As a trucker, you need to know the operating expenses for your business and primary job — driving on America’s many roads. Calculating the cost per mile is one of the easiest ways to figure out how much you have to spend to get paid for a job.
Not sure where to start or how to calculate this valuable metric? Let us show you how to figure out cost-per-mile step-by-step.
What Does Cost-Per-Mile Actually Mean?
Put simply, the cost-per-mile is how much you have to spend to drive 1 mile for your trucking business. For business owners, the cost-per-mile is how much money it costs to ship goods one mile, given the expenses for trucking, fees, etc.
Say you had $3000 of total expenses and drove 10,000 miles in a given month. Over that month, the cost-per-mile was just $.30. Depending on other aspects of your business, especially its other expenses, this can tell you whether you're likely to make a profit and whether you need to cut down on other expenses, and more.
Reasons Why Your Cost-Per-Mile Is Important
- Helps Determine Whether You Should Take Loads
- Can Help You Estimate Profits
- Saves Unforeseen Maintenance Worries Down the Road
Helps Determine Whether You Should Take Loads
There are many reasons why business owners, truckers, and business owners with a stake in shipping practices and costs should calculate cost-per-mile.
The first of these helps truckers determine whether or not they should take specific loads. Imagine a scenario in which a trucker has two different jobs they can potentially take:
- With the first job, the cost per mile will be $.50. In other words, they will have to pay $.50 per mile they drive. The payout will be $5000, and total expenses will be $3000
- With the second job, the cost-per-mile will be $.30. They’ll have to pay $.30 per mile they drive. However, the payout will be $4000, yet the total expenses will only be $1000
In this hypothetical scenario, the trucker might be wise to take the second job because they'll make more of a net profit ($2000 versus $1000). Thus, the cost-per-mile calculation can help truckers better organize and prioritize their time and take jobs worth their expertise.
Can Help You Estimate Profits
Business owners and truckers can also use the cost-per-mile calculation to estimate their truck payments or profits. As in the above example, the cost-per-mile shows how much you can expect to spend in total driving expenses. Then you can compare that to your overall profits or expected payout.
Once you deduct the cost of the trip and associated expenses, what you have left is your revenue or net profit. Understanding net profit tells you how much money you have coming into the bank after deducting all the expenses necessary to run your business.
Saves Unforeseen Maintenance Worries Down the Road
On top of all that, the cost-per-mile calculation can help you avoid maintenance concerns later down the road. If you know the average amount of money you spend on maintenance for a set number of miles, then incorporate that into your cost-per-mile calculations; you can anticipate those maintenance expenses and tuck the money away for the upcoming job.
How To Calculate Your Cost-Per-Mile
- Using Totals
- List Expenses Individually
- Factoring In Variable Costs vs. Fixed Costs
Using Totals
Given the importance of the cost-per-mile calculation, it pays (literally) to know how to calculate it. Fortunately, this is pretty simple.
To calculate actual cost-per-mile, most simply, figure out your totals. The “totals” are the following:
- Total expenses you expect to pay over a trip, including fuel costs
- The total payout you’ll make when you deliver your load
Once you have those total costs and payouts, you follow the below formula:
- Total expenses / total number of miles driven = cost-per-mile
Say that an upcoming trip will have you drive 5000 miles, and you expect your total expenses to be $3000. Plug those numbers into the formula, and you get:
- 3000 / 5000 = 0.6 or roughly $.66 per mile cost
Not sure how to find your total expenses? Simply look at your profit and loss statement for a reasonable average cost or estimate your operating payments. If you’ve made the same trip multiple times, you can take the charges from the last trip and plug them into the formula to get a more accurate answer.
For example, if you want your annual costs, take the monthly costs from your bookkeeping and start calculating costs the way outlined above. It helps to stretch your expenses over an extended timeline to get a fair picture of your overall cost-per-mile. However, actual prices will always vary from even the most stringent cost-per-mile calculator since your total variable costs include miscellaneous expenses that are impossible to determine upfront. In these calculations, you can optimize your numbers; however, the formula cannot yield an unchangeable answer because of the inherently variable inputs.
List Expenses Individually
Alternatively, you can individually list the expenses for an upcoming or current trip. Write down all the expenses like:
- The cost of gas
- Estimated or actual maintenance costs, including license plate fees and renewals or other costs of operating the business
- Costs for tolls, weigh stations, travel fees
- Prices for food and accommodations
- Anything else you may need to pay on your journey
Once you list all the expenses, add them to your total costs. Then plug the number into the same formula mentioned above.
Factoring In Variable Costs Vs. Fixed Costs
As you calculate your expenses, you’ll need to factor in variable and fixed costs.
Fixed costs are any unchanging expenses for your business, like your salaries for employees, the payment on your truck, fees for a specific route, etc. These should stay the same year after year, although they can fluctuate slightly over more extended periods.
Variable costs are any expenses that can fluctuate from a trip to trip. These include the cost of gas, maintenance costs, and anything else that may change over time.
Fixed expenses can usually be identified by looking at your balance sheet or profit and loss statement. You can average variable costs if you take each time you’ve encountered one of those costs, add them together, and divide them by the total number of times you’ve paid for them.
In either case, be sure to factor in fixed and variable costs consistently according to their most recent iterations. For instance, if you are trying to calculate the cost of gas for an upcoming trip, use the most recent gas prices you can find to account for that variable expense.
What Cargo Works Best With Pup Trailer Transport?
We typically use pup trailers to transport lighter loads than full transports. Therefore, agriculture, manufacturing, and construction goods are often excellent loads to use with a pup trailer transport.
Home goods, coal, and sod are also excellent choices. Pup trailers are not refrigerated or “reefer” transports, however, so you should never try to transport perishable products like fresh foods and vegetables in a pup trailer.
Sometimes, you can deliberately choose to use a pup trailer transport for your shipments to lower the cost per mile. Some pup trailers are more affordable than full trailers since they are lighter, so they require less gas and don't need to take as much cargo to be economically worthwhile.
Bottom Line
The cost-per-mile calculation is a vital financial tool to analyze your business's health as a truck driver or business owner/operator. Calculating the cost-per-mile is relatively easy and gives you essential insights into your expense efficiency, which routes you should take, and how else you can maximize your business's profits.
It’s also an essential factor we consider at RPM. As a specialized trucking company, we guarantee great rates for each client when we connect them to one of our over 40,000 monitored and vetted carriers. Contact us today to learn more about how we can help your business save in cost-per-mile and other ways.
Sources:
Cost per Mile - The Basic Formula | Businesscon.org
Variable Cost vs. Fixed Cost: What's the Difference? | Investopedia
What Is Revenue? | Investopedia
