When researching for information on how to become an owner operator you may find a vast number of resources addressing three main topics: owner operator pay, truck related tips, and the rest have to do with all the red tape you have to go through if you want to become your own boss. Although there are very good articles out there on owner operator’s profit margin, the majority of them are written from a company driver’s mentality and they focus on the rate per mile when in reality there has to be a paradigm shift to start thinking in terms of gross income.
Focusing On Rate Per Mile
Status Transportation reviews new applications all the time, and from our experience, most owner operators first start in the transportation industry as company drivers. This is where they gain experience, industry knowledge and of course also where they start to focus on rates per mile. There is a very small percentage of truckers who started as owner operators without first being a company driver.
As a company driver, you had a limited vision of what was going on behind the scenes on how to run the company. Not to say you were completely unfamiliar with how things work, but in truth, your focus was more on a paycheck than on how the company was going to pay the bills. Now that you made the leap and became an owner operator you need to broaden your perspective and adopt a strategy that will help you to maximize your revenue, and gross income is that strategy. Continuing to think in terms of a rate per mile is only going to take you so far.
The Magical Rate Per Mile Number
There are two reasons why the rate per mile strategy is not good for truckers. Although rates per mile may seem like a good way to measure if a load pays well, at the end it could also undermine their efforts to increase their profits. Allow me to explain myself. One of the reasons why rate per mile is not a good way to maximize income is because the majority of higher rate loads are usually short runs. The more short runs you do during a week, the more time you spend waiting to load and unload. By focusing solely on short runs you also increase the risk of delays and other factors that could affect you during that time.
The second reason why the rate per mile strategy does not work is because there is a magical rate per mile number owner operators are having a hard time to let go. At one point in time, the market rate average was paying around $2 per mile or higher. The $2 per mile rate became a standard on how to measure if a load was paying well or not. Interestingly enough, that rate does not have anything to do with market trends, diesel prices, commodities or mileage. The economy and market trends have shifted but for some reason, the $2 figure is still fixed in some driver’s minds.
In fact, the $2 rate number is still so ingrained that some owner operators would rather sit at a truck stop in a bad area than to accept a lower paying load that would move them to a better region.
Status Transportation reviews and develops different strategies on how to maximize owner operator pay considering many factors but always with the purpose of benefiting truckers. Our gross income strategy places more importance on the per week or per month revenue than on pay per mile. We are not saying pay per mile is not important, there is a direct correlation between mileage and rate, but although a high rate mile load may sound like a better option, this does not always mean higher revenue. Experienced drivers understand and apply this concept continuously and yield better results.
A Trucking Paradigm Shift
Fuel costs account for more than 40% of operational costs. While other expenses may more or less tend to stay the same, the volatility in crude oil prices which is crucial for producing diesel can hike or lower diesel prices each trimester. Diesel costs have a direct impact on the cost of transporting goods, therefore since diesel prices have been at a lowest since late 2008, rates also have decreased. Rates may not be at the level of what they were two or three years ago, but that also means your operational costs have gone down significantly.
The paradigm shift is that while some drivers are still stuck in the past thinking about a specific rate, others have been making good money and growing their businesses adopting a gross revenue strategy.
Gross Revenue Strategy
This proven strategy shows that when considering all other factors like the number of drops and pick ups, mileage, and area instead of just focusing on the rate, in the long run, the result will be a higher weekly or monthly revenue.
How can you apply the gross revenue strategy to your business? Let’s examine an example. If you accept a load from Kansas to North Carolina that may pay a great amount of money to go into, even if the rate per mile may seem around $1.40 or $1.50, your overall revenue for that load is reasonably higher. That way if you are going into a slow area, you can come out for a lesser rate just to be able to reach your weekly revenue goal. The idea is to outweigh lower paying loads with long distance runs while focusing on a weekly or monthly goal. That way your week gross revenue is still at an all-time high, making as much profit as you possibly can.