CharlesD
Expert Expediter
Hopefully not too much longer.
Do you know what it cost for you to operate?
- Thread starter csands007
- Start date
Hopefully not too much longer.
There is NO formula, Phil! Return (what you get out of it) on Investment (what you put into it) cannot be expressed as a formula, due to the many intangibles that enter into the equation, and the different values folks would assign to various factors.
For example: my diamonds are an investment. The return is what I would get if I sold (or hocked
) them, but there is an intangible return, as well: the enjoyment I get from simply looking at them, is a return on investment, IMO. Homeowners count the pleasure of living in their investment as part of the return. Collectors figure the pleasure of showing off their collections as a return on investment, etc, etc, etc
If I'm wrong, DaveKC can tell me that I'm dumber than a box of rocks, but that's how I understand the concept of ROI.
For example: my diamonds are an investment. The return is what I would get if I sold (or hocked
) them, but there is an intangible return, as well: the enjoyment I get from simply looking at them, is a return on investment, IMO. Homeowners count the pleasure of living in their investment as part of the return. Collectors figure the pleasure of showing off their collections as a return on investment, etc, etc, etcIf I'm wrong, DaveKC can tell me that I'm dumber than a box of rocks, but that's how I understand the concept of ROI.
dcalien
Seasoned Expediter
I have no problem figuring cpm on past performance. If you have some sort of formula that lets you know future miles, tolls, maintenance, breakdowns, fuel purchase, etc, would you please share it with us.
CharlesD
Expert Expediter
Well, fuel is easy to calculate because that doesn't depend on how many miles you run. I figure it based on 2000 miles a week and that's not too far fetched because many weeks I will do that many miles if I figure in the deadhead miles. Do more and the cpm is a little lower, fewer miles and it's a bit higher, but that's a good average to go on with me. For maintenance I just try to estimate as best I can based on past experience. I have a 2007 Sprinter and my cpm has been in the 40s lately as well. That's why lately I've been trying to watch the rates I get and keep the deadhead and idling to a minimum, but as hot as it's been here in Vegas, I've been idling quite a bit.
Phil,
ROI is a ratio but it is expressed in dollars and cents. The simplest formula for determining ROI is amount of return divided by total investment. The "amount of return" refers to profit not to revenue.
A more complex, but also more accurate ROI can be derived by the following formula
Net income/revenue X Revenue/average total assets.
The second formula takes into account all assets that are involved in the operation of the business.
For those who were giving you a hard time about "ROI doesn't exist" --I believe that the idea that ROI doesn't exist is a tongue-in-cheek expression implying that we're not feeling the profit.
Hope this helps.
ROI is a ratio but it is expressed in dollars and cents. The simplest formula for determining ROI is amount of return divided by total investment. The "amount of return" refers to profit not to revenue.
A more complex, but also more accurate ROI can be derived by the following formula
Net income/revenue X Revenue/average total assets.
The second formula takes into account all assets that are involved in the operation of the business.
For those who were giving you a hard time about "ROI doesn't exist" --I believe that the idea that ROI doesn't exist is a tongue-in-cheek expression implying that we're not feeling the profit.
Hope this helps.
