The Cost of Owner-Operator Turnover
Updated: Feb 17
During the Coronavirus pandemic, driver turnover rates have been at an all-time low as the freight market struggled. This low turnover rate is undoubtedly significant, but this trend of lower turnover during slow economic times is nothing new. As a whole, owner-operators tend to become more conservative during slow times and focus solely on trying to keep their business afloat.
However, as we begin to see freight rates climb again, drivers will likely start to look for what they may see as ”greener pastures.” Now is the time to increase your efforts on driver retention, before the cost of owner-operator turnover becomes a significant expense for your fleet.
In this article, we will take a look at the impact high turnover can have on fleets and quantify the costs a carrier faces every time an owner-operator leaves.
Departure Costs
Attitude
Owner-operators usually don’t leave at the first sign of dissatisfaction yet the typical response to dissatisfaction is a decrease in job motivation. They become less productive and less reliable. The carrier has a greater risk of damage to their equipment and must often deal with an increased level of stress and conflict among those with whom the operator interacts. An owner-operator whose head isn't in the game can also affect profits and service.
Experience
You lose value when an experienced owner-operator leaves. The contractor who knows your company best is going to be easier to work with. They know how things work, how things get done, and are going to use fewer carrier resources. Over time, a carrier makes a big investment in an experienced contractor. When that contractor leaves, the investment is lost.
Overhead
Overhead costs are supported by the revenue generated by owner-operators. When you lose an owner-operator, overhead costs are then supported by fewer operators. The typical overhead costs such as rent, salaries, benefits, and utilities don’t go down because a contractor leaves. If the remaining operators or replacement operators can’t generate enough additional revenue to compensate for the one that left, margins are squeezed and your turnover costs are higher. In addition, when the trailer to tractor ratio is higher, then the turnover cost is also higher.
Opportunity
When the contractor leaves, the customers aren't served, the revenue is not generated and the contractor’s contribution to profit is lost. For example, if the operator who left grossed $15,000 a month for his carrier, and the carrier has a 7% pretax margin, then that's $1,050 profit for the month lost to the company for just one owner-operator.
When that operator leaves, how much freight will be refused due to a lack of drivers or trucks? How much business will your competitor get because you couldn't handle it? How will your reputation for customer service be affected? Saying “NO” to a customer when you can’t handle their business is usually considered poor service, affecting your customer relationship today and your opportunities for business in the future.
Replacement and Training Costs
Replacement costs can include recruitment, advertising, medical and drug examinations, and other administrative functions such as processing applications, checking references, and interviewing. Training involves costs for literature, trainer’s salaries, and production time lost during orientation. In addition to maintaining recruiting and training departments, there is also a learning curve cost.
Productivity is lower during the learning period. New operators have higher costs from safety, cargo claims, and customer service issues. Many times, new contractors are not yet trusted with your best customers. Miles are less until the operator proves himself so the contribution to overhead is lower. There are company policies and procedures to be learned as well as the real costs of learning through trial and error. The new operator makes more demands on company resources and will have the highest administrative cost.