With a total size of $732 billion in 2021, the trucking industry is one of the largest sector in transportation in the US. That being said, if you want to start your own trucking company, you might want to understand how much profits you can generate with such business.
According Policy Advice, there are 1.2 million trucking companies in the US today, the vast majority of which are owners-operators.
What does this means for your business? How much profits can you generate with a trucking company? Let’s dive in!
What is the average turnover for a trucking business?
According to the data above ($732 billion industry size and 1.2 million companies) the average turnover for a trucking business in the US is approximately $610,000 per year.
When it comes to salaries, ZipRecruiter reports that the average annual salary of an owner-operator truck driver in the US is $242,695 a year.
What is the average profit margin for a traffic business?
According to The Boss Magazine, the average profit margin of a trucking company is between 2.5% and 6%. This is in line with our analysis below (3% to 7%)
Again, the profit your business will generate will dependent on various factors like the number of trucks you operate, the type of cargo you carry, etc.
How much does it cost to run a trucking business?
There are certain recurring costs involved in running a trucking business and they include:
- COGS: You will have various variable expenses such as taxes, tolls, fuel, brokers, etc.
- Wages: You need to pay the drivers. Wages can be considered COGS if you are not hiring drivers as employees but as subcontractors
- Lease or debt repayment: There will be monthly spending towards debt or lease payments for the trucks you will operate
- Rent: You may need to pay rent for the parking place where you will park your trucks. Large companies may have their own parking places and hence, this expense will not be there
In general, you will be spending anywhere between $232,000 and $259,500 each month for a $280,000 monthly revenue trucking company with 9 semi trucks. For more information on how much it costs to run a trucking business, read our article here.
How to forecast profits for a trucking company?
In order to calculate profits for a company business, you must first forecast revenues and expenses.
Profits = Revenue – Expenses
Forecasting revenue for trucking companies
Forecasting sales for such a business requires a few assumptions:
- the number of trucks you have
- the average revenue per mile
- the average number of miles per truck
Vehicles x Revenue per mile x ( 1 – deadhead rate) x Avg. number of miles per vehicle
For example, if you have 9 semi-trucks that drive 15,000 miles on average per month, at 30% deadhead rate and at a revenue per mile of $3.00, monthly revenue is ~$280,000:
Revenue = 9 trucks x 15,000 miles x 70% x $3.00 = $280,000
For more information on how to build financial forecasts for a trucking company, read our article here.
Forecasting expenses for trucking businesses
There are 2 types of expenses for a trucking company:
- Variable expenses: these are the COGS as explained earlier. They grow in line with your revenue: if your turnover increases by 10%, variable expenses grow by 10% as well
- Fixed expenses: salaries, rent, debt interest (or leasing) costs to acquire the trucks, marketing and all the other operating costs listed above
Calculating profits for trucking businesses
When we refer to profits, we usually refer to EBITDA (Earnings before interests, taxes, depreciation and amortization) as it represents the core profitability of the business, excluding things such as debt interests, non cash expenses and other non-core expenses.
In order to get to EBITDA, we use the following formula:
EBITDA = Revenue – COGS – Operating Expenses
We’ve included below the illustrative profit-and-loss of a trucking business (from our financial model template for trucking companies).
Whilst EBITDA margin can reach 5-10% at scale depending on the business, Net Profit margin can go up to 3-7% for the most profitable businesses.
How to increase profits for a trucking business?
There are various strategies to increase the profits of a trucking business such as:
- Use fuel cards: Using fuel cards can help you to save thousands of dollars per year per vehicle. Many companies offer fuel cards that are accepted nationwide
- Use APUs for idling: Use alternative power units (APUs) instead of fuel for idling. Usually, heavy trucks consume 0.8 gallons of fuel per hour for idling. This leads to 1,500 gallons of fuel used for idling 1,800 hours per year for long-haul trucks
- Use GPS: GPS helps with route optimization so that your drivers drive less to reach their destination, and hence, save fuel
- Change driving habits: Bad driving habits can lead to excess fuel consumption. Use an Electronic Logging Device to track things like hard acceleration, speeding, harsh braking, etc., so that those habits can be changed
- Focus on tires: Keep the tires inflated to the specifications of the manufacturer to reduce fuel consumption. Also, use LRR or Low Rolling Resistance tires for fuel saving
- Use cruise control: Maintaining a steady cruising speed saves fuel. Constantly speeding and slowing down consumes more fuel and hence, reduces profits
- Stop speeding: A report by FleetOwner disclosed that cruising a truck at 75 mph uses 27% more fuel than a cruising speed of 65 mph. Slowing down can help to increase profits
- Maintenance: Regular maintenance helps to reduce costly breakdowns and prevents downtimes. Use Electronic Control Modules along with a wide range of sensors to get alerts on failing components
- Increase loaded mileage: Try and match your routes with the demands of the shippers and be willing to take backhauls to prevent empty trailers and increase loaded mileage
- Reduce detention time: Shippers usually allow for a couple of hours of detention delay, but it can stretch to 3 hours or more. You won’t get paid for the extra delay. Consider introducing detention pay into loading and unloading times. Also, avoid shippers infamous for high shipping times
Download the Trucking budget template
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