Fleet owner observation

[Vinnie T]

After reading several posts, their seems to be some misunderstanding of what a fleet owner actually does. Just as there are poor fleet owners, there are poor drivers.
Will try to keep the post from turning into a 5000 word essay.
Probably alittle overdue based on some recent posts.

We do the 60/40 with providing 100 percent of the FSC to the driver. In our case, most fuel is covered through the FSC. Since the driver determines habits and fuel locations, it only makes sense they are responsible for the fuel tax.

Some owners pay more than 60 percent. I find that they are upside down in a truck payment, don't want to drive, health or personal issues, or the truck has significant age. In my situation, I could go over the 60 percent, but it certainly won't work with trucks well over $100,000 in costs.

We do pay 100 percent for hand unloads because the driver carries the burden. We also pay 100 percent on EM's because again, the driver carries the majority of the burden in fuel costs.
But keep in mind, we still have an inherit cost per mile as the truck doesn't go down the road for free. We have to eat that somewhere.

Deadheads with us are 60 percent as well as layover and detention. We take on a cost and lost revenue for whatever reason when the truck is tied up. That is a lost opportunity for additional loads no matter how you look at it for it both.
With regards to comments about the owner doing nothing while the truck is on detention doesn't wash with me. When I am calling and researching loads while the driver is SLEEPING, I would say it is a trade off.

Speaking of that, when I book two loads on a truck and the driver gets 60 percent of both loads, and all of the FSC from both loads, should I only pay 60 percent of the first, keep 50 percent of the FSC on the second, and just pay the stop offs?
In our case, I give them 60 percent of both loads and both FSC's. Ummm.....but am I a ripoff owner?
What about when I am looking for a load out of a dead area or a place that is over populated with trucks?
Yes we both benefit.........Imagine that.
Too often in many posts, drivers ASSUME way too much.

Lastly, drivers are a business partner with NO investment. It is not a 50/50 deal. If they share in the risk, then it should be 50/50.
Fleet owners absorb many costs from breakdowns, tows, accidents, and the like. Driver error and level of experience comes into play as well. An inexperience driver can run up huge bills in not knowing what they are doing. Again the owner has to absorb that cost.
Personal agendas of drivers is another big one. You see it all the time when a driver/team does well one month and gets a pot of cash, only to follow it the next month with weeks off.
The owner as well as the driver have to spread that revenue.
We have been fortunate in that we haven't been hit too much with that.
Drivers/teams quit for a variety of reasons. Every time that happens, there is major costs involved from recruiting, getting a team to the truck and orientation, to how long the truck sits empty. For some when I see a 2000 a month payment, that is 5K every two months it sits plus the cost to put a driver on.
Insurance, QC and other fees don't magically stop.

Again, based on some of these posts, some really need a reality check and a understanding of what is involved. Most eventually figure it out when they buy their own truck.
Or.....they buy one and the engine or transmission blows and reality sets in.
After many years, we still enjoy the business. But for potential new fleet owners, make sure you REALLY understand what you are jumping into. It is a "no prisoners" business, and not for the faint at heart. Probably why I enjoy it so much

I will say as well, many of our current and past drivers are members right here at EO. I would like to think we gave or are giving them a fair and honest partnership. From time to time, we even do our best to help drivers that don't even drive for us. We aren't the only ones, so current and future drivers, give us and other owners the evaluation that you would like extended to yourself.

Dav e thank you for laying out your program it was very imformitive and offers a different aspect of a great way to set upa a pay structure.

 

[highway star]

Dabluz, I asked the question about the proportion of reward because you stated that it wasn't right. Sounded like you had some specific percentages in mind. O.K...., so, proportion of risk? Well, the fleet owner is turning over his asset that's worth thousands of dollars to someone that's, most likely, a stranger. The driver? Hmmm... what is the driver's risk? Is it the risk that he may be involved with a bad owner? The owner is taking the same risk with the driver. I'm having trouble coming up with much risk for the driver, at least those that aren't shared equally by the owner.

