The cost per mile is one of the most important financial metrics in trucking. This dollar amount impacts your profit margins, and it should influence how much you charge your customers.
Trucking companies look at this data to ensure long-term business sustainability instead of a quick exit as well. Knowing how to calculate cost per mile will help you set fair prices that keep you in business and allow you to serve more customers.
What Is Total Cost Per Mile?
The total cost per mile reflects how much it costs to move a truck one mile. Knowing the total cost per mile can help you estimate how much it will cost you to deliver your freight across land routes. These estimations can help you adjust your prices accordingly and decide which routes you will continue to service.
Why Is Calculating Cost Per Mile Important?
Calculating the cost per mile gives you a better understanding of your profit margin and navigate rising costs. This average cost per mile can fluctuate based on gas prices and other factors, but the estimate provides an anchor point.
You can establish prices that give you a reasonable margin of safety. Knowing your cost per mile reduces the likelihood of unprofitable deliveries. Those deliveries can burn cash flow while giving you fewer resources to address incoming customers.
What Is the Average Cost Per Mile For Trucking?
The National Private Truck Council calculated that the average cost per mile is $2.92 for trucks. These rates have slight deviations based on the type of truck. For instance, flatbed trucks have a higher cost per mile on average than dry van trucks.
This cost per mile comes from the NPTC’s 2021 report. Focus Management Groups ran calculations to factor in inflation and then came up with an average cost of $3.42 per mile. The management group reviewed data from the consumer price index, producer price index, American Truckers Association, American Automobile Association and various other resources when seeking to adjust the average cost per mile for inflation.
Factors To Consider With Cost Per Mile
Knowing the average cost per mile can serve as a gauge for your business operations. However, trucking companies have various expenses that influence their average cost per mile.
By trimming costs and using more efficient routes, you can work to lower expenses. Here are some factors to consider when calculating your costs and determining your profit margin.
Fixed expenses are the recurring monthly expenses that remain the same. You can anticipate monthly loan or lease payments on your truck, insurance premiums, license plates and other fixed expenses.
Salaries also count as fixed expenses, but they can rise as drivers ask for raises or cover more mileage. Salaries are more fixed than common variable expenses.
Variable expenses also impact your bottom line, but they are more difficult to anticipate than fixed expenses. Variable expenses such as gas and food have volatile values. Rising gas prices will strain your profit margins, but gas prices can also decrease them.
While waiting for prices to change favorably, you can also use these money saving strategies to reduce your gas bill. Truck companies have to ensure that their trucks are receiving the proper maintenance and repairs. These necessities are variable expenses since you can’t anticipate in advance how much maintenance or how many repairs your fleet will need.
Truck drivers and companies arrive at the average cost per mile by dividing the total costs by the total number of miles. If you spend $300 to drive 100 miles, your average cost per mile is going to be $3. You’ll need both inputs to calculate mileage cost for your deliveries.
Knowing how many miles your fleet drives each month will help you establish your average cost per mile as well. You can use weekly and monthly intervals to analyze trends and make quick adjustments to your pricing models.
3 Simple Steps For Calculating Total Cost Per Mile
Calculating your total price per mile is simple. It only requires you to follow three specific steps, and staying on top of this metric can help you stay in business while expanding your operations.
Step 1: Determine Your Mileage Over a Given Period
Compiling total mileage over set intervals, whether that be weekly, monthly, quarterly or annually, will give you comparables when revisiting data. You can track your total mileage in spreadsheets, making it easier to refer to the data. Scattering your mileage logs instead of putting them in a central database can complicate efforts to identify profit margin trends.
Step 2: Create a List of Expenses
Create a list of expenses that will allow your trucks to travel. You will incur several expenses on driving routes, such as salaries, gas prices, meals and monthly truck costs.
Turn every stone and look for the smallest expenses. Every dollar adds up, and each one will give you a more accurate understanding of your financial outlook.
Step 3: Divide Your Expenses By Cost Per Mile
Dividing these two numbers will help you arrive at your average cost per mile to drive. The total number is just the beginning. You can segment your analysis by specific routes to discover discrepancies.
Shipments to one state may yield a lower cost per mile than other states. You can focus your marketing efforts on attracting potential customers based on your profit margins, demand and a number of other factors.
Keep Your Profit Margin Secure
Knowing the average cost per mile will help you set prices that keep money in your pocket. Truck companies and drivers can assess each delivery and know the likelihood of it being profitable.
Analyzing data on the average cost per mile will keep your company healthy instead of guessing if shipments will yield profits. Calculating your cost per mile and compiling data points will positively serve your company now and in the future.
You should assess your profit margin to discover how much you can charge per mile to maintain a healthy profit. Analyzing the competition can also help you set prices and look for ways to lower costs.
Reducing fuel consumption will always help you reduce the cost per mile, but investing in a safety program is an additional solution, albeit a long-term one. Educating your drivers about safety precautions will reduce the number of accidents, repairs and delays that are needed.
You can calculate trucking costs by listing fixed and variable expenses. These expenses will help you arrive at your trucking costs.