The trucking business can be very profitable, but the Canadian market is incredibly competitive. Many truckers try to get into the business every year and end up failing.
This outcome usually happens to people who are great truckers but are not good business owners. Knowing how to run and grow your trucking business takes more than knowing how to drive a truck or choose a route.
These eight steps point you in the right direction. They help you make the transition to becoming a successful owner-operator. This article covers:
- Support the right market niche
- Charge the right rate (per mile)
- Determine your operating costs
- Use the right fuel-buying strategy
- Work directly with shippers
- Run an efficient back office
- Avoid cash flow problems
- Expand your fleet the smart way
1. Select the right industry niche
Most new owner-operators want to haul dry van loads. These freight loads are the easiest to pull and are used by many industries. This strategy seems a safe bet and reasonable on the surface. Unfortunately, this strategy has a few drawbacks. Dry van loads are the most competitive and usually pay the lowest rates. Furthermore, large carriers and companies dominate this industry. Most new owner-operators will find it difficult to make a reasonable profit.
Rather than just choosing to pull dry van loads, you have a better chance to succeed if you select an industry niche you are familiar with. Lastly, you should also consider specialized loads since they have less competition and pay higher rates.
Some specialized types of cargo, such as refrigerated (reefer) loads, are available in all provinces. Other types of cargo may be tied to the location of your base of operations. For example, truckers located in British Columbia may want to focus on supporting the local logging industry. Carriers in Alberta may choose to support the oilfield services industry. Ultimately, you should consider an industry niche that you know well and will be profitable.
2. Charge the right rate (per mile)
As an owner-operator you need to determine what rate to charge your clients to haul a load. Your rates need to be high enough to give you a nice profit and pay all your operation costs.
You need to know your rates before you start calling shippers and making sales. Remember, when you call shippers, you want to be competitive with what brokers charge them.
There is a simple way to do this:
- Select your freight lane
- Go to a load board (longer list)
- Find 10 loads going in one direction
- Call the brokers and find out how much they pay
- Get the average
- Add 10% to 15% to get the price brokers charge shippers
- Repeat the process for the opposite direction
Now you know how much the lane pays for a round trip – taking and bringing loads back.
3. Determine your operating costs
Knowing your operating costs in detail is important. Otherwise, you have no idea whether you will make a profit.
Determine your fixed costs. These are costs that stay the same regardless of how many miles you drive. Examples are truck payments, owner-operator insurance, permits, and so on.
Now determine your variable costs. These costs depend on the number of miles you drive. For example, fuel is a variable cost. The more you drive, the more you fuel you use.
Use your fixed and variable costs to determine your “all-in-cost per mile.” This figure is very important. If you subtract your “all-in-cost per mile” from your rates (calculated in step #2), you get your profit – the amount of money you keep.
4. Use the right fuel-buying strategy
Fuel is the largest expense for owner-operators. However, many owner-operators don’t plan their fuel purchases correctly. This leads to higher fuel expenses and lower overall profits (or even a loss).
Carefully plan your routes and fuel purchases, considering fuel prices, taxes, and IFTA payments/rebates. This will help you keep fuel costs under control. There are several online tools that can help with this.
5. Work directly with shippers
Load boards and brokers have their place in your business. They can be very useful when you have an empty truck. However, they are also very expensive. Brokers keep about 10% to 20% of the load price. That’s fair, as they must make a living and they provide the shipper (and you) with a service.
Minimize your use of brokers and load boards. Instead, develop a client list of direct shippers. Done right, you can develop a list of reliable shippers that will keep you busy. Charge them a price that is competitive to what brokers charge – but keep everything for yourself instead. We have written the following resources to help you grow your shipper list:
6. Run an efficient back office
Having an efficient back office is key if you want to stay profitable and grow. The importance of the back office becomes more important as you start adding leased drivers to your operation. You have a couple of options.
One option is to do it yourself. You can run your business out of the cab of your truck. All you need is a laptop, an Internet connection, and a printer. You also need accounting software to run your business. There are several options on the market.
Alternatively, you can outsource your back office to a dispatcher. However, they can be expensive. If you choose this route, interview them thoroughly. The wrong dispatcher can kill your business.
7. Avoid cash flow problems
Trucking is a cash flow-intensive business. You are always buying fuel, making insurance payments, making truck payments, and so on. Unless you get quick-pays, shippers and brokers can pay invoices in 15 to 30 days. Sometimes they take 45 days. This delay can create a cash flow problem for you, especially in the early days of the business.
One way around this problem is to use freight bill factoring. Factoring solves your cash flow problem by advancing up to 95% of the invoice, often the day you submit it. The remaining 5%, less a small fee, is rebated once your shipper pays. Many factoring companies provide fuel advances, cards, and other services as well. By the way, we are a factoring company. If you need factoring, fill out this form and a credit manager will contact you shortly.
8. Expand your fleet the smart way
Many owner-operators expand their fleets without spending enough time planning. There is a big difference between being a successful owner-operator and running a successful small fleet. Running a fleet of trucks requires more work and is more expensive than most truckers expect. The additional work and expenses catch many owner-operators unprepared and often leads to failure.
The smart way to grow your trucking fleet is to use a well-planned, methodical approach. Learn as much as you can about managing a small fleet before expanding. Work with a CPA to develop a financial forecast of the business. Take small and manageable steps. Lastly, consider starting the initial phase of your expansion with leased drivers instead of employees. This approach gives you an idea of how a fleet actually works before you take the step of committing to employees.
Note: This article is written for information purposes only. It should not be construed as providing financial or business advice. If you need advice, consult a professional adviser.