As to failure, yes, bankruptcy is as bad as it gets. I suppose for the sake of dramatic effect we can talk about it. But, it isn't the only way a business failure concludes. Many will realize they've bitten off more than they can chew before it gets that bad. Expediting has produced some bankruptcies, but many of those folks would probably have failed at whatever they tried.

Dave, I think this thread will provide an excellent ROR(return on reading) for the newbs. I can't define ROR, but I know it when I see it.

 

[ATeam]

ROI is not like.... say.... Hamilton–Jacobi equation (if you know what that is) ... but it is much simpler to get......

OK. So since ROI is simple to get, please, tell me how to calculate it in a way that is meaningful to a one-truck owner operator business or multi-truck fleet owner business if you prefer. I don't get it. Why are the people so willing to talk about how important ROI is, also so mum about how to actually calculate ROI? It is a simple, straightforward question. How do you calculate ROI?

 

[LDB]

Simple and tough. This is 3 decades old so the memory isn't what it used to be but if I recall correctly from basic accounting you take how much revenue is generated by the asset and divide it by the cost of the asset. Let's say you have $40k net income after taxes from a $40k truck then it's 100% ROI; if it's a $100k truck it's 40% ROI and if it's a $200k truck it's 20% ROI.

Then again, I don't remember lunch from last week so who knows what ROI is.

 

[davekc]

Hey Danny,
Appreciate the thoughts. If I made it too long, the original concept might get a little lost.
From an investment strategy, I do subscribed to the Dave Ramsey/Howard clark/Bruce Williams/Jim Kramer theories.
I take a little from each one and apply it it to my own situation.
As I have said before "cash is king" and we operate on that principle. Doesn't mean I wouldn't leverage on the right opportunity because we have, but be cautious and understand those risks.
Many years ago I didn't follow that advice. We had trucks at the Fed, and they overpopulated their fleet during a slowdown.
At the same time, I retired from a vending company but stayed on as a consultant, which I still do.
I was involved in bringing a TX vending company out of bankruptcy and with all of that, I was taking my eye off of expediting.
A little off the beaten path of expediting, but I was hired and retained by a bank and two law firms to liquidate them or find a buyer for a sunk ship.
Why did they crash? They bought and had approval from Walmart a couple million dollars in video game equipment. Once installed at locations, they were deemed too violent several months later and Walmart wanted them removed. Basically destroyed the company financially. After two months and some software changes, I was able to locate a buyer from CA, that bought the whole business.
So yes, another place ROI and "Luck" come into play.

As for a comparison of risk, the driver is essentially transient and can find another owner with minimal cost. A fleet owner on the other hand may have long residual effects if something goes south. Could be bankruptcy all the way to losing their home. I don't see a place where they could be viewed on the same level.

===========================================


Dave, I think this thread will provide an excellent ROR(return on reading) for the newbs. I can't define ROR, but I know it when I see it.

Hey Star I know what you mean. Maybe I will make a link called "Introduction to fleet owners" and then put it in my post every other day. Oops, that would remind people of someone else.

 

[davekc]

Simple and tough. This is 3 decades old so the memory isn't what it used to be but if I recall correctly from basic accounting you take how much revenue is generated by the asset and divide it by the cost of the asset. Let's say you have $40k net income after taxes from a $40k truck then it's 100% ROI; if it's a $100k truck it's 40% ROI and if it's a $200k truck it's 20% ROI.

Leo has it right
That is why I don't advocate buying reefer trucks. The same margin isn't there. If the revenue is double, then I might be tempted. I don't think Leo's accounting teacher would either. He is using the below formulas. For specifics, just plug in your own formula and numbers. This has been posted too much.
If someone tells you the stove is hot, some have to put their hand on the burner to be convinced it is hot.
Rate of return - Wikipedia, the free encyclopedia

 

[greg334]

Dave, Leo,

Phil is trying to find some answers beyond Wikipedia. Please bear with me in my reply to him. It may sound twisted but in fact it seems to be true - I am just taking the long way around the barn for Phil's sake..

