One of the things you have to calculate in your trucking business is the cost per mile. It may look like a tedious process, but it's not. Once you know your cost per mile and have an estimate of how much you'll make, you can determine the expected profit.
You should calculate your cost per mile regularly to determine how your business is performing. Here is how to calculate the cost per mile.
Things you'll need
Here are the things you'll need to calculate the cost per mile.
- All your bills and that includes health insurance, truck payments, and insurance
- All your receipts such as food and fuel purchases.
- Your odometer reading - beginning of the month and end of the month
How to calculate the cost per mile
There are only four steps you'll need to calculate your cost per mile. Here is how to go about it.
Step 1: Determine the miles you'll drive
The total miles you'll drive in a particular month is the baseline for the calculation. When determining the number of miles, you should include the deadhead miles and compensated miles. Use your odometer to figure out the miles you drive in a month.
To get the total miles, deduct the beginning of the month's odometer reading from the end of the month's odometer reading. For instance, if your beginning of the month was 65, 968 and the end of the month was 77,426, then your total miles will be as follows:
77,426 - 65,968 = 11,458 miles
Step 2: Calculate your fixed expenses
Fixed expenses do not change from month to month no matter how many miles you drive. Examples of fixed expenses are truck payments, permits, license plates, and trucking insurance. Some expenses are paid monthly, while some annually. If you pay your fixed expenses annually, divide them by 12 to get your monthly cost. For example, you can have the following fixed costs
Truck expenses $1,400
Insurance health $300
Insurance-collision $500
Permits $70
Parking expenses $200
License plate $150
To get your total fixed costs, you add up all the above costs, which give you $2,620
Step 3: Calculate your variable expenses
The next step is determining your variable costs, which are direct costs per mile you drive. Variable costs change depending on the miles you drive in a month. Examples of variable expenses are fuel, telephone, meals, broker fees, maintenance, and tires. For instance, you can have the following variable expenses.
Meals $700
Fuel $1,400
Tires $400
Tolls $100
Maintenance $400
Broker fees $1000
Repairs $250
Your total variable expenses will be $4,000
Step 4: Now calculate the cost per mile
Now that you have all the information you need, it's time to calculate your cost per mile. To calculate your cost per mile, divide the total costs by the number of miles you drive per month. Begin by adding the fixed and variable expenses. Next, divide your total miles driven by the total expenses.
Using the above examples, your cost per mile will be:
Fixed expenses $2,620
Variable expenses $4,000
Miles drove 11,458 miles
Based on the above information, the cost per mile will be (2,620 + 4,000)/11,458 = $0.58 per mile
Notice that, since your fixed costs don't change, your fixed costs per mile will decrease as the number of miles you drive increases. The variable costs per mile, however, remain the same regardless of the miles you drive.
Calculating the cost per mile is beneficial in your trucking business. It'll help you identify areas to improve and an overview of your spending patterns. You'll also make informed decisions and make your business profitable. If you need fleet management services, contact us today.
