Correct.

Correct, but you know BEFORE you book a load that you're going to be forced to make up the difference, rather than knowing at the end of the month that you didn't meet your costs. I'd much rather know BEFORE I book a load that I need to adjust than after the fact.

 

I am not necessarily disagreeing with you in the way you calculate your fixed cost, Rev. However, the majority of your expenses in running a truck are variable. For instance, fuel is our biggest expense. Fuel can vary from day to day. When the truck isn't running then you are not spending money on fuel. Other expenses such as oil changes and tires are also things which don't cost unless you are running the truck. About the only fixed expenses are insurance and truck payments. If you use an average of miles run per month then your costs should average out if you figure according to miles run. Initially, you are only talking about estimates. The only way to accurately calculate costs is to use historical figures. It would be more important to use a daily cost when you are sitting for a number of days. If you take a week off then it isn't costing anything to operate your truck. On the other hand there are fixed costs which continue whether the truck moves or not. Whether you estimate 8,000 or 10,000 miles per month, you can incorporate your fixed costs into the mileage rates.

 

My biggest expense is wages, which are a fixed cost.

Which is why they are not included in the "per day" calculation, and are calculated by the mile. Fixed costs calculate by the day, variable costs calculate by the mile. Variable costs don't really change based on the amount of miles you drive per month. If I drive 4 miles per month, then I use 4 miles worth of fuel. If I drive 10,000 miles per month, then I use 10,000 miles worth of fuel. The same holds true for oil changes, tires, etc. Your estimated costs remain constant this way.

Truck payment
Insurance (truck, work comp, health)
Phone
Internet
Wages
Dues, subscriptions, and fees
Plates
Permits
Interest
Depreciation
ROI
FHUT

Every single one of those things occurs even if the truck doesn't move an inch. For those who would say that wages don't occur if the truck isn't moving, you do pay yourself even if you have a driver in your truck, don't you? And your home bills still happen even if you aren't moving, don't they? If you're not paying yourself a wage, then there's no reason to even be in business.


And if you don't meet your estimate of 8000 or 10000 miles per month, then you didn't meet your expenses for the month you already finished. Whereas, if you are basing your fixed costs (that huge list I just posted above) on a calendar, it is much easier to adjust your rates when you are running less days per month. You can adjust it on the fly.

I totally understand what you are saying, and I agree it is an easier way to do accounting. I simply don't agree that it is the correct way.

 

Unless you pay yourself a set salary each week, your driver's wage is variable. If you pay yourself by the mile or percentage it is a variable expense since it will not be exactly the same each week. I have a friend who pays himself $2,000/month. In his case, his driver wages are a fixed cost. Wages used to be the number one single expense running a truck. With the higher fuel costs the highest single cost is more likely fuel. As far as ROI is concerned, that is also not a fixed cost. It can vary according to what profit you make in a given month or year. You can have a projected ROI, but the economy can shatter any of those projections. I think many companies like to use a percentage as ROI. The percentage may or may not work at the same figure. Again, it will vary according to the level of profitability. If you have a lot of repairs in a given time period your ROI can go out the window. I suppose that if you use a flat fee per load as a ROI then you could assume that it is a fixed cost. For instance, you could use $100 per load as a ROI. In that case it could be fixed. The only problem with that is that you could have 3 loads one week and 1 load the next. Breaking it down by the day won't give you an accurate way to do your calculations for ROI.

 

We do tend to ramble on, Charlene. I suggest you add up all of your total known costs and divide by the estimated miles you plan on running per month. You need to include base plates and permits, equipment payment, insurance (either workers comp or an accident policy, bobtail or unladen liability if you lease to a carrier, liability and cargo if you run your own authority. You also need to include collision which runs about 2 1/2-4 1/2% of the stated value of your equipment). I calculate my fuel usage based upon 5 mpg. If your truck gets more than 5 mpg then you are ahead of the game. If fuel runs $2.50/gallon and you get 5 mpg then your fuel costs will run $0.50/mile. In calculating annual costs I find it easier to use 100,000 miles per year. Since you are normally paid by the mile for any loads it makes it much easier and simpler to calculate costs.

