortly after delivering the load. This upfront payment gives you the money you need to run your business. Transactions settle once the shipper pays for the load. For additional details, read “What is freight factoring? How does it work?“
Many factoring plans also offer fuel advances. This add-on feature provides you with funding when you pick up the load. You can use these funds to pay for fuel and other delivery expenses.
Step #7: Put it all together
A trucking company will be successful only if all its parts are working well. To grow a trucking company, you need to go through all the outlined steps in the right order.
Determine your costs and prices so you can decide if the business model works for you. Only then can you start looking for new customers while you optimize your fuel strategy. Lastly, use factoring or similar financing if you experience cash flow problems.
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Marco Terry is the Managing Director of Commercial Capital LLC and has over two decades of experience in asset-based finance. He has worked with small and mid-sized companies across the United States, Canada, and Australia. Marco holds a Master of Science in Finance.