Maybe this will help:
How to Calculate ROI (Return on Investment)
Copyright , Stone Evans
ROI (Return on Investment) is probably the most important calculation one needs to make to ensure the long-term viability of their business. It is not enough to build in a profit margin on the product or service being offered. One must track with proficiency the amount of dollars being invested into attracting sales and how much ROI those dollars put back into the business. If the investment meets too little return, a product line is doomed to fail in the long-term.THE BASIC ROI PERCENTAGE CALCULATIONMany experts seem to agree, "calculating an accurate return on investment (ROI) is not an easy thing to do."I do not intend to give you a thorough analysis of the ROI calculation process. Calculating an accurate ROI is hard to do, but explaining the full scope of ROI calculations in less than 1000 words is far more difficult.As such, this article is only intended to introduce you to the basic concepts behind ROI calculations. Here is a very basic equation for calculating the ROI: ROI = [(Payback - Investment)/Investment)]*100Your payback is actually the total amount of money earned from your investment in your company. Investment relates to the amount of resources put into generating the given payback.You should run ROI calculations on both monthly and yearly timelines.IMPROPER CALCULATIONS BY MANY SMALL BUSINESS OWNERSThe business owner often misunderstands the actual amount of investment into a business. As a result, true ROI calculations for most small businesses are skewed. Most small business owners make their mistake in this most necessary calculation, because they do not properly value their own time. Please note that when I previously defined "investment", I stated that it relates to the "amount of resources put into generating the payback."Indeed, "resources" includes cash money. But, it also includes "human resources" or "time".If most small business owners would value their hours at the minimum wage, and calculate their time into the investment equation, they would soon realize that their small business is running in the red!Some small business owners will finally run ROI calculations including the human resources, and suddenly realize that they could make more money working a job. If the small business owner has been running their business for a really long time, struggling to make ends meet, they might see this calculation and close their doors once and for all. PLEASE DON'T LET ME DISCOURAGE YOUI do not share this revelation with you so that you will close your business down. Quite to the contrary. I share this with you so that you can see the big picture and start running your business in a way that will actually generate a real profit for you and your business.If you are within the first two years or five years of the start of your business, then running in the red should not be thought of as a bad thing. However, if you are ten years into your business and earning less than minimum wage from your business, there is a serious problem afoot that needs to be addressed immediately.STARTING OUTWhen you are just beginning your own business, you have plenty oftime on your hands. This is the reason why most small business owners do not properly count their time in the ROI equation. They just look at cash expenditures and incoming monies, and they are satisfied with that calculation.It is often said that people generate the kind of results that they believe they can achieve or the kind that they want to achieve. Seeing the goal is the first step to achieving the goal. Expectations will always bring results equal to the expectation.Having been down the business startup path before myself, I too understand the desire to calculate ROI without consideration to the time invested in the enterprise. However, I also understand the importance of placing a value on my time and working that into my final numbers. In the beginning, I ran two types of ROI calculations: all resources exempting my time, AND all resources including my time. Of course, I actually set a higher expectation for my own income level. First, I had decided on ten dollars an hour for my time. Later, I adjusted that amount upward. Starting out, even though I ran two versions of my ROI calculations, I relied first on my resource excluding my own time. Once I had achieved this goal, then I refocused my attention to reaching the ROI which took into account my own time. Now, that time has passed, I can go back and look at my yearly ROI and see that I have earned enough cash to pay for those early days of famine. THE SECRET OF TURNING ROI CALCULATIONS INTO SUCCESSEvery step in your business startup is a calculated guess as to what you believe you can achieve. Measuring your results is essential to making your business profitable. ROI measurements are imperative to measuring and understanding the results you are achieving with your new or existing business. Take into account all factors relating to the profitability of your business and don't smudge on the facts to make it seem more profitable than it really is. It is important to approach your business and your business results with absolute honesty. Be honest with yourself and face the facts of your task. An honest examination of your business at regular intervals will help you get on and stay on track to keep the doors of your business open. You will thank yourself later.
