Have you ever wondered, why do people get into the trucking business?
One of the biggest motivators that people find, is that it can be a highly profitable way to earn a living. Unfortunately, the majority of people who try to set up their own trucking business, even if they have experience in the industry, fail to succeed. The practical knowledge and professional trucking experience in the world do not make you a savvy businessperson, but it can be done with the right research, strategy, and determination.
This guide highlights some key considerations and tips to keep in mind when starting and running your own trucking company.
Choose the right market
One of the most important decisions you will make as the trucking business owner is which markets to operate in. This decision will influence the prices you charge, the types of freight lanes you service, and the vehicles and equipment you purchase. It is usually wise to steer clear of the markets that are handled by the big trucking companies and focus on the more niche markets where there is less competition. When making your decision, you should also consider which markets are affected by seasonality and financial recessions.
Be smart about your pricing
Deciding how much to charge customers is a balancing act, as you need to be priced competitively while also taking in enough money to cover all your running costs and, hopefully, generate a profit. First, the market should inform your rates, which you can do by assessing load boards for the relevant freight lane. Next, you should contact several brokers that are going in one direction and ask how much they are paying. When you have worked out the average, you should add around 10 or 15%, as this will tell you how much brokers are charging the shippers in total. You can then repeat this process for the return trip, as this will give you the total cost being charged by brokers for round trips.
Visit the Harvard Business Review for more on pricing strategy.
Calculate your running costs
No business will succeed if the owner does not know how much they are spending and whether they will turn a profit. Therefore, you must calculate your running costs, including those that are fixed and those that are variable. For example, your monthly finance payment for your truck is a fixed cost, whereas fuel is likely to vary depending on where you are driving to. Combining fixed and variable costs will give you an ‘all in cost per mile’ that you can subtract from your rates to tell you how much profit you will make.
Be careful when buying fuel
Inexperienced trucking businesses often fall into the trap of buying the wrong fuel for their trucks. This is because they look for the fuel that is priced lowest at the pump. However, just because a fuel is the cheapest at the pump does not mean that it is the best financial choice. While a typical driver has to pay fuel taxes to the state where they bought the fuel, a truck driver has to pay taxes to the International Fuel Tax Association (IFTA) for fuel used, and it does not matter where it was bought. For this reason, truckers should be calculating the fuel price minus the tax to work out the lowest base price.
Cut out freight brokers when you can
When starting out in the trucking industry, it might be necessary and useful to use freight brokers, who act as an intermediary between you and shippers, and load boards. This gets you up and running with work and helps you to establish connections in the industry. However, as brokers will take a cut of the load price, this will eat into your profits. If you can, try to minimize your use of these and build up your own reliable list of shippers. You can charge them a similar amount to what a broker would charge, but you will be able to keep all of the money.
Streamline your administration
While it may not seem a priority, the efficiency of your back office is key to the success of your business. If you are not organized and consistent in your operations, you will face problems, confusion, delays, and reduced productivity. For example, in the early days of running a trucking business, a person might run their operation from their cab using a cellphone, a laptop, an internet connection, and a printer, but this is unlikely to suffice over time. A more long-term and professional solution is to outsource to a third party, such as a dispatcher.
For larger businesses with a fleet of trucks, a Transportation Management System (TMS) may be necessary to streamline operations. TMS technology optimizes the use of drivers and resources and can ensure legal compliance as well as other administrative tasks via a user-friendly dashboard. Making these processes more efficient saves businesses both time and money.
Boost your cash flow with factoring
Running a trucking business requires healthy cash flow at all times. This is because money constantly needs to be paid out on costs like insurance, fuel, vehicle maintenance, finance payments, etc. Some shippers and brokers will pay an invoice in a couple of weeks, but others will take a month or even longer. If all your customers paid on time every time, cash flow might not be a problem, but late payments are common in the real world. Delayed payments cause significant cash flow issues and can prevent much-needed investment in your business’ growth.
A potential solution to this is to use a freight bill factoring service. When you raise a customer invoice, the factoring company will give you up to 95% of its value upfront (typically in a matter of hours). You then receive the other 5%, minus the factoring company’s fee, when the customer pays the invoice. Click here for more ways to solve cash flow problems in a small business.