Knowing your cost per mile

[Turtle]

Ratwell, calm down, take a pill. CPM in terms of the PRESENT VALUE of MONEY? Huh? You're so consumed with the Fed, printing money, the devalued dollar, foreign oil, fuel costs, the oil reserves and the heartbreak of psoriasis that you can't see the forest for the trees. You act like every issue in the world is a new one. I really like that your passionate about this stuff, but please keep in mind that a little knowledge can be a dangerous thing. You see all these problems and you react by acting and wanting quick and dirty fixes, without regard to what happens next. In some ways that's good, because it shows passion, but passion can be both displaced and taken too far. You fail to look a little deeper than the surface and learn about the problems, their roots, the evolutions, why they are still with is, and how many of these issues are interconnected. You have to figure out if the solution is worse than the problem.

The value of money, the devalued dollar, it's called inflation, and inflation has been with us since the invention of the barter system.

Do you even understand the relationship between the real value of a dollar and the real costs incurred? The real value of a dollar is exactly one dollar. Shocking, I know, but it's true. The dollar only becomes more or less valuable when compared to the value of goods and services at some time in the past, or the future, as adjusted for inflation.

Historically the rate of inflation is about 4 percent, sometimes it is more, sometimes it is less, but overall it's about 4 percent. That's on an annual basis. So, yes, on an annual comparative basis, one dollar is worth about 4 percent less today than it was a year ago. But in our business, with respect to CPM, that 4 percent can be mitigated, or completely eliminated, by increased fuel surcharges and MPG saving techniques, which reduces your costs and therefore strengthens the value of your dollars.

Your costs today are in today's dollars, and you're buying them with yesterday's dollars, but it's not like you're buying them with last year's dollars.

In order to do as you suggest, to factor in the real value of the dollar on a daily basis, one would need to add an Inflation Index calculation to the CPM worksheet, which would consist of adding an additional cost of goods and services of .000109589 percent daily, less the percentage of cost savings techniques you used to add value to your dollars.

And that would only be for those goods and services that have increased in cost since the day you earned your dollars. For the ones that haven't risen in the time between you earned your dollars and the time you spent them, there is no Inflation Index calculation needed.

So, I'm gonna call you on this one. Give us some hard examples of how you factor in the cost of goods and services while taking into account the PRESENT VALUE of MONEY. How is $100 worth of fuel accounted for when the money you spent to buy that fuel was earned a couple of weeks ago. How do you figure that into your CPM, and how much does it increase your CPM?

I would also love to know the figures you use in your calculations for Time Management, since, as you said, "This must be entered into the equation because it will vary your cost per mile."

 

[ratwell71]

Rantwell, in your haste to cut and paste you forgot one very important statistic that would put your little piece into prospective. Maybe you should re-read your last post and add an example #8. Of course then it wouldn't be much of a rant; well would it?

I will consider the source. I don't want to stoop in your poop so I will leave it as it is. If you do not understand the value of the dollar just say so MOOT. I will clearly define it for you if you don't like the stats I cut and paste. Sorry I don't have time to type all the things I want to say. I have far more pressing issues to deal with than commenting on sarcastic babble.

Take it for what is worth. It is your time, your money. If you think you are earning a $1.40 or whatever per mile think again. Your choice to learn or just be sarcastic which just shows how intellectual you really are.

Now let us try that with some tact next time.

 

[ratwell71]

Ratwell, calm down, take a pill. CPM in terms of the PRESENT VALUE of MONEY? Huh? You're so consumed with the Fed, printing money, the devalued dollar, foreign oil, fuel costs, the oil reserves and the heartbreak of psoriasis that you can't see the forest for the trees. You act like every issue in the world is a new one. I really like that your passionate about this stuff, but please keep in mind that a little knowledge can be a dangerous thing. You see all these problems and you react by acting and wanting quick and dirty fixes, without regard to what happens next. In some ways that's good, because it shows passion, but passion can be both displaced and taken too far. You fail to look a little deeper than the surface and learn about the problems, their roots, the evolutions, why they are still with is, and how many of these issues are interconnected. You have to figure out if the solution is worse than the problem.

The value of money, the devalued dollar, it's called inflation, and inflation has been with us since the invention of the barter system.

Do you even understand the relationship between the real value of a dollar and the real costs incurred? The real value of a dollar is exactly one dollar. Shocking, I know, but it's true. The dollar only becomes more or less valuable when compared to the value of goods and services at some time in the past, or the future, as adjusted for inflation.

