Did it really pay for itself? As a frugal and wise business owner, this is a question you should not have to ask yourself. Because if all it did was pay for itself, it means you’ve covered expenses, but where’s the profit? Just covering costs only keeps you mired in the mud and doesn’t let you set up your future sustainability and growth.
It’s true that every load doesn’t generate the revenue to make a profit; a few will even be below the cost of running that particular load. But it’s important for a carrier owner/ manager to be realistic about the results so you don’t get yourself into deeper financial mud. Misunderstanding (or fooling yourself ) about what it means to break even has both micro and macro implications on the monetary health of your trucking company.
You need to have definitive revenue goals. First, you must know your costs, i.e., the break-even point. Second, you need to know how much capital is needed to sustain and grow your company. From this point, you can establish a rate range that meets those revenue goals. Knowing your numbers and having an established rate range is really the only way you can be assured you’re getting the best price on the shipments you haul.
Why would a carrier want to enter into a hauling arrangement that’s just covering costs? Without a target range that’s profitable, you and your carrier can do this unwittingly. Having a rate range which covers the break-even point all the way up to full capitalization provides the carrier with a target area. While the market does determine rates to some extent, other things establish the range of a rate. The level of customer service is one such determining factor that can either raise or lower a rate. There are also truck-to-load ratios in the lanes being considered. So this would be the next step: understanding the market in which you’re searching for loads.
Knowing your capital needs gives your carrier the ability to pick and choose the most profitable lanes. If you’re looking at a particular lane and your rates are too high, then you need to cut costs, take a lower profit margin, or not haul that freight. But it’s impossible to make that decision without a rate range.
The objective is to be in the mid to high portion of a rate range when all loads in a lane are calculated together. In other words, some loads may be below the break-even point, but when averaged with all the loads being hauled within that lane, your carrier should be showing a profit for that truck and lane at the end of each month, quarter and year.
Know your rate range first and then look at the market. Too many carriers, particularly the smaller ones, jump into a market and try to match rates to the market instead of doing an analysis with their rates in hand to determine if it’s the correct market or lane in which to be operating.
Don’t be that carrier.