How to Calculate ROI (Return on Investment)
Copyright , Stone Evans
ROI (Return on Investment) is probably the most important calculation one needs to make to ensure the long-term viability of their business. It is not enough to build in a profit margin on the product or service being offered. One must track with proficiency the amount of dollars being invested into attracting sales and how much ROI those dollars put back into the business. If the investment meets too little return, a product line is doomed to fail in the long-term.THE BASIC ROI PERCENTAGE CALCULATIONMany experts seem to agree, "calculating an accurate return on investment (ROI) is not an easy thing to do."I do not intend to give you a thorough analysis of the ROI calculation process. Calculating an accurate ROI is hard to do, but explaining the full scope of ROI calculations in less than 1000 words is far more difficult.As such, this article is only intended to introduce you to the basic concepts behind ROI calculations. Here is a very basic equation for calculating the ROI: ROI = [(Payback - Investment)/Investment)]*100Your payback is actually the total amount of money earned from your investment in your company. Investment relates to the amount of resources put into generating the given payback.You should run ROI calculations on both monthly and yearly timelines.IMPROPER CALCULATIONS BY MANY SMALL BUSINESS OWNERSThe business owner often misunderstands the actual amount of investment into a business. As a result, true ROI calculations for most small businesses are skewed. Most small business owners make their mistake in this most necessary calculation, because they do not properly value their own time. Please note that when I previously defined "investment", I stated that it relates to the "amount of resources put into generating the payback."Indeed, "resources" includes cash money. But, it also includes "human resources" or "time".If most small business owners would value their hours at the minimum wage, and calculate their time into the investment equation, they would soon realize that their small business is running in the red!Some small business owners will finally run ROI calculations including the human resources, and suddenly realize that they could make more money working a job. If the small business owner has been running their business for a really long time, struggling to make ends meet, they might see this calculation and close their doors once and for all. PLEASE DON'T LET ME DISCOURAGE YOUI do not share this revelation with you so that you will close your business down. Quite to the contrary. I share this with you so that you can see the big picture and start running your business in a way that will actually generate a real profit for you and your business.If you are within the first two years or five years of the start of your business, then running in the red should not be thought of as a bad thing. However, if you are ten years into your business and earning less than minimum wage from your business, there is a serious problem afoot that needs to be addressed immediately.STARTING OUTWhen you are just beginning your own business, you have plenty oftime on your hands. This is the reason why most small business owners do not properly count their time in the ROI equation. They just look at cash expenditures and incoming monies, and they are satisfied with that calculation.It is often said that people generate the kind of results that they believe they can achieve or the kind that they want to achieve. Seeing the goal is the first step to achieving the goal. Expectations will always bring results equal to the expectation.Having been down the business startup path before myself, I too understand the desire to calculate ROI without consideration to the time invested in the enterprise. However, I also understand the importance of placing a value on my time and working that into my final numbers. In the beginning, I ran two types of ROI calculations: all resources exempting my time, AND all resources including my time. Of course, I actually set a higher expectation for my own income level. First, I had decided on ten dollars an hour for my time. Later, I adjusted that amount upward. Starting out, even though I ran two versions of my ROI calculations, I relied first on my resource excluding my own time. Once I had achieved this goal, then I refocused my attention to reaching the ROI which took into account my own time. Now, that time has passed, I can go back and look at my yearly ROI and see that I have earned enough cash to pay for those early days of famine. THE SECRET OF TURNING ROI CALCULATIONS INTO SUCCESSEvery step in your business startup is a calculated guess as to what you believe you can achieve. Measuring your results is essential to making your business profitable. ROI measurements are imperative to measuring and understanding the results you are achieving with your new or existing business. Take into account all factors relating to the profitability of your business and don't smudge on the facts to make it seem more profitable than it really is. It is important to approach your business and your business results with absolute honesty. Be honest with yourself and face the facts of your task. An honest examination of your business at regular intervals will help you get on and stay on track to keep the doors of your business open. You will thank yourself later.
nightcreacher
Veteran Expediter
This is nuts,why is it so many people have trouble figuring what their profit is. In this or any other business.ROI is the same as your profit.If you buy 10 apples for 25 cents each,$2.50 is your investment.You sell these apples for 50 cents each then you take in $5.00.If in selling these apples you dont have any other costs,your ROI is $2.50,or 100% profit.
In doing business with our trucks,it isnt quite that simple,but figure it this way.What you pay out,put on left side of paper,what you take in,put on right side.Hopefully the right side will be higher than the left at the end of the year.it doesnt have to be higher every load.
If you want to figure cost per mile,take all the expenses you were able to write off last year, and divide by how many miles you drove.This is the only way you can figure cost per mile.You should also figure in what your own drivers pay is worth.
In doing business with our trucks,it isnt quite that simple,but figure it this way.What you pay out,put on left side of paper,what you take in,put on right side.Hopefully the right side will be higher than the left at the end of the year.it doesnt have to be higher every load.
If you want to figure cost per mile,take all the expenses you were able to write off last year, and divide by how many miles you drove.This is the only way you can figure cost per mile.You should also figure in what your own drivers pay is worth.