Historically the rate of inflation is about 4 percent, sometimes it is more, sometimes it is less, but overall it's about 4 percent. That's on an annual basis. So, yes, on an annual comparative basis, one dollar is worth about 4 percent less today than it was a year ago. But in our business, with respect to CPM, that 4 percent can be mitigated, or completely eliminated, by increased fuel surcharges and MPG saving techniques, which reduces your costs and therefore strengthens the value of your dollars.

Your costs today are in today's dollars, and you're buying them with yesterday's dollars, but it's not like you're buying them with last year's dollars.

In order to do as you suggest, to factor in the real value of the dollar on a daily basis, one would need to add an Inflation Index calculation to the CPM worksheet, which would consist of adding an additional cost of goods and services of .000109589 percent daily, less the percentage of cost savings techniques you used to add value to your dollars.

And that would only be for those goods and services that have increased in cost since the day you earned your dollars. For the ones that haven't risen in the time between you earned your dollars and the time you spent them, there is no Inflation Index calculation needed.

So, I'm gonna call you on this one. Give us some hard examples of how you factor in the cost of goods and services while taking into account the PRESENT VALUE of MONEY. How is $100 worth of fuel accounted for when the money you spent to buy that fuel was earned a couple of weeks ago. How do you figure that into your CPM, and how much does it increase your CPM?

I would also love to know the figures you use in your calculations for Time Management, since, as you said, "This must be entered into the equation because it will vary your cost per mile."

I will take you up on your challenge.

 

[ratwell71]

Ratwell, calm down, take a pill. CPM in terms of the PRESENT VALUE of MONEY? Huh? You're so consumed with the Fed, printing money, the devalued dollar, foreign oil, fuel costs, the oil reserves and the heartbreak of psoriasis that you can't see the forest for the trees. You act like every issue in the world is a new one. I really like that your passionate about this stuff, but please keep in mind that a little knowledge can be a dangerous thing. You see all these problems and you react by acting and wanting quick and dirty fixes, without regard to what happens next. In some ways that's good, because it shows passion, but passion can be both displaced and taken too far. You fail to look a little deeper than the surface and learn about the problems, their roots, the evolutions, why they are still with is, and how many of these issues are interconnected. You have to figure out if the solution is worse than the problem.

The value of money, the devalued dollar, it's called inflation, and inflation has been with us since the invention of the barter system.

Do you even understand the relationship between the real value of a dollar and the real costs incurred? The real value of a dollar is exactly one dollar. Shocking, I know, but it's true. The dollar only becomes more or less valuable when compared to the value of goods and services at some time in the past, or the future, as adjusted for inflation.

Historically the rate of inflation is about 4 percent, sometimes it is more, sometimes it is less, but overall it's about 4 percent. That's on an annual basis. So, yes, on an annual comparative basis, one dollar is worth about 4 percent less today than it was a year ago. But in our business, with respect to CPM, that 4 percent can be mitigated, or completely eliminated, by increased fuel surcharges and MPG saving techniques, which reduces your costs and therefore strengthens the value of your dollars.

Your costs today are in today's dollars, and you're buying them with yesterday's dollars, but it's not like you're buying them with last year's dollars.

In order to do as you suggest, to factor in the real value of the dollar on a daily basis, one would need to add an Inflation Index calculation to the CPM worksheet, which would consist of adding an additional cost of goods and services of .000109589 percent daily, less the percentage of cost savings techniques you used to add value to your dollars.

And that would only be for those goods and services that have increased in cost since the day you earned your dollars. For the ones that haven't risen in the time between you earned your dollars and the time you spent them, there is no Inflation Index calculation needed.

So, I'm gonna call you on this one. Give us some hard examples of how you factor in the cost of goods and services while taking into account the PRESENT VALUE of MONEY. How is $100 worth of fuel accounted for when the money you spent to buy that fuel was earned a couple of weeks ago. How do you figure that into your CPM, and how much does it increase your CPM?

I would also love to know the figures you use in your calculations for Time Management, since, as you said, "This must be entered into the equation because it will vary your cost per mile."

Are you saying that poor time management should not be factored? Wait till I get this spreadsheet done. And are you saying that the present value of money has no affect on your costs? I love a challenge. This is going to be good, but first I have a festival to attend here in Baton Rouge. LMAO

 

[Turtle]

It's not much of a challenge. All I'm asking for are the numbers that you, apparently, already have in place, and are working with on a daily basis.

