Updated: May 14
For any business, the formula for increasing profits is pretty simple - you’ve got to maximize your revenue and minimize your costs. And while it’s important to maximize your revenue, managing costs can have an even bigger impact on your profitability, here’s why.
ATBS’ data shows that the average owner-operator has a profit margin of 45%. That means if you generate $1.00 in revenue, only $0.45 goes into your pocket as profit. However, if you reduce your costs by $1.00, one hundred percent of that $1.00 goes into your pocket as profit. That’s why managing costs is so important.
On the cost side, there are two kinds of costs: Fixed Costs (FC), and Variable Costs (VC). The easiest way to think about these costs for owner-operators is to remember that fixed costs are the expenses you pay regardless of whether your truck is moving or parked i.e. truck payments, insurance, FHUT, etc. And variable costs are the expenses that you only have to pay when your truck moves i.e. maintenance, fuel, etc. The single biggest expense for owner-operators is fuel, and how you choose to manage fuel can have a major impact on your profitability and your quality of life.
To understand the impact of fuel, we begin with some of ATBS’ exclusive industry data. In 2020, the average owner-operator worked 253 days, drove 104,000 miles, and made $0.65/mile in profit. In addition, the average VC (not including fuel) was $0.14/mi, and the current average cost of diesel fuel is $3.19/gal.
Using these numbers, if your truck averaged 6.5 mpg, you would spend $51,040 on fuel for the year. Here’s how the math works: (104,000 mi ÷ 6.5 mpg) x $3.19/gal = $51,040. Likewise, if your truck averaged 7.5 mpg, you would spend $44,235 on fuel for the year.
So the difference between 6.5 mpg and 7.5 mpg is equal to $6,805 ($51,040 - $44,235 = $6,805). And as we know, when you reduce costs, 100% of those cost savings go straight into your pocket as profit. The math gets more complicated, but here are a few different ways to think about all of this:
Improving your fuel economy from 6.5 mpg to 7.5 mpg improves your profit for the year by $6,805!
At 104,000 mi per year, $6,805 in profit is equivalent to a 6.5 cent per mile pay increase!
If you operate your truck at 7.5 mpg instead of 6.5 mpg, you can run 12,725 fewer miles per year and still make the exact same profit!
Said another way, if you operate your truck at 7.5mpg instead of 6.5mpg, that is the equivalent of running an extra 12,725 miles per year!
If you operate your truck at 7.5 mpg instead of 6.5 mpg, you can work 31 fewer days per year and still make the exact same profit!
As you can see, managing your fuel economy and fuel costs can have a significant impact on both your profitability and your quality of life. We used 6.5 mpg and 7.5 mpg simply as examples. Regardless of where your current mpg is at, the more you improve it, the greater the impact!
To read the previous article in the series, click here!