Yes, this helps, and while it is a step in the right direction, what would be truly helpful, as in useful to expediters on the ground, would be a realistic example of how to apply your suggested formula to a typical one-truck expedite business.
Yes, there will be variables as no two businesses are alike. But a good formula would be the same for any one-truck expedite business. The variables would be different in each case. The formula should work in all cases.
nobb4u,
The Stone Evans piece you shared is both informative and problematic. He states, correctly, I belive, that calculating ROI is difficult to do and requires an absolutely honest view of one's business. I suggest "brutally honest" may be a more appropriate term.
Being in business for yourself is an attractive concept for many. Being honest with yourself is a more difficult task. Essential questions like "Who do you think you are?" "What do you think you are doing?" "Why are you doing it?" "What are you trying to accomplish?" and "How do you know if you are succeeding?" must be answered.
Such questions take you to the core of your being, which is often an uncomfortable place to be. It is easier to watch TV, distract yourself with other projects, or commisserate with like-minded business people about how tough it is to succeed in todays' economy.
Evens injects the concept of placing a value on the time you put into your business. That is problematic for expediters because we commit vast blocks of time to the business that may or may not be appropriate to count.
Do you count only your driving and on-duty time? Do you count all the time you are away from home? Do you count the time at home that you spend cleaning the truck? Do you count the time that is not in your log book but is put into your business, like time spent at a trade show or time spent going through your mail?
I like how he got past the problem by suggesting two ROI calculations, one that factors in your time, and one that does not. That at least gets you started.
There is another problem if you want to factor in the personally-assumed value of your time. If you are evaluating the opportunity costs of a minimum wage job compared to an expedite business, or of the $20 an hour job you think you deserve, should you not also factor in the opportunity benefits?
By that I mean benefits like a tourist weekend in San Francisco while on layover there. The costs of a San Francisco weekend are tiny on layover but large if you flew in from home and did not have the truck to use for food and lodging. What about the benefit of not having a boss or having the freedom to take time off when you wish? If you are going to put an arbitrary value on the value of your time, should you not also put an arbitrary value such benefits?
(I think this was what Dreamer was getting at in his post, What is your chosen ROI?)
I don't need an answer to that question. Any ROI calculation I might do would not include the value of my time because I do not believe my time is worth a penny more than the market will bear.
When I get out of bed in the morning, I have the same 24 hours in a day that every other living person has. I chafe at the notion that my time "should" be worth something or that I am somehow entitled to receive money for my time.
When working to make money, it is not my time that I sell. It is my skills, packaged in a certain way and offered as services. My skills are valuable only to the extent that I can find an opportunity to exercise them and people to pay what they are willing to pay for them.
As an expediter, my service is to pick up, transport and deliver critical-shipment freight safely and on time. The skills I package to provide that service include driving, freight handling (manual labor) and owner-operator business skills (including acquiring, maintaining and operating a truck and other equipment).
How much is that package of skills, labor and equipment worth each day? My answer is ZERO. When I wake up in the morning, my time, skills and equipment are not worth one red cent. If I want them to be worth anything at all, I have to find customers to offer them to at a rate they are willing to pay.
Expediting is not about the self-proclaimed value of your time and being entitled to it before your work is done. It is about the value of the services you offer and being paid for them after they are rendered.
You can, if you choose, convert your daily, weekly, monthly or annual earnings into an hourly rate. And you can compare that rate to the money you might make in another opportunity. The honest way to do so is use actual earnings from the past to create the first value, and to properly value the other opportunity.
If you are unable to keep a minimum wage job because you believe it is beneath your dignity or cannot tolerate having a boss in your life, then the value of that opportunity is zero. If you believe you "should" earn at least $20 an hour in a non-expediting job but cannot find or keep one, the value of that opportunity is also zero.
The hazard of factoring in the presumed value of your time is that you might lie to yourself about what that value really is. I believe it is safer and more honest to value your time at zero.
When being brutally honest with myself about my business activities and the value of them, I answer the question "How do you know if your are succeeding?" not by looking at our income, or even at our profits, but at our year-to-year change in net worth.