OK. So since ROI is simple to get, please, tell me how to calculate it in a way that is meaningful to a one-truck owner operator business or multi-truck fleet owner business if you prefer. I don't get it. Why are the people so willing to talk about how important ROI is, also so mum about how to actually calculate ROI? It is a simple, straightforward question. How do you calculate ROI?

What don’t you get?

OK ROI is simple; it is a combination of things that have to do with your business and it is how you define it to measure where you stand on achieving your goals. Your investment divided by your return is the return on investment. Sure you can use that simple formula but you can’t, get it?

NO?

OK here is some clarification …. ready?

I tell people, both here in the virtual world and in the real one that there are two things you got to have before you venture into business, a lawyer and an accountant. You seek out these two professionals for a bunch of reasons; one is to define terms that have some ambiguity to them and that professional can judge how to apply those terms for each person within the goals and limits of the person and the business. In other words what ROI means to you, not to me, not to anyone else, is different than what ROI means to me. Just like the word success, an individual needs to define it to know when they are successful.

There are other terms that I know you know, like opportunity cost which sometimes matters to some but sometimes it doesn’t. Same goes for labor cost, some count it as a tangible while others say ‘it’s free to me’. Tangibles and intangibles all matter but intangibles are part of that need to define things. The same goes for the word failure, I failed at being diligent getting those high paying runs but I am meeting my goals, so I'm a failure? I think not. Got that so far?

I have an idea what you are doing, maybe I am completely wrong but you are trying to find ways of metering success, to put it in terms that you can see and understand to tell others or explain it. Well, these include both tangible and intangible issues (from past threads) but you can’t explain it that easily, just as you can’t analysis failure by making blanket statements about how easy the business is to learn but the people who fail, failed to learn the business. I seen what others have done when I had to write up things to prevent meltdowns of businesses, you can’t judge something without knowing what the business is like and how it is structure, the culture and the attitude it holds. Putting into a smaller scale, you can’t define things like success or ROI for others, their attitude, their culture and their goals are different, understand?

For example someone can have two simple goals, pay bills and pay the PM to run a truck or even 20 trucks – it don’t matter the number of trucks, one or twenty. They figure that they will make money along the way but getting out of debt is important and maintaining those tools is their main goal or objective. Many ‘experienced’ owners and/or expediting experts will plug in all the numbers of that person to the formula; the investment divided by the return (simple ROI) and say that is not success at all then question ‘how can someone operate by just getting by or why would they want to when they can make all that money?’. See it is to the person who set the goals who are the person who can say the return of their investment of both time and money, both intangible and tangible (respectfully) is justified.

So do you get it now?

Can you see why there is talk about it but no one can give you a formula that fits into a universe of scenarios?

And here is a little dirty secret that seems to be missing from a lot of biographies of the rich, no matter what they do, every one of them know three things and used them to accumulate wealth;

They know how to hire people to advise them and listened to them
They know what they wanted and what their goals were….. and most importantly they were not of failing
They know where they stood in life, financially and in general to know where they wanted to go.

Hence my position has been consistent;
Get a lawyer and accountant to advise you and to protect you if needed
Set realistic goals, even multilevel goals and don’t be afraid of failure
Know where you are coming from to know where you are going
Anyone think I am wrong?

 

[Jefferson3000]

The original post wasnt an insult to davekc, but a question why a man with his obvious success and experience would even feel the need to clarify the position of fleet owner,
when fleet owners are the minority that the majority will never aspire to nor really understand no matter how many times dave repeats his post.
sorry for the over simplifications again.

One of the reasons I believe that Dave posted is that he is not only a successful businessman, he is a teacher. That is also the reason he instructs at the Expo. He could just be sitting back enjoying the fruit of his work, but instead he would like someone to understand a little bit of what he's learned from his years in it. he really has a lot to share that would make anyone run a better business

Dave, I applaud you for this.

