For most of the 2010s, the average trucking company profit margin was stuck between 2.4% and 4%. By 2018, that figure had grown to about 6%, and as the economy began to recover from 2020 pandemic disruptions, the profit margin in transport businesses went even higher. In the first two quarters of 2021, the pre-tax profit margin averaged above 7% for the broader transport and logistics industry.
Many owner-operators and small fleets may remain on the low end of the profit margin scale. How can you nudge that figure upwards? The simplest answer is to move the numbers on either side of the profit equation: Reduce costs and grow revenue. Here are 10 tips to accomplish each, for a total of 20 ways to improve profit margins at your carrier business.
10 Cost-Cutting Tips for Boosting Your Trucking Company Profit Margin
1. Outsource office duties.
The owner-operator profit margin often skews lower than that of a large carrier. After all, the owner-operator is both a driver and a business owner—and every hour you spend in the office is an hour you’re not on the road. Luckily, there’s no shortage of third-party services to help with administrative tasks from human resources to compliance filings.
A factoring company like Bobtail can be another key business partner, not just for ensuring prompt cash flow but also for billing and collections. With Bobtail on your side, you don’t have to chase down late payments from shippers; we’ll handle the finances so you can focus on revenue growth.
2. Stay on top of preventative maintenance.
Preventative maintenance may seem like a hassle, but it’s key to keeping your equipment running optimally. When you stick to the manufacturer’s recommended maintenance schedule, you end up with less downtime for your rig—and fewer costs associated with the inevitable repairs that come with a poorly maintained machine.
3. Manage driver performance.
Driving speeds have a measurable impact on fuel efficiency. To get the most savings, train drivers to maintain the optimal speed for that vehicle. And speed isn’t the only driver performance variable that plays into fuel efficiency; you can also reduce idling by providing auxiliary power units (APUs) to provide driver comfort during breaks without spending fuel to idle the engine. Additionally, consider providing routing tools to help drivers avoid traffic and optimize route planning, all of which save on fuel costs in the long run.
4. Invest in fuel cards.
Fuel card programs offer discounts on diesel, with some discounts as high as 42 cents per gallon. But it pays to shop around a bit. Look for factors like annual fees, charges for using scales, and rewards programs. One card may have a higher fuel discount but includes hidden fees that make it less advantageous than another. A wide variety of fuel cards are available; do a bit of research to choose the one that provides the most savings for your situation.
5. Enroll in a weigh station and toll bypass programs.
When your trucks have to stop at every weigh station, they lose time and fuel. Weigh station bypass systems prevent this expenditure by allowing trucks to skip weigh stations, continuing to their destinations at highway speeds. PrePass is the leading weigh station bypass system in North America, and it offers a phone-based app, as well as a transponder box.
Like weigh stations, toll booths require drivers to slow down and often wait in long lines, burning fuel and time. And like weigh stations, you can pay for services that allow drivers to bypass these delays. PrePass integrates a toll payment system into its services, and there are also local toll bypass systems like E-ZPass, which operates throughout much of the East Coast and Midwest. These services allow you to pay tolls in one bundled invoice, freeing drivers to remain at speed.
6. Shop around to find lower vendor costs.
You may have to buy straps, windshield fluid, a new GPS device, or any number of other supplies in the middle of a haul. The most convenient place to make these purchases is a truck stop—but you’ll pay a premium for that convenience. These items are likely available for less from a hardware store or an online seller. Over the course of a year, such savings add up.
7. Bundle insurance policies.
Trucking company owners need several types of insurance: commercial liability, workers’ compensation, cargo, and trailer interchange insurance, just to name a few. Many insurance agents offer discounts for bundling these products, and the savings can be significant.
8. Join the Owner-Operator Independent Drivers Association (OOIDA).
The Owner-Operator Independent Drivers Association (OOIDA) is a trade association that advocates for the rights of truck drivers and small fleet owners. In addition to its advocacy work, however, OOIDA offers a range of discounts and rebates for everything from insurance to fuel cards to help you cut costs.
9. Maximize rewards programs.
Many of your vendors will offer rewards programs, and over time, these programs can lead to real savings. Credit cards may offer cashback on charges, while truck stops or retailers may provide free services or a percentage off purchases. The individual benefits may be small, but scaled across your business, they really add up.
10. Remain compliant.
The U.S. Department of Transportation charges a median fine of $11,125 for violations of the Federal Motor Carrier Safety Regulations. You can avoid these charges by remaining compliant, whether that means replacing a taillight or ensuring you stay under weight limits.
10 Trucking Company Growth Tips For Raising Revenue
1. Know your cost per mile.
In order to control your profit margin, you need an accurate picture of your expenses. The most important key performance indicator (KPI) for this task is the cost per mile (CPM), which tells you how much you pay to haul a load a single mile. When you know this figure, you can adjust your rates to reach your target profit margin.
2. Schedule more short hauls.
Typically, short hauls pay more than long ones. They also place less wear and tear on your vehicle. If you have a choice between one long or three short hauls, take the latter; you’ll bring in more revenue per mile driven.
3. Nurture relationships with repeat customers.
If you’re missing profit goals, you may have to raise your rates. Repeat customers will be more likely to accept higher payments when you have a good, mutually beneficial relationship.
4. Work directly with shippers rather than going through brokers.
Brokers are a great way to maintain steady business, but they charge somewhere around 10% of the value of the work they connect you to. If you can find customers on your own, you can eliminate this payment—and have a chance to negotiate a contract rate, gaining a steady client out of the job.
5. Invest in new equipment to expand your range of services.
In the trucking industry, there’s only one way to offer more services, and that’s to invest in equipment. You can’t haul refrigerated loads or cars with only a dry van trailer, leaving you locked out of a whole area of business. Invest your profits back into your business with flatbed trailers or tankers to open new revenue streams.
6. Expand your fleet.
The best way to scale your business is to invest in more tractors and hire more drivers. That’s quite an upfront investment, but the more trucks you have on the road, the more jobs you can take—and the more revenue you’ll bring in. Again, a factoring tool like Bobtail can help to free up the cash flow you need to make business-growing investments.
7. Reduce deadhead miles.
Deadhead miles—driving without a payload—burn fuel and wear down equipment without bringing in revenue. The key to minimizing deadhead miles is to find “dot connectors.” These are small jobs that can take you closer to your next pickup location—while also getting paid. You might offer lower rates for these sorts of jobs to secure them; after all, any rate is better than zero.
8. Diversify your customer base.
Trucking companies are subject to the whims of the supply chain, which makes relying on a single client or industry dangerous. If you only haul electronics, your company probably suffered from the 2021 shortage of computer chips. Diversifying your clients protects your company from boom and bust cycles elsewhere in the economy.
9. Mix and match seasonal work to cover the whole year.
Say you have a customer who ships soil and mulch; they’ll probably become extremely active around February and quiet down by October. If you don’t have jobs lined up for the winter, you’re in trouble—but if you also contract with a road-salt shipper, you’ll have work all year round. Planning seasonally can help distribute an even workload to ensure a constant flow of revenue.
10. Minimize driver turnover.
Hiring is expensive; it takes time and money to train new drivers. Not to mention that experienced staff, who know your routes and customers, tend to be more profitable. Keep your team happy to reduce turnover and keep your business on the road to growth.
Following these tips can boost trucking company profit margins considerably—but even with higher revenue and lower costs, you may run into problems with cash flow. Bobtail solves those problems with an easy-to-use factoring app. Sign up to start factoring with Bobtail.