Everything Diane and I do feeds into that number; the income we earn, the expenses we have, the personal money we spend, the time off we take, the investment decisions we make, the money we give away, the time we spend with family, the time and money we spend at a tourist attraction, the time and money we spend in medical and dental clinics, everything.
At year-end 2007, our net worth was $x. At year-end 2008, it will be $x plus or minus something. How much will my time be worth in 2008? I won't know until year end. And I won't really care.
What I care about is net worth. Diane and I have set a net worth goal. If I have to work 2,000 hours in a year or 4,000 to achieve it, I do not care. It does not matter if I factor in or out the time spent cleaning the truck at home. What matters is achieving the net worth goal we set.
Since we are full-time expediters, expediting profits are an obvious and important factor in our net worth result. But profit is not the goal. Net worth is the goal.
The lifestyle goals we have also set are important but secondary. Within our chosen style of expediting (straight truck, married couple team), the money comes first, as measured by year-over-year changes in net worth.
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Here is a site that has 33 calculators that are a free download in one bundle.
Many other programs are sophisticated and require a lot of data.
These are pretty simple for a one truck operation. If one has done their taxes (hopefully so), most of that information can be added.
As with any calculator, it doesn't assign a specific income. It won't know if you expect minumum wage or the 100 dollars per hour. But it will tell you once you arrive at a number.
These you can either add your time worth, or not. In some cases, it may be ugly whether time is factored or not.
Return on Investment (ROI) Calculator
Many other programs are sophisticated and require a lot of data.
These are pretty simple for a one truck operation. If one has done their taxes (hopefully so), most of that information can be added.
As with any calculator, it doesn't assign a specific income. It won't know if you expect minumum wage or the 100 dollars per hour. But it will tell you once you arrive at a number.
These you can either add your time worth, or not. In some cases, it may be ugly whether time is factored or not.
Return on Investment (ROI) Calculator
nightcreacher
Veteran Expediter
Oh My,is this possible? ROI is the same as your profit,i would have never guessed.
Well Thanks Dave, I thought it was settled that ROI is like Luck, it does not exist.
I do believe I read that somewhere?
But we have made progress towards its existence.
I can't help seeing all this stuff from a bit of a different angle, becuz I owned a different kind of business. While I was in business, I found it quite interesting to hear other people's perspectives and definitions of 'making money'. The criteria used was so different from one biz owner to another. One biz owner might feel they are making piles of money, while another might know they're not on the same page.
Some people wouldn't consider their own time spent, in operating their business, while others did. The people that did not, might consider their biz to have 'made money'. The people that did, would know whether they were bringing in enough revenue to pay for the labour necessary to run their biz, and whether there was any additional money left over to consider as 'profit'.
That said, it's still up to the individual biz owner, whether their situation is worth it or not, to them. To one person, their situation would not be worth it, and to another, maybe it would be. For example, I knew a couple who ran a restaurant. They rented the building, and lived upstairs. The couple both worked fulltime in the restaurant, performing jobs integral to the operation of the restaurant. From their perspective, their biz was 'making money, becuz they were bringing in enough revenue to pay the rent and the expenses of the business, and have a few dollars left over for personal necessities, etc. In their minds, they were running a profitable business. In my mind, they were losing money, becuz if they had considered the cost of paying 2 more fulltime employees, they would've been in the hole.
Someone suggested to me one time, that if your own labour is required in order for the operation to operate, you must consider what it would have cost you if you weren't doing it yourself. For example, if, as the owner, I am performing an integral job, such as driving the truck, I should be considering what it would have cost me to have hired someone to do that job, at the going rate.
Davekc is a fleet owner, I'm not sure whether he actually drives, but let's suggest for this purpose, he does not. He plugs in all his revenues and expenses, including the monies paid out to his drivers. Whatever is left at the end of the day, is his profit, or his 'pay', for taking the risks that he takes, being the responsible party, coordinating everything, or whatever.
