Thanks Phil.
I must say, I prefer the way Terry & Rene spread the truck cost over the period of the truck's life, as opposed to having payments, and then suddenly zero, and looks like you're making more money. I'd rather see a steady number, making it easier to compare apples to apples, one year over another, instead of looking at different years and having to remember what made the numbers be what they were.
Notice that I did not say truck payment costs were suddenly reduced to zero. I said interest on the truck loan was reduced to zero. Once the truck is paid off, interest costs cease. But even though the truck is just two years old and paid for, replacing the truck must be accounted for, and the truck replacement cost continues as an ongoing expense. Thus you have your steady number.
Two years ago, the truck purchase price was $251,000, including FET. Using the 4% per year inflation number Turtle provided, and sticking to our plan to replace the truck in ten years, the $251,000 purchase price of 2006, becomes $371,500 in 2016. To account for inflation, build in a cushion, and maintain a debt-free lifestyle, we are planning to pay $400,000 cash for a new truck in 2016.
To include that expense in today's CPM numbers we assume we can invest money at a return that at least equals the rate of inflation (4%). Thus, with a $400,000 goal and a 4% return, we need to put away $3,531 a month for the next eight years. Based on past history, we assume 12,000 miles a month. $3,531/12,000 gives us truck replacement costs of 29 cents per mile.
Say you had a $150,000 class 7 truck instead, with a five-year useful life, and the same 4% inflation and investment return assumptions. $150,000 today is $182,500 five years from now. With that as your goal, a 4% return, and a 12,000 mile per month assumption, you need to save $2,744 a month to pay cash for your next truck, and your truck replacement cost would be 23 cents per mile.
Now, of course, things are not that simple. There are taxes to consider, salvage value of a 10 year old truck, and a host of other factors. Still, knowing approximately how much you need to save over a given time period puts one well on the way toward paying cash for the next truck.
More importantly, your customers can count on you to be there for them after your present truck wears out.
I also personally wouldn't include the flights for dental appointments, becuz to me, that's more an item for how you choose to spend your profit.
That is your call.
I know this form is just for determining your 'cost' per mile, so you can make an informed business decision on whether or not to take an offered load (if your carrier in fact gives you the right to determine that decision for yourself!), but I would like to see it go a step further, and estimate how many deadhead miles are in that total miles figure, and work out the number needed for 'loaded miles'. Easy enough to do, just more estimating and projecting.
In the 12,000 mile figure cited above, loaded and deadhead miles are included. That is a more realistic approach, I believe since we do in fact deadhead the truck for a number of reasons (going home, driving to truck washes, driving to maintenance facilities, driving to RV parks to layover between runs, driving to our carrier for training and certifications, driving to better express centers to improve our chances of getting a load, etc.).
The
often-quoted OOIDA article says, "
As a general rule of thumb, the driver should earn about 30% of the total gross revenue of the truck."
Looking at things that way, Consider a load that pays $1.60 per mile, gross to the truck. If 30% of that should be your profit after expenses, that is 48 cents per mile, leaving you with $1.12 per mile to cover expenses. Should you accept the load? It depends on what your cost per mile is. If your CPM is $1.12 per mile or less, accept the load. If your CPM is $1.13 or greater, accepting the load cuts into the 30% and reduces your profit.