Base plates and permits $1,800-2,200/year $0.018-0.022/mile
App policy $150/month x 12 months=$1,800 yr 0.018/mile
Truck payment $12,000/yr 0.12/mile
Maintenance @ $8,000/yr 0.08/mile
Fuel ($2.50/gal /5 mpg) $50,000/yr 0.50/mile
Collision Insurance ($20,000 truck @ .045) $900/yr 0.009/mile
Bobtail @ $60/month = $720/yr 0.0072/mile
Drivers wages @ 0.30/mile = $30,000/yr 0.30/mile
Taxes on wages @ 25% = $7,500/yr 0.075/mile
Tires $5,000/yr 0.05/mile
PM/oil changes @ $250 x 10/yr = $2,500/yr 0.025/mile
Accounting @ $50/month = $600/yr 0.006/mile
Phone/Internet @ $170/mo =$2,040/yr 0.02/mile


*These are most of the expenses you will incur when you run a truck. Some of these figures will vary according to the amount you paid for your truck and how much it is insured for on collision. If you lease to a carrier you will need bobtail insurance. I have seen costs from about $30-60/month. I did not include the cost of liability or collision insurance. You only need that insurance if you run your authority. I assume that you will lease to a carrier. There are other expenses which may be charged by some carriers such as cargo insurance (some charge a percentage or flat fee per load, others don't charge anything), transflo, trip pak, transaction fees for loading or using your fuel card, etc., Those are usually minor expenses. I am sure that I have missed some costs but these are the basics and will give you something from which to begin to base your costs. Your monthly truck payment will vary according to the amount length of time you financed and interest rate. Your collision will also vary according to how much you paid for your equipment and the factor. I used 4 1/2% since that is usually the highest that I have heard discussed. The maintenance figure is for major expenses such as an engine overhaul or other major expense. I usually recommend that regular maintenance items come out of weekly profits rather than dipping into your maintenance money. When you add all of these costs up and break them down by the mile you should come up with a reasonable cost of running your truck.

 

I doubt that many "independents" operate on a variable wage.(% or mileage) You have fixed costs at home. If it's the choice between a set of tires or house payment i have no doubt of the choice thats made,even if it exceeds your supposed variable wage.
If you have drivers they expect a certain amount of income per year or they go elsewhere. Why would you operate any differently? Slowdown of freight doesn't reduce personal expenses. If you can't bring home at least what you could make driving for someone why bother being in business for yourself?
As far as profit being variable you should be operating on at least a set minimum amount of return per year regardless of the amount of miles driven. Do you make other investments without expecting a return?

 

You don't include household expenses as part of running your truck. That should come out of the wage you pay yourself. You could take a percentage of those costs as rent your business pays, but your house expenses are not part of your business. You should have enough profit or wages to take care of household expenses but that is not part of the cost of running your company.

 

I know houshold expenses are not part of the cost. But everyone will take enough money to pay them regardless. So that is a part of your wages. If you have to use profit to pay yourself enough to cover your personal expenses there is no true profit,you might as well have a job.

 

My wages ARE my household expenses. So yes, they are included as part of running my truck.

100,000 miles per year / 6 mpg = 16667 gallons X $2.60 per gallon = $43,334 per year. Sure, back when fuel was $3.00 - $4.00 per gallon, it was the highest expense. But so what?

I know I pay myself more than that per year. My home expenses dictate it.

As far as not including home expenses in your cost of operation, what is the point of running a business if said business doesn't meet your home expenses? You'd be further ahead working for someone else.

The fact still remains that it makes no logical sense to calculate fixed costs by a variable number, just as it would be foolish to calculate variable costs by a fixed number. If one is incapable of punching a couple extra keys on their calculator, then perhaps they shouldn't be in business for themselves. It isn't tough to do.

EXAMPLE: Your fixed costs are $100 per day, and your variable costs are $0.75 per mile, and you've been sitting over a weekend. You get offered a load that will take 3 days to complete, and will go 1000 miles. You then know that you need to earn $500 to cover your fixed costs, and $750 for your variable costs. So if the load pays more than $1250, you are earning profit. If it doesn't, then you are either breaking even, or running at a loss. There's no rocket science in this.

 

That is why it is good to pay yourself a flat salary. If you only want to earn a minimum amount to meet household expenses then it is easy to simply pay yourself $500, $1,000 or whatever you need to cover your household expenses each week or month. It makes it cleaner to just pay yourself a salary if that is what you want to do.



You are correct in that your business should meet your household expenses and hopefully a profit. However, you can meet your household expenses by paying a salary or driver wages. You can take out as much or little as you wish. Household expenses are not a part of your business expenses. If that were the case then you could write all of your household expenses off your taxes. It is best to keep personal and business expenses separate. That is one reason I prefer a corporate structure. As an employee of your corporation you can draw a salary or wage and keep business expenses within the company and pay household expenses out of your salary.