I think for a reality check for how well one is doing in their own business, they could 'pretend' they are paying themselves on the same sort of split arrangement they would have received if they were paying a driver the standard 40%. Altho it'll be an imaginary number that isn't really being paid to any driver, it would at least let an OO know if they were breaking even, or making any money, or losing money, etc. You won't have to worry about which hours to include as labour, whether on duty or off, or driving or not, just the typical payout for the driver portion that a driver would have received.
I have done taken a look at this in our own business, and this exercise has put quite a few things into perspective for me and given me insight as to where things need to change, and there are a few! So now, we are trying to change the things that need changing!
Some people wouldn't consider their own time spent, in operating their business, while others did. The people that did not, might consider their biz to have 'made money'. The people that did, would know whether they were bringing in enough revenue to pay for the labour necessary to run their biz, and whether there was any additional money left over to consider as 'profit'.
That said, it's still up to the individual biz owner, whether their situation is worth it or not, to them. To one person, their situation would not be worth it, and to another, maybe it would be. For example, I knew a couple who ran a restaurant. They rented the building, and lived upstairs. The couple both worked fulltime in the restaurant, performing jobs integral to the operation of the restaurant. From their perspective, their biz was 'making money, becuz they were bringing in enough revenue to pay the rent and the expenses of the business, and have a few dollars left over for personal necessities, etc. In their minds, they were running a profitable business. In my mind, they were losing money, becuz if they had considered the cost of paying 2 more fulltime employees, they would've been in the hole.
Someone suggested to me one time, that if your own labour is required in order for the operation to operate, you must consider what it would have cost you if you weren't doing it yourself. For example, if, as the owner, I am performing an integral job, such as driving the truck, I should be considering what it would have cost me to have hired someone to do that job, at the going rate.
Davekc is a fleet owner, I'm not sure whether he actually drives, but let's suggest for this purpose, he does not. He plugs in all his revenues and expenses, including the monies paid out to his drivers. Whatever is left at the end of the day, is his profit, or his 'pay', for taking the risks that he takes, being the responsible party, coordinating everything, or whatever.
I think for a reality check for how well one is doing in their own business, they could 'pretend' they are paying themselves on the same sort of split arrangement they would have received if they were paying a driver the standard 40%. Altho it'll be an imaginary number that isn't really being paid to any driver, it would at least let an OO know if they were breaking even, or making any money, or losing money, etc. You won't have to worry about which hours to include as labour, whether on duty or off, or driving or not, just the typical payout for the driver portion that a driver would have received.
I have done taken a look at this in our own business, and this exercise has put quite a few things into perspective for me and given me insight as to where things need to change, and there are a few! So now, we are trying to change the things that need changing!
You are 100 percent correct. I don't drive now so from a investment side of things, it is much easier to determine its profitability. It does take an imput of time, but it is really no different than say property management.
Since the investment has that commitment of time, then one would expect a higher return than say just a simple market investment.
Since the investment has that commitment of time, then one would expect a higher return than say just a simple market investment.
Dave, you said the above words in response to Greg who said,
"Well Thanks Dave, I thought it was settled that ROI is like Luck, it does not exist.
"You said essentially the same thing (I read somewhere that ROI does not exist.) at least one other time in other posts. Can you tell us please, where exactly did you read that ROI does not exist and who said it?
And that link you provided to the ROI calculator, the calculator works fine for comparing a bank CD to a U.S. Treasury bond, but it is too simple to be useful or meaningful in a one truck expedite business. If that is the way you calculate your ROI on a truck, there is more than a little room for self deception about the financial results.
Great post. Thanks for adding it.
Smart and willing to share. Thanks.
It can work from the other end too. We began not as owner-operators but drivers of a fleet owner's truck. The arrangement was 60/40, with 60% going to us, us receiving 100% of the fuel surcharge, and us paying for fuel.
After a few months, we had a pretty good idea of what gross revenue was reasonable to expect if we were owner-operators. We had a pretty good idea of what our truck and non-truck expenses would be and what kind of truck we could afford.
We presumed the fleet owner was at least breaking even on the truck with the 40% of the gross he retained. Putting that 40% into our own truck was something we could easily do when we started driving one our own.
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