Dollars & Sense
18 Overdrive JUNE 2009 Dollars & Sense Kevin Rutherford Kevin Rutherford is an accountant, small-fleet owner and the host of ATBS Trucking Business & Beyond, which airs on Sirius XM Radio's Road Dog Trucking Radio. Contact Rutherford through his website, www.cdlofit.com . Calculating cost per mile To really focus on the bottom line, as I discussed last month, you need to monitor costs closely. One of the best ways of doing so is to figure your cost per mile. The calculation is relatively easy. Know-ing how to apply CPM to your operation is more involved. There are variables to be considered and many ways to interpret and use the results. To calculate CPM, you need exact miles driven, fixed costs and variable costs for a specific time frame. Fixed costs are those that don't change from month to month and have nothing to do with how many miles you drive, such as your truck note. Variable costs are just the opposite they vary with the miles you drive. Fuel is the clearest example. Basic fixed costs include: Truck/trailer payments License Permits Bobtail and physical damage insurance Health insurance Worker's compensation (if you have a fixed rate) Basic variable costs include: Fuel Maintenance Tires Lube and oil change Truck washes Additives Meals and entertainment Supplies Travel Tolls Scale fees Utilities (phone, pager, wireless Inter-net subscription) Office supplies Legal and accounting fees Worker's compensation (if you have a variable rate) Any cost associated with your busines could be included. This will mainly be determined by how you plan to use the information. The main ways to use CPM are: Tracking business performance Evaluating cost-cutting strategies Deciding when to buy new equipment Comparing contracts between companies. Another use is for owner-operators paid by the load, percentage of revenue or on a variable mileage rate. Knowing CPM brings a uniformity to understanding costs from varied hauls. It helps determine total cost to operate and the profit on any given load. Along with CPM you should also figure your true revenue per mile by dividing your total revenue by your total miles. Subtract-ing CPM from revenue per mile leaves you with your net per mile, that is, what you are earning. An example of using this information would be in the case of deciding whether it's time to buy a new truck. Buying new equipment usually will raise your fixed cost per mile because you will borrow more to pay off a more valuable asset and insur-ance costs will rise. One thing you need to determine is how much the new truck will lower variable CPM by reducing fuel and maintenance costs. Ideally, this will offset higher fixed costs. If you use a computer for your record keeping, writing a spreadsheet for CPM is a great way to quickly see the results. If you don't have the time or the desire to track your costs, consider a bookkeeping service that can produce these reports and help you interpret them. n Finding your bottom line Using percent instead of per mile Calculating and using per-cent of revenue is similar to using cpm, but it sometimes can be easier to understand. Because it's based on 100 percent, the component costs can be easier to com-pare and interpret than numbers stated as cents per mile. For example, if you earned $100 and spend $25 in fuel, your fuel percent of revenue would be 25 per-cent (dividing $25 by $100). Assume total fixed costs for the year were $22,000 and the truck ran 110,000 miles. Divide the costs by the miles and the result is 20 cents per mile. Total variable costs were $25,850. Divide that number by the miles. This result is 23.5 cents per mile. Add fixed costs and vari-able costs to get total cost: 43.5 cents per mile. If total revenue was $92,950, divide that by miles to get 84.5 cents per mile. With those key numbers, you can determine your net income, or earnings: Revenue per mile 0.845 Total costs per mile -0.435 _______ Earnings per mile 0.410 The purchase of securement equipment would be treated as a variable cost. T odd Dills