 

[davekc]

Always appreciate the kind words. That is exactly why myself, Terry and others do the workshops and other events. If one person comes away with something that makes them a better driver, owner operator, or fleet owner, then it is worth it.
We have benefited greatly from the industry over the years and sharing that knowledge is a great thing. I know the hardships we endured when I started because nothing like EO was around. They did have 9 years ago, Joe Romans site. But it is nothing like EO is today. That was a case of bad timing or "Luck". So much has changed. We made a ton of mistakes, many were pretty costly because we were feeling our way about and distracted with other projects.

As far as the ongoing saga of ROI and WHY Phil can't figure it out, just take your dollars invested, and see what you have at the end of your investment period.

 

[Bruno]

Dave

I'm giving you the new name of "Father Expediter" It fits you. I could give some cool names to others too. Like Business Plan Phil, because Phil is pretty good at doing business plans. Terrific Terry, because he is one nice man and so on.

 

[ATeam]

As far as the ongoing saga of ROI and WHY Phil can't figure it out, just take your dollars invested, and see what you have at the end of your investment period.

My point is not that I cannot figure it out. It is that you cannot. You have yet to offer an ROI calculation that readers can actually use to calculate ROI.

Explainations offered by you so far would earn you a failing grade in any college accounting course. Writers that say ROI is important but do not give readers a usable way to calculate it (as in a formula that works when applied to a one-truck expediting business) do readers a disservice.

Like the concept of cheap freight, ROI is tossed about here as an ill defined notion that may make the speaker sound smart, while the notion itself cloaks more than reveals.

I'm not saying this to be cruel. It is just frustrating to be told over and over again that something is important while it becomes increasingly evident that this important thing is not actually used in business calculations. If it was, answers to questions like "How do you calculate ROI in your business?" would be more forthcoming, would they not?

An ROI formula is hardly a business secret. No one would be giving away the store or personal information by sharing their ROI formula. After seeing the question go unanswered over and over again, what are readers to conclude, excpet that the people talking about ROI are not actually using the concept in their businesses calculations?

And for the record, I was not the one who resurrected the ROI topic in this thread.

 

[highway star]

My point is not that I cannot figure it out. It is that you cannot. .

This is the post I've been expecting to see on this subject. The one where Phil says he really does know the answer to the question HE posed, and everyone else is an idiot. The question I have is, what difference does it make how ROI is calculated? The fact is, I spent a lot of money on my truck and I expect a return on that investment. It's been reported that you spent a great deal of money on your truck. Isn't it important to make money with it? If there's more than one way to calculate ROI, then use the one that works best for you.

Oh, you spelled explanation wrong.

 

[greg334]

My point is not that I cannot figure it out. It is that you cannot. You have yet to offer an ROI calculation that readers can actually use to calculate ROI.

Explainations offered by you so far would earn you a failing grade in any college accounting course. Writers that say ROI is important but do not give readers a usable way to calculate it (as in a formula that works when applied to a one-truck expediting business) do readers a disservice.

Phil,
I think that the proof of Dave's point is that he has a business that seems to be successful. He knows what is going on in his business, as I do in mine. His ROI is defined by him and is none of anyone's business just like mine is defined and none of anyone's business.

Don't get me wrong, it is important, but not as getting the right advice from professionals which is my message and is being diluted at the same time copied.

I don’t buy into the reader thing because this is a forum, a place that there is a conversation, not like addressing everyone as if they were reading an article. If there is confusion, then they should speak up and ask questions, can't do that with an article. Two way conversation!

Like the concept of cheap freight, ROI is tossed about here as an ill defined notion that may make the speaker sound smart, while the notion itself cloaks more than reveals.

I'm not saying this to be cruel. It is just frustrating to be told over and over again that something is important while it becomes increasingly evident that this important thing is not actually used in business calculations. If it was, answers to questions like "How do you calculate ROI in your business?" would be more forthcoming, would they not?

