1. Support the right market niche
The most important step to be a successful owner-operator is to support the right market niche. I have done this in my own company and have been extremely successful. This affects small fleet owners as well. The market you choose determines the equipment you buy, the rates you charge, and the freight lanes you can service.
As a rule of thumb, owner-operators should focus on markets that the large carriers avoid. In other words, consider hauling specialized loads.
Making decent revenues with a dry van is very difficult as an owner-operator. There is too much competition from large carriers and other owner-operators trying to pull the “easier” loads.
There are many markets that you can focus on. However, hauling fresh produce and meat in reefers has many of advantages. They include less competition, year-round work, and it’s resistant to recessions. The last one is very important.
2. Charge the right rate (per mile)
As an owner operator, you need to determine what rate to charge your clients to haul a load. Your rates need to be high enough to give you a nice profit and pay all your operating costs.
You need to know your rates before you start calling shippers and making sales. Remember, when you call shippers, you want to be competitive with what brokers charge them.
There is a simple way to do this:
- Select your freight lane
- Go to a load board
- Find 10 loads going in one direction
- Call the brokers and find out how much they pay
- Get the average
- Add 10% – 15%
- That is the price brokers charge shippers
- Repeat the process for the opposing direction
Now, you know how much the lane pays for a round trip
3. Determine your operating costs
Knowing your operation costs in detail is important. Otherwise, you have no idea whether you will make a profit.
Determine your fixed costs. These are costs that stay the same regardless of how many miles you drive. Examples are truck payments, insurance, permits, and so on.
Now, determine your variable costs. These costs depend on the number of miles you drive. For example, fuel is a variable cost. The more you drive, the more you fuel you use.
Use your fixed and variable costs to determine your ‘all in cost per mile’ This figure is very important. If you subtract your ‘all in cost per mile’ from your rates (calculated in step #2), you get your profit. Profit, the amount of money you keep.
4. Use the right fuel buying strategy
Fuel is the largest expense for owner-operators. However, new and experienced owner-operators often buy their fuel incorrectly. They think that the cheapest pump price provides them with the cheapest fuel. This is wrong. You could lose hundreds (or thousands) of dollars by doing this.
This issue is taxes. Regular drivers pay fuel taxes in the state that they purchased the fuel. Truck drivers, on the other hand, must deal with IFTA. Truckers pay taxes based on fuel used as they drive through states, regardless of where they bought the fuel originally.
Because of this, you should buy fuel at the cheapest base price regardless of the pump price. Base price = fuel price – tax.
5. Work directly with shippers
Load boards and brokers have their place in your business. They can be very useful when you have an empty truck. However, they are also very expensive. Brokers keep about 10% – 20% of the load price. That’s fair, they must make a living and they provide the shipper (and you) with a service.
6. Run an efficient back office
Having an efficient back office is key if you want to stay profitable and grow. The importance of the back office becomes more important as you start adding leased drivers to your operation. You have a couple options.
One option is to do it yourself. You can run your business of the cab of your truck. All you need is a laptop, the Internet, and a printer. You will need accounting software to run your business. There are several options on the market. One well-known solution is Truckbytes, which offers a free entry-level package.
Alternatively, you can outsource your back office to a dispatcher. However, they can be expensive. If you choose this route, interview them thoroughly. The wrong dispatcher can kill your business.
7. Avoid cash flow problems
Trucking is a cash flow intensive business. You are always buying fuel, making insurance payments, truck payments, and so on. Unless you get quick pays, shippers and brokers can pay invoices in 15 to 30 days. Sometimes they take 45 days. This can create a cash flow problem for you, especially in the early days of the business.