What is in this article?:
“It’s just sitting down and going through the numbers and really understanding what a business is going to look like. It’s understanding your insurance and truck payment, fuel costs, what to set aside for maintenance—a thousand questions that nobody really thinks about before they jump into this business." —Todd Amen, ATBS
Mastering the bottom line
Both Brady and Amen emphasize the importance of understanding costs and building profit into your rates.
“You’ve got fixed costs, you’ve got operational costs, you’ve got load-specific costs,” Brady says. “But there’s one other cost that if you don’t calculate it on the front end and look at it as part of your rate structure, you’re basically going to go out of business,” Brady says. “If the guy who runs the company isn’t getting paid, he’s going to eventually lack the motivation to do anything. You’ve got to include a salary for the owner.
“Here’s another way to look at it: If you’re living off the profitability of your company, you’re stealing from its sustainability and growth. Profit needs to be reinvested. So pay yourself what it would take to hire someone to do the job that you’re doing. If you’ve not included a salary, you’re not going to be able to find the money to pay somebody down the line—whether it’s driving the truck or dispatching.”
As another example, he cautions that adding a second truck isn’t just a matter of having sufficient customer demand: The fixed and operating costs will to have to be supported by the business without bringing in new revenues for up to 120 days.
“A lot of people don’t understand what it takes to grow, especially from one to two to three or four trucks,” Brady says. “I’ve seen more businesses destroy their operations with just one more truck. It’s much more than just purchasing and licensing that truck.”
To help the business owner better understand his profit and loss statement (P&L), a CPA is “absolutely” required from the start, Brady adds, as is “a great relationship” with a banker and an attorney.
You can’t set the correct rates if you don’t understand the true costs. Brady’s business writing emphasized this again and again. And since the clock is running on fixed costs whether the truck is running or not, any rate equation that doesn’t consider the time factor will be flawed.
ATBS advocates for an “average revenue per day” model. Average revenue per day is a combination of revenue per mile and miles. If revenue per mile is low and miles are high, then revenue per day will be lower than it should be while at the same time some costs will be higher. Similarly, your revenue per day is hurt if revenue per mile is high but miles are low. Simply, if Load A pays $700 and Load B pays $1,000 but requires a layover and an extra day, the revenue per day of the former is better. Sometimes the lower price is more profitable.
And based on information gleaned from subscribers to its bookkeeping service, ATBS has found that the drivers who place a high value on average revenue per day are doing the best financially.
More interestingly, ATBS draws from its database of 20,000 P&L statements to deliver very specific benchmarking information, Amen explains, which helps a small carrier owner better understand his operation—what he’s doing well and where he could improve.
“We help these guys benchmark against other guys like them,” Amen says, and he cited data such as average miles, rates, fuel and maintenance costs. “This is a business of pennies. We’re just trying to get some data on how guys are making the money they’re making. So many folks just happen into trucking, and they don’t give a lot of thought beforehand. This gives them a chance to step back and think about what they’re doing.
“We get so busy just trying to survive that we never take a minute to understand where we can be better,” Amen concludes. “There’s plenty of guys out there doing well. It just boils down to paying attention to your business and treating it like a business—not just a truck driving job.”