Many truckers try to get into the trucking business every year since it can be very profitable but it is also incredibly competitive. That is why the outcome is usually not what they were expecting. Most of the time, this happens to people who are great truckers but are not too good as a business owners.
It takes more than knowing how to drive a truck or choose a route for one to run and grow own trucking business. In the following text, we present a few of the steps that will point you in the right direction and help you make the transition to becoming a successful business owner.
Choose the right market
Supporting the right market niche is the most important step to becoming a successful owner-operator. Small fleet owners are affected by this as well. Choosing the right market is so important because it determines the equipment you buy, the rates you charge, and the freight lanes you can service.
Owner-operators should consider hauling specialized loads in order to avoid markets occupied by the large carriers. There are many markets that you can focus on. But, hauling meat and fresh produce in reefers has many advantages. Firstly, it is resistant to recessions and that is very important. It also includes less competition and year-round work.
Determine the right rate
As an owner-operator, you need to determine the right rate per mile that you want to charge your clients to haul a load. Earning a nice profit and paying all your operation costs is what your rates need to achieve. Before you start calling shippers and make sales, you need to know your rates.
You can do this in a few simple steps: First, you select your freight lane and go to a load board. Then, you find 10 loads going in one direction, call the brokers and find out how much they pay and then get the average of that. On that price, you add about 10 – 15% to get the price brokers charge shippers and repeat the process for the opposite direction.
Know your operating costs
Determine your operating costs in detail because otherwise, you have no idea whether you will make a profit. Firstly, determine your fixed costs. Regardless of how many miles you drive, these costs stay the same. For example, truck payments, insurance, and permits are fixed costs.
Now, you should determine your variable costs. Depending on the number of miles you drive, these costs can vary. For example, fuel is a variable cost. And, the more fuel you use, the more you drive.
By using your fixed and variable costs, you can determine your “all-in-cost per mile”. This figure is very important because if you subtract “all-in-cost per mile” from your rates, you get the amount of money you keep.
Make right-fuel buying strategy
The largest expense for owner-operators is fuel. However, new and owner-operators often buy their fuel incorrectly. They make the wrong approach of thinking that the cheapest pump price provides them with the cheapest fuel. In fact, you could lose hundreds of dollars by doing this.
Regular drivers pay fuel taxes in the state where they purchased the fuel. On the other hand, truck drivers pay taxes based on fuel used as they drive through states, regardless of where they bought the fuel originally, and they must deal with IFTA.
Develop a shippers client list
If you have an empty truck, load boards and brokers can be very useful for your business. However, they are also pretty expensive. Brokers tend to keep about 10 – 20% of the load price. They must make a living and provide both the shipper and you with a service.
You can minimize the use of brokers and load boards by working directly with shippers. A list of reliable shippers that will keep you busy can be developed if you do things the right way. Charge them a price that matches to what brokers charge but keep everything for yourself instead.
Have an efficient back office
Key to staying profitable and make constant growth lies in having an efficient back office. The importance of the back office grows as you start adding leased drivers to your operation. There are a few options when it comes to having a back office.
First one is that you run your business out of the cab of your truck. An Internet connection, a laptop, and a printer is all that you need. Also, you need accounting software to run your business. Alternatively, an option is to outsource your back office to a dispatcher. But, they can be expensive. The wrong dispatcher can kill your business, so interview them thoroughly.
Solve cash flow problems
As a cash flow-intensive business, you are always buying fuel, making insurance payments, making truck payments, and so on. Therefore, unless you get quick-pays, it can take 15 to 30 for shippers and brokers to pay their invoices. It can even take 45 days sometimes. Cash flow problems can be created for you, especially in the early days of the business.
Using freight bill factoring is one way around the problem. By advancing up to 95% of the invoice, factoring solves your cash flow problem, often the same day you submit it. Less a small fee of the remaining 5% is rebated once your shipper pays. Other services as well, such as fuel advances, cards, etc. are provided by many factoring companies.
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