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introduction to freight brokering

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Supplement Your Trucking Business with a Freight Brokerage

Trucking Costs

Although freight brokers don’t usually get involved in trucking costs, some own their own trucking business and then supplement their trucking business with freight brokering. Rates and costs are very different between the two. In this topic, you will have a good idea on the trucking costs side of logistics.

First let me say that the examples in this topic are strictly hypothetical. So here we go. ALL trucking costs need to be tracked, not just fuel costs. And these total costs need to be recorded, monitored and analyzed. By knowing your total costs, you can bid competitively rather than out of ignorance or emotion. And you may actually outbid your competitors by knowing your costs and profits.

Here is a formula for cost-based bidding. Again, the following are just hypothetical examples.
Your basic formula is:

Fixed costs
+ Variable costs
= Total Costs
+ Profit
=Gross Revenues

Your fixed costs are those expenses you have even if you are just sitting at home. Fixed costs include:

  • your truck payment,

  • insurance (including health insurance),

  • licenses and permits,

  • accounting and office,

  • plus other required truck costs, and

  • I’m going to include the fixed portion of the driver’s salary.

Your variable costs are those you have as you are “on the road”. You only incur variable costs when you are moving cargo (or deadheading). So when you are “on the road”, you have both variable AND fixed costs. Variable costs include:

  • tractor and reefer fuel,

  • tires,

  • maintenance and repairs,

  • telephone,

  • meals,

  • lodging,

  • tires,

  • tolls,

  • plus other related costs and

  • I’m going to include the variable portion of the driver’s salary.

So, let’s plug in some figures.
Let’s say you drive 120,000 for the year. Your fixed costs are $109,200, your variable costs are $91,655 and your total costs are the sum – $200,855.
Now, these total costs include a driver’s salary of $48,000 – $36,000 in the fixed costs and $12,000 in the variable costs.

Then you want to add a profit on to your total costs. After all, that’s what you are in business for. Some people would just consider the driver’s salary as the profit. But driver’s salary is an expense and there needs to be a profit on top of all your costs.

So, the profit could be anywhere from 5 to 25%, for example. Let’s say you want a 10% profit on top of costs. So 10% of $200,855 is $20,085.

Now let’s plug these figures into your formula:

  • Fixed costs – $109,200

  • Variable costs – $91,655

  • Total costs – $200,855, plus your

  • Profit – $20,085

Your gross revenues after all this should be $220,940. This is what you need to cover your costs and give you your desired profit.

Now, you take your $220,940 and divide it by the number of miles driven, 120,000, and you come up with a billing rate of $1.84. This is what you need to charge per mile to cover total expenses including driver’s salary and profit.

So what if you are tendered a load that pays only $1.54? Do you take it? The answer depends on how much flexibility you have on your driver’s salary and profit. Plus, some days you may get well over $1.84 per mile. So you want to look at the average that you are doing for the year.

Many trucking firms are struggling to cover costs plus get a decent salary and a profit on top of all this. So, this is why it is imperative to record, monitor and analyze your total costs. Doing this will give you the ammunition to carve out a better future either by raising rates, lowering costs or both. But knowing where to “slice and dice” is the secret. It is also a skill that can be learned if you make the effort.

If this has been helpful, let me know. If you want to add freight brokering to your operations and go directly to the shipper for loads, get trained!

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If you have any questions, please call us at 888-526-ATEX (2839) or send us an email to info@atexfreightbrokertraining.com