How to Build a Profitable Owner Operator Business
The need for trucking businesses in the United States seems to only grow with each passing month. From more companies building additional hubs to increase distribution efficiency to more people shopping online, there is a tremendous opportunity for the right entrepreneur looking to get into the trucking game in California.
Of course, simply starting a new company isn’t enough. You want to build a profitable owner-operator business and get ahead. Even if you already have a successful trucking business, you can always look for ways to make improvements and increase profits. Being a great trucker doesn’t necessarily translate into running a great company.
From obtaining the proper licensing to getting the best commercial truck insurance, here are some things you should consider:
Niche Markets for Freight Brokers
One of the first steps to building a profitable trucking business is to define your niche market. Even if you’re already in business, having a clearly defined market can help you make decisions. You can also always pivot into new markets that might perform a little better. The niche you choose will determine many aspects of your business like:
- the equipment you buy
- the kinds of drivers you need
- how you’ll market
- even what types of commercial trucking insurance plans you will need!
There are a variety of markets that you can choose, and you’re not necessarily stuck to just one if you can find a way to make them overlap or you already have the right gear. As an owner-operator, you’re best off selecting a market that large carriers don’t do. That might mean picking more specialized loads. General markets have a ton of competition, and it may be difficult for an owner-operator to compete with some of the larger carriers.
New owner-operators can look for areas that have high needs and low competition. If that market offers year-round work and resistance to recessions, it’s an even better choice. Hauling fresh produce and meat in refrigerated trucks (reefers) is just one example.
Determine Your Operating Costs and Rates
As an owner-operator, you need to have a full understanding of your costs. Without knowing what it costs to do business, there’s no way to actually see if you’re making a profit.
Start With Figuring Out Your Fixed Costs
These are the costs that stay the same regardless of how many miles you drive. Some of these examples include:
- Rent for your office or warehouse space
- Employee salaries
- Truck rental
You may find there are areas you can cut here that will save your company money. For example, downsizing office space or finding cheap commercial truck insurance can make a huge impact.
You’ll Also Need to Figure Out Your Variable Costs
These are costs that change depending on how much work you do. Fuel is a great example, as is vehicle maintenance. The more miles you drive, the higher these costs are going to be.
Get Your All-in-Cost Per Mile
Take your fixed and variable costs to determine your all-in-cost per mile. This represents how much it costs you to do a job. If you subtract this rate from how much you charge, you get an idea of your profit. It’s definitely worth working with an experienced accountant to get an accurate view of your operations costs.
Figure Out Your Rate
You also need to know how you’re going to charge your clients. Your rate needs to be enough to cover your operating expenses plus put some kind of profit in your pocket. You’ll need to have rates set up before you start making sales, so this is an important step.
If you’re not sure what to charge, there is a trick you can use to get an idea of the going rates. The easiest thing to do is find several loads similar to what you want to haul. Call the brokers and find out how much they pay for these shipments. You can use this to get an average price for a load going a certain distance. This average is a great place to start. Typically, owner-operators can add 10 to 15% on top of the broker fee.
Be Smart About Fuel
Whether your trucks run on gasoline or diesel, fuel is one of your most significant expenses. Owner-operators are often fooled by thinking that purchasing fuel based on pump price is the cheapest way to make this purchase. While this line of thinking makes sense for regular drivers, it can cost truckers hundreds or thousands of dollars more each year.
The most prominent element to consider is taxes. Regular automobile drivers pay taxes in the state where they purchase the fuel. That means the lowest pump price is the lowest price overall.
Truckers, however, must work with the International Fuel Tax Association (IFTA). That means truckers pay taxes based on fuel used as they drive through different states, regardless of where they purchase their fuel. The most prudent way to buy fuel is to look for the cheapest base price, which is the fuel price minus the tax.
Shop Around for Cheap Trucking Insurance
Another of your highest costs involves your commercial trucking insurance. As an owner-operator, you won’t be covered the same way as an employee for a large trucking company. You are responsible for your own coverage.
Since this fixed cost will have recurring premiums regardless of the work that you do, you want to find the cheapest commercial truck insurance that fits your needs.
Your truck insurance costs are determined by a number of factors: your driving record, the type of truck you own, the kinds of cargo you haul, and more. You’ll want to evaluate your business and get the right commercial truck insurance to keep you protected.
While trucking insurance is a substantial part of your budget, the right company will help keep your business running. Not only do states like California require certain levels of coverage, but being fully covered means you won’t have to come up with cash to fix or replace your truck if an accident happens.