Know the value of your time to assess true profit

In April 2018 I asked the question What’s your time worth? This was prompted by the disruption caused by the ELD mandate. It was a moment in trucking where carrier management, owner-ops and drivers alike began to take a harder look at time-based revenue, expenses and income – not just the per-mile calculations.

But then and now, there is a large segment of the owner-operator and lease operator base that struggles with just how to crunch the numbers. I look at these numbers differently now than when I was doing all the busy work in the truck and trying to keep things in balance.

First things first: There are hundreds of thousands of one- and multiple-truck owners, and l know how difficult it is to manage everything and still drive with just one. If you have a small fleet, you are no doubt stressed even more. As fast as cost inputs and freight rates are changing, can you afford not to know your estimated profit and loss on every load contract before you go?

One thing I want to encourage is separating your own driver pay from the business profit or loss. This can be mentally challenging when you drive for yourself. Yet making yourself the W2 employee with a set compensation will benefit you, now and in the future. After all, if you decide to hire a driver, you will be forced into this anyway.

With rates at historically high levels, profits are up. As in earlier cycles, many newer single-truck owners and current company drivers feel this and are looking to lease to a carrier anew or buy a second or third truck. We imagine all the income we’ll have, allowing us to stop driving and just hire others.

Take caution with this idea, given the current state of driver availability. Potential regulatory changes, too, may impact contracts and costs for transportation.

When asking what you are worth as a driver, take note of current pay rates for company drivers. You also cannot ignore employee benefits in this day and age. I happened to speak recently to my friend and fellow TA Petro Citizen Driver honoree Rob Fernald, who lives in Maine. Rob was a Walmart driver for 20-plus years, then ventured into ownership and other driving opportunities with high-risk freight. Just recently, though, Walmart called and offered an even better package than what he had previously.

It seems to me that large private fleets are beginning to reverse the trend of contracting with outside carriers and instead are hiring more employee drivers. Several factors drive this, I suspect. Two of them being the continuing increase in spot rates putting pressure on contract trucking costs for shippers like Walmart, and just pure shortages in capacity where it’s needed. Walmart is certainly not the only company going after employee drivers aggressively. Dollar General, Old Dominion and others in hot pursuit have made trucking headlines.

As a baseline for your own calculations, do you know what a company driver is earning? It looks to me like $70,000, plus benefits that are valued as high as $20,000-plus, is getting more common.

Research this potential yourself as you evaluate your pay and profit in comparison. ATBS reported truck owner net income was almost $5,000 higher in 2020, just shy of $70,000, not including per diem (which I know many see as untaxed income, or benefits, if your LLC or S Corp is not providing it to you as a one-truck owner). How do you think you compared to that?

Excluding your own pay, how much profit did you have?
The pressure to cover monthly fixed costs (truck payment, insurance, and other regular expenses) can become an emotional force for many, dictating when you work and what loads you select to haul. At once, everyone should ask themselves: Am I choosing loads just for a big chunk of revenue to make a payment? Or am I choosing loads for a reasonable profit?

That’s the other big and pesky question here related to time’s worth. I did a little research and found profit margins (profit as a percent of total revenue) between 7% and 19% for transportation broadly.

This would suggest a sound profit goal for the average owner could be 10% of your 1099, or 10% of the sum of your 1099s, after you’ve paid yourself. So if your 1099 showed $180,000 gross in 2020, a good profit goal might be $18,000 -- after your salary and benefits. Plenty owners do better than that, though the percentage depends a lot on what you pay yourself as a driver.

It’s absolutely still important, as I wrote back in 2018, to measure your per-hour costs. Work hours vary day to day, of course. The time you put in compared against fixed and variable expenses can be a powerful way to determine when, for example, that customer who’s got a huge detention problem is no longer worth the time and effort of maintaining a relationship with.

Tracking variable expenses (fuel, tires, etc.) separately from fixed costs is important in determining the worth of loads and making decisions. When the wheels are not turning, you’re not spending money on variable expenses. With owners I've worked with, variable costs average around 75 cents/mile and fixed costs per day worked run $300 to $550. Armed with your own numbers on those costs, you can determine what it will cost to haul a given load.

[Related: What is your time worth?]

I recently helped a client do the calculations for one load, based on costs and profit:

Variable cost: 1,550 miles at $0.75 total variable cost = $1,162.50
Fixed cost: 2.5 days invested at a daily fixed cost of $383.00 = $957.50. (That daily cost includes $275 worth of daily salary to the owner.)
Total cost: $2,120, or $1.37/mile
Rate paid to the truck: $3,220, or $2.08/mile for all miles
Profit: $1,100 or 34.16% of revenue
Profit plus salary (at $275 for those 2.5 days): $1,787.50
Profit plus salary per day: $715.00

All those are worthy calculations, but when it comes to actual hours worked, two and a half days can vary quite considerably in trucking, depending on so many factors. In this case, actual hours spent either driving and on-duty over those 2.5 days totaled 28.75 hours. Knowing that, here’s what the operator’s time was worth, and what it cost per hour to generate that worth, concretely and succinctly:

$73.74 per hour in cost
$38.26 per hour in profit
$23.91 per hour driver pay (based on the operator’s self-pay salary)

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