 

[ratwell71]

It's not much of a challenge. All I'm asking for are the numbers that you, apparently, already have in place, and are working with on a daily basis.

Sure you called it and I am taking you up on it. Now I want you to consider what you said and consider how I am going to use time management as a factor in cpm.

What happens when a person is running late or stops frequently and has to drive faster to get from point A to point B? What happens to his fuel economy when he/she sticks it to the floor trying to be on time. What happens when he/she has prepass and drives at 55mph with fewer stops? Get where I am going with this.

 

[ATeam]

Thanks.
So in effect, a real cpm can't be determined accurately until after the fact.
How often would you adjust your figures to meet with reality? Monthly? Weekly? Quarterly?

I think monthly is often enough. If something unusual occurs, like a spike in fuel prices, adjustments can be made.

With fuel prices moving up as fast as they have been, I have been using the previous month's cost per mile number, adjusted for fuel prices each time we fill the tank. That result is then used to determine the profitability of the next load offer we receive.

American Truck Business Services provide tax, bookkeeping and performance reporting services to their clients. The reports are issued on a monthly basis. That suggests that monthly is an appropriate interval for CPM calculations. Recalculating every time you fill your tank may be a bit over the top. But it is easy to do if you have a spreadsheet set up, so why not?

Now, let's switch to the "what to include?" question and toss this into the mix. This year, Diane and I have business travel expenses we did not have last year. Every few weeks, we are flying Diane home for dental appointments (braces to avoid surgery later in life). CPAs that specialize in the trucking industry tell us this is a deductible business expense. It is an expense we would not pay if we were home, but only because we are on the road for business purposes.

So, since it is a deductible business expense, I reason it is also a legitimate business expense to include in our cost per mile calculations.

The flights and ground transportation to and from the airports will add thousands of dollars to this year's expenses and drive our cost per mile up by a noticible amount; not only because our expenses are higher, but also because the down time for the dentist means we are driving less miles. Lower miles divided into higher costs raises the CPM figure from both the costs and miles side.

Is it legitimate to include such business travel in our CPM and try to pass it on to our customers (or sole customer as in our carrier)? Sure it is.

Is it wise? Maybe not. Raising our price to run puts us at a competitive disadvantage with other contractors that are not spending thousands of dollars on business travel. We could easily price ourselves out of the market by calling dentist travel business travel and including it in our CPM.

We get away with it because this year our finance charges for the truck will be reduced to zero (truck paid off). Last year's CPM included higher finance charges as the unpaid loan balance was higher. What we spent on interest last year is going for business travel this year, but we remain competitive.

This is the kind of information your CPM number can yield. You can know exactly how fuel price increases are affecting your profitability. You can make spending decisions based not just on how much money you may have or do not have, but on how the spending will place you competitively in the marketplace. You can tell at a glance what your financing costs were for a given time period. And when something happens like the recent interest rate decline, you can know the effects refinancing your truck loan will have.

We can debate at length about what should or should not be included in a good CPM calculation. Far more important than being right on one category or another is doing a reasonable (not perfect) CPM calculation in the first place. Without it, an owner-operator is groping around in the dark.

 

[ATeam]

If you think you are earning a $1.40 or whatever per mile think again.

ratwell71, I think you have a valid point when you speak of the time value of money. I also think Turtle has a valid point when he speaks about paying present day expenses with present day dollars.

Using the $1.40 number you suggested, if my carrier paid me $1.40 per mile to haul freight and then paid me that amount, I would believe I got paid $1.40 a mile. If it was a 1,000 mile load and the $1.40 was paid on all 1,000 miles, that would be $1,400, which would buy me exactly $1,400 worth of goods and services if I spent it the day it was paid.

If I put that $1,400 under a matress and spent it ten years later, that is where the time value of money shows up since time has passed. Ten years later, the purchasing power of the money would have likely declined.

 

[Turtle]

Sure you called it and I am taking you up on it. Now I want you to consider what you said and consider how I am going to use time management as a factor in cpm.

"am going to use", or are using? When you state, "This must be entered into the equation because it will vary your cost per mile," one can only assume that you are entering these cost numbers into the equation already. Am I mistaken?

"What happens when a person is running late or stops frequently and has to drive faster to get from point A to point B?"

He risks getting a speeding ticket if he's driving too fast, that's for sure.

"What happens to his fuel economy when he/she sticks it to the floor trying to be on time."

I'm gonna go with... it goes down.

"What happens when he/she has prepass and drives at 55mph with fewer stops?"