I am saying this to be cruel; the problem is you are trying to put numbers on things that are a more personal thing and make it a blanket statement to be applied to all situations. ROI like opportunity cost like cheap freight is something that people who is focused on their own business needs to decide how to apply the concepts to. They need to set the level on what they call cheap freight, they need to decide to what they want to give up to use the time to make the money and so on.

Sorry to beat this horse but being a fleet owner is a lot different from being a single truck owner but then again driving for someone is a lot different than owning a truck so you show people what is important and how to find answers to their questions – my way is to advise getting professional help, not depend on people who never really had failures.

An ROI formula is hardly a business secret. No one would be giving away the store or personal information by sharing their ROI formula. After seeing the question go unanswered over and over again, what are readers to conclude, excpet that the people talking about ROI are not actually using the concept in their businesses calculations?

True, there is no secret, so…. Your point? Oh I see, you want to see others people’s numbers. What is the reader supposed to conclude? This is not a class, it is a forum so I would assume that they should conclude that there is no cookie cutter pattern for this business, there is no franchise formula to success – they need to conclude that they need to listen and learn, ask questions and learn.

Really Phil, I thought this was all easy to learn?

What happened to that idea?

If this is frustrating, imagine what someone who does not posses this great financial knowledge go through trying to find an answer.

And for the record, I was not the one who resurrected the ROI topic in this thread.

You know it don't matter if you brought it up or not, I think I did - so.... you never answered my question about knowledge, failure and the perceived notion people are lazy.

I am wondering why you responded?

 

[davekc]

The EXACT formula has already been provided. This link is provided by OOIDA on a lease deal that can be reformulated with a purchase. Take your invested dollars over a determined time and subtract your appropriate costs. One can use their own numbers or historical data provided from a carrier or other source. In our case, we have years of data to pull from to arrive at certain averages. The ending number is then converted to a percentage against the initial investment. We use a spread of 5 years as most equipment is essentially junk or is worth less than 20 percent of the initial investment. In the lease example, items like depreciation are factored in the weekly payment. A purchase will require separate costs for interest and other items where applicable.
Just as one would need to know their CPM (cost per mile), it would be wise to know IF you are making money back on what you initially invested and at what rate. If you find you made that 1 percent, money might be better sitting in a CD.OOIDA Trucking Tools
I could go into a lot more detail, but for the purposes of a post, this should be sufficient. Specifics to ones personal situation should be addressed by ones accountant if they are struggling with the basic concept.

 

[highway star]

Sounds like a good answer to me. But....

IS IT GOOD ENOUGH???

Drum roll, please...

 

[ATeam]

I'm sorry, Highway Star, it is not good enough. See post below.

 

[ATeam]

The EXACT formula has already been provided.

Actually, no EXACT formula has been provided.

And before going more in depth about this, the short reply is simply to re-ask the question that remains unanswered. How does an expediter calculate his or her ROI?

As you have often said, DaveKC, "Why complicate the simple?" It is a simple question. How do you calculate ROI? Would not the simple answer be to provide, not a link to another web site, but the straightforward formula, published here in the Open Forum for calculating ROI?

Yes, the details of each expediter's business vary from the details of all other expediters. But formulas are universal. For example, the formula for calcuating cost per mile would be Cost A + Cost B + Cost C, etc.; divided by the number of miles.

It does not matter what the costs are. It does not matter whether one expediter may have a particular cost that another does not. It does not matter how many trucks the expediter owns. It does not matter that one expediter's Cost A differs significantly from another expediter's Cost A. The formula works the same for all expediters.

That is the power of a formula. It works in all situations. The variables are plugged into the formula that then provides the calculated and correct answer for each expediter. The answers vary because the details vary, but the method for calculating the result is always the same.

So, please, DaveKC (or anyone else), what is the FORMULA for calculating ROI?

This link is provided by OOIDA on a lease deal that can be reformulated with a purchase.

You are making a shift here. You started out talking about "the EXACT formula" and have now shifted to talking about a link. The link you provided in your reply #54 takes readers to a page on which the words "ROI" "return on investment" and "formula" do not appear.

