Is a Trucking Business Profitable?
In this day and age, the trucking industry can be tough to break into. A highly sought after and competitive field, some potential owner-operators wonder whether or not starting a trucking business would be worthwhile. The big question on everyone’s mind, “Is a trucking business profitable?”
Generally speaking, trucking companies are as successful as management makes them. The key is playing to your company’s strengths, being smart about resource management, and proactive problem-solving. It can be hard to keep tabs on all of the individual facets of running a trucking company, but with the right mindset and tools, the profits of a trucking business can be massive.
Managing Your Finances to Maximize Profits of Your Trucking Business
It’s no secret that the trucking industry is driven by cash flow. Between paying your staff, refueling costs, insurance deductibles, vehicle payments, and trying to make a decent profit, the business is constantly a game of balancing finances. Once you understand how to maintain finances and improve cash flow relations, your company can experience tremendous increases in operating efficiency and a better bottom line.
If you’ve been wondering is the trucking business profitable, first thing’s first: you need to know your expenses. Assessing where improvements in the budget can be made is a great place to start increasing profits. So, what expenses can an average trucking company anticipate?
When most people consider is the trucking business profitable, they immediately think fuel expenses are the largest expense for companies. Contrary to popular belief, it’s actually driver wages, not fuel. Truck driver wages have seen an increase over the past few years, which costs more to the owner-operators who pay them. However, this isn’t a bad thing by any means. In fact, paying better wages for employees helps drastically increase the driver retention rate, meaning you’ll be more likely to hire and keep the best of the best. For times when the market is cutthroat and competition is fierce, keeping good drivers on staff means your clientele will receive consistently excellent service. In turn, this means they’ll keep coming back and may even make referrals for new customers. At the end of the day, this will bring your profit back into balance and allow your drivers to enjoy the wages they deserve.
Still one of the biggest expenses for the industry, fuel accounts for around 25% of all costs for American trucking companies. Ever-shifting gas prices are another factor that owner-operators have no control over, so the best way to optimize fuel costs is to make smarter fuel purchases. Lower pump prices don’t necessarily mean you’re getting the best deal, especially after taxes. IFTA regulations state that truck drivers must pay taxes based on the fuel they use as they drive through the country, regardless of where the fuel was purchased. To combat this, it’s best to look for lower base prices, rather than pump prices. Fuel cards are an excellent way to receive substantial discounts on fuel on top of good base prices, so it’s wise to consider investing in them.
Not necessarily an expense, but delays in receiving invoice payments from brokers can harm your bottom line. Invoices may take anywhere from 15-45 days to fully process, meaning your company is going without payment for an extended period of time. One of the best ways to address this is with freight bill factoring, wherein up to 95% of invoices are paid in advance, sometimes as early as the day it’s submitted. The remaining 5% is rebated after the shipper pays, minus a small fee.
Practicing Good Management
Success for any company is almost always attributed to good management skills, and the same absolutely goes for the profits of a trucking business. It’s critical to maintain an excellent team and have good relationships with your clientele. As stated earlier, the two go hand-in-hand: happy, skilled drivers provide excellent service, which leads to happy clientele and ultimately, satisfied customers who are more likely to use your services again.
One of the most important things to consider is whether you’re working in the right market niche. The trucking industry is highly competitive, and as such, there is often a surplus of companies going after a variety of mainstream markets. It’s tempting to go after dry van jobs. Many owner-operators do, as these easier loads can make for a quick profit. However, the competition for this and other primary markets is intense, and it can be difficult to make a decent profit solely on dry van work. Breaking into a market niche reduces competition, can provide year-round work, and may even be resistant to recessions. Areas like fresh produce and meat transportation are great markets to delve into for these reasons.
Another factor to keep in mind is how efficiently your back office is running. As the backbone of your finances, staff management, cash flow, and load information, your company’s back office is what allows you to stay profitable and ever-growing. It only becomes more crucial as you start adding leased drivers to your lineup, so it’s important to decide how you’re going to run it early on: you can opt to run the back office yourself off your own computer with the right accounting software, or you can outsource it to a dispatcher. Regardless of how you choose to do so, be sure that your back office is being managed by the most capable persons available.
Is owning a trucking company profitable? It absolutely can be, when the right steps are taken. Good management skills, staying on top of finances, and making smart decisions for your business can make all the difference in your success. At the end of the day, take care of your company and it will take care of you in return. With the help of Trincon’s trucking consultants, we can make your business profitable and efficient. Contact us today to get started!