Got that one covered already. Read my sig, right hand side.

"Get where I am going with this."

No, I don't. Time management, regardless of how it is managed, affects the costs that then go into the calculations used in determining your CPM. Time Management in and of itself cannot be plugged into the equation. If you suddenly start getting better or worse fuel mileage because of how you altered your time management, and thus, altered your driving methods, that will change your fuel costs accordingly. But there is no Time Management figure to add to your CPM calculations. But if you have one, I'd love to see it. I'm sure it would help me and countless others who are unaware of such a calculation method.

Do you get where I'm going with this? Stating that you need to plug Time Management into the CPM equation is meaningless, both in real and philosophical terms, unless the connections between Time Management is made with the Total Cost of Operations in terms of real, actually, pluggable numbers. Otherwise, Time Management simply isn't a factor in determining your CPM.

Time Management, good or bad, can be a cause of a change in the numbers that will affect your CPM, but so will a dirty air filter. Not many people are gonna adjust their fuel costs to account for the gradual soiling of their air filters. If bad Time Management causes your fuel costs to go up, you don't enter Time Management into the equation, you simply adjust your fuel costs.

 

[EagleRiverWI]

Yes, but if things change, month to month, week to week, it makes a difference, so how often would one consider appropriate to adjust the figures to their most recent reality?

The reason the spread sheet is there is to run the numbers whenever you need them. The latest expense numbers are the most useful at predicting the near future if things stay the same. All I can do is figure out my cpm in the past month and guestimate on the next months. This is just a tool to find out how much it is actually costing you to move the truck. Download the program and play around with it. Last month , my former company called to ask me how much money I needed to get out of San Antonio. They wanted to know how low I would go so they could bid on loads. By using the program I had an idea where my break even point is and how much I needed to make on a load.

 

[pjjjjj]

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.

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 said, I'm not criticizing you for doing so, and I can understand your claiming it as a business expense on your income tax. Just as I claim a portion of my household expenses as a business expense for a home office, I do it to save on taxes, and not necessarily to include in my cost per mile.

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.

 

[LDB]

The problem with spreading the vehicle cost over extra years is operating for the length of the payment period at an artificially low cpm. If the payment is $450/wk for 48 months and the operator can run the truck for 84 months then showing the truck cost over the 84 month expected life results in $257/wk or a shortage of basically $200/wk in the expenses.

Terry and Rene do this successfully because they have the experience, and Terry is a very smart businessman, so they can get away with it. Some people would go broke because their expenses are $200 a week higher than the spreadsheet says.

Additionally, the expense should never change. When the 48 months are up and the bank is through requiring the payment then the same payment amount should be going into an account to accumulate toward the next truck.

 

[pjjjjj]

I can see what you're saying, but hopefully people wouldn't be using this to help them budget their payables!
It's the same as not necessarily requiring the same $850 per month in maintenance and repairs each month, as shown on the cpm example.
It's just to show an estimated cost per mile, and help make an informed decision on load offers... you'd also have to factor in any deposit/downpayment amount initially paid on the truck, if any.

 

[terryandrene]

the greater the period of cost ammortization, the lower your cost per mile to own a truck. The variable operating costs are not included in the truck ownership. I think that you must spread the cost per mile over the life cycle of the truck. To do otherwise would be akin to paying cash upfront for a truck and not factoring in any of the purchase price toward cost per mile.

Business expenses, such as the next truck purchase price should come from the business' profits, not as a cost per mile of the current truck

 

[mcclainlogis]

After looking over and over at my cost per mile for my actual truck - I am just wondering outside my normal customer base, how much business I am going to get if I am out here trying to charge $2.00 per mile....................

I guess we will see........

Thank goodness for some regular customers that already know me...

 

[pjjjjj]

how much business I am going to get if I am out here trying to charge $2.00 per mile....................

I guess we will see........

Thank goodness for some regular customers that already know me...

How much were you thinking you'd be charging for your services as a carrier?

 

[x06col]

And, they should come from the profits, from day 1, not after the original truck is paid for.

 

[x06col]

Greg, if you are not charging over two bucks these days, you won't be in business long.

 

[mcclainlogis]

colonel -

sir, that is what i am saying too i agree with you. that's what has me confused with these people talking about taking loads for $1.20-$1.40 per mile...........

am i missing something?

no my minimum is set at $2.20 per mile plus fsc....that is rock bottom.

 

[greg334]

I am wondering -

Are you going to employ people or have contractors?