For a trucking company, it is very important to know the operating cost for each trip. It is very crucial for the trucking company to break the threshold of operating costs for each and every trip. Otherwise it will be impossible for them to stay in the business. Therefore, calculating the cost per mile is the first step you have to take even before starting your trucking company. Once you have the cost per mile and the estimated revenue, then you can have a clear idea about how much profit you will make on a trip. This estimated profit is the real difference between a successful company and a failed one. You can calculate your cost per mile by following a few steps.
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The first and the foremost part of calculating your cost per mile is to know the exact amount of mile you drove in a month. This total number of miles must include both paid and non-paid miles. In this way, you are able to get the total operating cost for the trip.
Most of the time trucking companies use an estimated number of total miles in a month to calculate the cost per mile. This number can be different for different companies, as not all the companies have the same kind of business volume. However, most of the companies claim to drive hundred thousand miles a year.
Calculate your fixed operating cost
Fixed operating costs are the expenses that don’t change from month to month. These expenses don’t change whether your truck is on the road or parked in the parking lot. Fixed expenses include the truck payments, truck and driver insurance, cellular plans, health insurance premium, licence plates and the various permits required to operate the trucks. As you can see, these expenses don’t change month by month. They remain the same for all the trucking companies. Some of the expenses are yearly based and some you have to pay monthly. Once you add all these fixed expenses, you have an idea of per mile fixed operating cost.
Calculate your variable cost
Variable expenses directly depend on the number of miles you drive every month. Therefore cost increases with the increase in the number of miles driven in the given month. Fuel is a variable expense as it is directly related to the number of miles. Fuel expense increases with the number of miles goes up in a month.
Other variable expenses are food expenses, maintenance and tyres etc. You don’t have to spend every month on maintenance and tyres. Therefore this cost changes every month. Food expenses also vary all the time. Therefore to calculate cost per mile, you have to calculate the variable expenses every month very accurately with ifta fuel tax mileage calculator.
Total cost per mile
This is the final step to put everything together and find the total cost for the month. You have to put the total number of miles, fixed and the variable expenses of the month together and get the cumulative figure. This figure is our total cost of operation for the month. In this manner, you can simply divide this figure by the number of miles driven in the month to get the cost per mile. In this calculation, you will notice that your fixed expenses decrease as your number of miles increases.
Calculate profit per mile
Once you have the total cost per mile, then it is easy to know your profit per mile. You already know the amount of revenue you generated in a month, you just need to divide this amount by the number of miles you drove in the month. This will give you the amount you make per mile. Now just subtract the cost per mile from the amount you made per mile, this will give you the profit per mile. In the trucking industry, profit is the most important thing. If you know how to calculate ifta tax accurately, then there is a great chance to be a successful trucking operator.
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How to maximize profit by calculating your cost per mile
Once you have completed all the calculations to determine the cost per mile and the profit per mile, now you can start going through the numbers and find the areas of improvement. As you have already noticed that your fixed expense tends to decrease with your number of miles increased. But at the same time your variable cost goes up with the miles.
You can cut the variable cost by saving on fuel with the help of truck management software. This software can guide the drivers better routes and reduce wastage time. You can also manage the stops more efficiently and deliver on time. All these steps help you control the variable costs to an extent. This will have a great effect on your saving. More you cut the variable cost while driving more miles, it has a significant impact on your net savings. This is all possible due to the calculations we did to determine the cost per mile.