But let's give you the benefit of the doubt, assume innocent grammar typos, and follow the link you provide.

The page is entitled OOIDA.com Trucking Tools. The body of the page includes three links listed here: "Now Added The OOIDA Cost Per Mile Spreadsheet," "Open the OOIDA Lease-Purchase Survival Calculator-Spreadsheet" and "OOIDA Lease-Purchase Spreadsheet" (Microsoft Excel required to open this link).

The last two links lead readers to pages on which the words "ROI" "return on investment" and "formula" do not appear.

The first link takes readers to an article, "Truckers must not be flying by the seat of their pants." The words "ROI" "return on investment" and "formula" do not appear on this page. But, this page includes a link to "Cost of Operations" where, finally, there is a reference to "return on investment."

Unfortunately for readers who really would like to know how to calculate ROI, this reference hardly qualifies as "the EXACT formula." It is a line item in the fixed costs category on a spreadsheet. In this case, ROI is expressed in a dollar amount. But no formula is provided with the spreadsheet that tells readers how the dollar figure was reached.

It is curious too that ROI is here categorized as a fixed cost. ROI stands for "return on investment." It is a result achieved over time. Fixed costs are immediate and ongoing. How can ROI be a fixed cost?

Not in this post, but in another one, DaveKC said the formula for calcuating ROI can be found on the Wikipedia web site. That page's explaination of ROI is anything but simple, but there, ROI is stated to be, not a fixed cost, but "...the ratio of money gained or lost on an investment relative to the amount of money invested.

So, with one link, DaveKC points readers to the notion that ROI is a fixed cost. With another, he points readers to the notion that ROI is a ratio.

And as far as I can tell, that is the closest his links have ever come to providing an expediter-useful formula for calculating ROI.

This whole stir about ROI errupted when I offhandly suggested that ROI is a meaningless indicator in a one-truck expedite business. Some people not only disagreed but did so with strong feelings. Defending my position led only to more head butting with no resolution in sight.

So, in an effort to bring the ongoing conversation to a peaceful close, and hopefully produce some information that woudl be useful to expediters, I stated in a post that, for the purposes of discussion, I would assume I was wrong about ROI and ask instead how to calculate it. More responses were given, thankfully with less emotion, but, alas, no formula was offered.

I don't see where else this discussion can go. There are those who believe ROI is a meaningful concept in an expediting business and those who do not (I am not alone in this opinion, witness the thousands of expediters who do not calculate their ROI).

In this Open Forum, those who say ROI is important have yet to provide a formula for calculating it. To readers, I suggest that ROI advocate DaveKC makes my point. A financial concept that cannot be calculated and communicated is not a meaningful concept at all.

This link is provided by OOIDA on a lease deal that can be reformulated with a purchase. Take your invested dollars over a determined time and subtract your appropriate costs. One can use their own numbers or historical data provided from a carrier or other source. In our case, we have years of data to pull from to arrive at certain averages. The ending number is then converted to a percentage against the initial investment. We use a spread of 5 years as most equipment is essentially junk or is worth less than 20 percent of the initial investment. In the lease example, items like depreciation are factored in the weekly payment. A purchase will require separate costs for interest and other items where applicable.

This is the closest you have come, Dave, to providing a formula, but you stopped short. You could be on the right track if you trimmed the verbage, provided mathematical operators, published an actual formula, and applied it to a couple of examples. But until you do, readers will not gain something useful regarding ROI.

Again, unless someone injects something new and different into this ongoing ROI debate (like an ROI formula expediters can actually use), I see little value in continuing the discussion. Having made the points I want readers to note (and then accept or reject as they see fit), I am more than ready to give the topic a rest.

 

[greg334]

It's got to be the water.

 

[davekc]

It may be in the water? No one else had any problem figuring it out. Just you Phil.
I do agree that it is a topic that has been explained to you by several members over numerous posts. No where else to go so mind as well move on to something else.

 

[greg334]

Anyone want to talk about how many ways you can prepare shrimp?

Maybe more useful than ROI.