We’ve had a lot of cost per mile discussion on EO lately and we have seen some differing opinions on the most appropriate methodology for determining a truck owner’s cost per mile. I’d like to share my opinion on cost per mile determinations, as I do it for my business. Perhaps I can help at least one person simplify the process. Make no mistake about it, a person that does not know their cost per mile will not know a profitable run from an unprofitable run Not to say you should never take an unprofitable run; there are reasons for doing so, but not to be discussed here.
For people new to this business, there are two categories of Cost Per Mile (CPM). Forecast CPM and actual CPM. I call it forecast CPM because a new person has no truck business operation history upon which to base an actual cost per mile. After a year or more, a forecast CPM should be modified to include actual expenses and create a more realistic total figure. CPM figures are fluid in nature because of the variable costs, like fuel and insurance that change from year to year. For the purpose of this post, I will not consider income taxes and will assume a van operator is a sole proprietor and not a corporation.
I’ve only operated cargo vans, so that will be the subject of my example. For the purpose of my example, we must make some assumptions. We will assume that the van will have no major accidents and the owner will not be faced with any cargo damage claims. A typical cargo van will provide good service for five years at 100,000 miles per year, so we’ll start there. I know that most vans will be in service for at least 6 or 7 years, but I like to start out with the total of all estimated costs for five years.
$ 30,000 Cost of new van purchase.
$ 3,318 Finance cost at 6% for 48 months
$ 3,000 Outfitting van with securement devices, sleeper and wall materials, safety equipment, GPS and other electronic devices.
$ 250 Van State registration at $50 annual
$ 350 State issue CDL including HAZMAT background check
$ 500 Carrier start-up costs for signage and Qualcomm install
$ 7,800 QualComm or other device lease at $30 weekly for 5 years
$ 5,100 Van bobtail insurance at an avg $85 monthly
$ 6,500 Work Accident Insurance at $25 weekly
$ 175 Biennial Physicals for medical certificate at $70 each
$ 200 Annual random drug tests
$100,000 Fuel - Assume 500,000 miles at 15 mpg at $3 per gallon
$ 2,500 Oil changes at Jiffy Lube every 5000 miles
$ 8,000 Preventive and corrective maint after warranty expires
$ 1,500 Tolls at $300 annually
$ 4,500 Telephone service at $75 monthly
$ 2,600 Laundry at $10 weekly
$ 2,600 Do-it-yourself van wash at $10 weekly
$ 500 Office supplies at $100 annually
The total of these estimated figures is an approximation of a cargo van operating expenses during a five year period. The total of $179,393 may be reduced by the resale value of the van which will be about $4000. The cost to own and operate a cargo van for five years, using the above example, is $175,373. That sounds staggering doesn’t it. Well, it equates to 35 cents per mile.
The above exercise is just the beginning. An owner must continually massage the numbers to reflect the actual costs of the variable expenses. Add or delete any expense categories and substitute figures to suit your particular situation. Adjustments may also be made for operations exceeding five years.
For people new to this business, there are two categories of Cost Per Mile (CPM). Forecast CPM and actual CPM. I call it forecast CPM because a new person has no truck business operation history upon which to base an actual cost per mile. After a year or more, a forecast CPM should be modified to include actual expenses and create a more realistic total figure. CPM figures are fluid in nature because of the variable costs, like fuel and insurance that change from year to year. For the purpose of this post, I will not consider income taxes and will assume a van operator is a sole proprietor and not a corporation.
I’ve only operated cargo vans, so that will be the subject of my example. For the purpose of my example, we must make some assumptions. We will assume that the van will have no major accidents and the owner will not be faced with any cargo damage claims. A typical cargo van will provide good service for five years at 100,000 miles per year, so we’ll start there. I know that most vans will be in service for at least 6 or 7 years, but I like to start out with the total of all estimated costs for five years.
$ 30,000 Cost of new van purchase.
$ 3,318 Finance cost at 6% for 48 months
$ 3,000 Outfitting van with securement devices, sleeper and wall materials, safety equipment, GPS and other electronic devices.
$ 250 Van State registration at $50 annual
$ 350 State issue CDL including HAZMAT background check
$ 500 Carrier start-up costs for signage and Qualcomm install
$ 7,800 QualComm or other device lease at $30 weekly for 5 years
$ 5,100 Van bobtail insurance at an avg $85 monthly
$ 6,500 Work Accident Insurance at $25 weekly
$ 175 Biennial Physicals for medical certificate at $70 each
$ 200 Annual random drug tests
$100,000 Fuel - Assume 500,000 miles at 15 mpg at $3 per gallon
$ 2,500 Oil changes at Jiffy Lube every 5000 miles
$ 8,000 Preventive and corrective maint after warranty expires
$ 1,500 Tolls at $300 annually
$ 4,500 Telephone service at $75 monthly
$ 2,600 Laundry at $10 weekly
$ 2,600 Do-it-yourself van wash at $10 weekly
$ 500 Office supplies at $100 annually
The total of these estimated figures is an approximation of a cargo van operating expenses during a five year period. The total of $179,393 may be reduced by the resale value of the van which will be about $4000. The cost to own and operate a cargo van for five years, using the above example, is $175,373. That sounds staggering doesn’t it. Well, it equates to 35 cents per mile.
The above exercise is just the beginning. An owner must continually massage the numbers to reflect the actual costs of the variable expenses. Add or delete any expense categories and substitute figures to suit your particular situation. Adjustments may also be made for operations exceeding five years.
