Cost Per Mile: How to Calculate It and How To Use It

hey guys welcome back to the channel i hope you had a great long weekend and a wonderful holiday i know i didn't but i will not get into it in this video i will actually go into it at the end of the month when i make the monthly report and i'll explain what happened this weekend it's actually going to be a great learning tool for you guys to learn from my mistakes anyway today's video will be all about costs per mile what is it how to calculate it and how to use it to your advantage ready let's go so you already know that rate per mile is very important when booking loads after all the higher the rate per mile the more money is flowing into your company but is it the most important thing the answer is yes absolutely but only when you're looking at the big picture confused yet don't worry let me explain rate per mile is gross income it's just money flowing into your company but in order to be really successful you have to think in terms of net income or profit in order to do that you have to factor in those expenses so knowing this rate per mile or gross income means absolutely nothing without actually knowing what your expenses are in this industry it's called cost per mile so let's go ahead and look at some numbers on the board i am super excited okay so we already know that gross income minus expenses equals net income so what we're gonna do now is we're gonna look at it from the perspective of rate per mile which is our gross income versus cost per mile which is our expenses to figure out what our profit is also known as net income so to calculate cost per mile there are two main things you have to know you have to know what your fixed costs are and what your variable costs are so just to explain fixed costs are those costs that don't change no matter how many miles you run how many hours you put into your job they don't change for example truck payments trailer payments insurance payments some renewals like boc3 ucr ifta decals load board fees eld fees those are fixed costs whether your truck is running like crazy or your truck is parked in a yard you have to pay these things no matter what now on the other hand there is variable costs variable costs are those that do change depending on how much you run for example fuel maintenance tolls scales washes taxes the quarterly taxes they all depend on how much you actually ran registration fees if you're doing a portion license plates those also depend on your miles so those are variable they change from month to month if your truck is parked you don't have to pay most of these things if your truck is running it depends how much it runs and then you can figure out what your cost is so now that fixed costs and variable costs are clear we're gonna go ahead and look at this side of the board one two three ha it's magic okay as always i'm going to be using our company numbers uh this time we're going to be using that owner operated truck from july of 2021 so as you can see these are the miles 11 415 miles the total income was 38 200 this is gross the expense was 8 800 10 and 56 cents and the gross rate per mile if you take the income and divided by the miles was 3.35 cents per mile with deadhead and all the miles that you accrue while you are driving the truck so then i have the fixed versus variable costs right here so as you can see in the fixed cost i actually don't have insurance and the reason is is because we pay for insurance for 10 months and then get two months free now the reason it's free is because we put a down payment at the start of the policy so actually we're paying for those two months in the beginning of the policy nothing is free in the slice folks all right so the fixed expenses for the month of july were the annual boc3 renewal which is always a hundred and fifty dollars a year through the provider we use the monthly load board expense which is 149 dollars a month the monthly eld expense which is 65 dollars per month and the annual 2290 which is hundred fifty dollars per year every year so the total fixed cost was nine hundred fourteen dollars not bad now on to the variable costs fuel this month was six thousand one hundred fifty five dollars in some cents maintenance was 469 dollars in some sense then there was the filing fee which is actually the filing fee for the 2290 but it does change from year to year um and the filing fee was 65.95 there were tolls 54 and there were all these taxes for 150 so the grand total for variable expenses for the month of july was 7 cents 896.56 to continue this i am going to actually erase this part because i think you already got a hang of it so what we're going to do is first we're going to calculate the fixed cost per mile for the month of july so the total fixed cost for the month of july was 914 now the total miles for the month of july were 11 415 miles so all you really have to do is take this number divided by this number and your cost per mile for the fixed expenses is zero dollars and eight cents all you have to do is take the fixed cost the total fixed cost for the month and divide it by the amount of miles zero dollars and eight cents is your fixed cost per mile now let's do the same thing for the variable cost per mile the variable cost total was 7896.56 now the miles for the month of july were 11 415 miles so again what do we do we just take the variable cost and divide it by the miles which means the variable cost per mile was zero dollars and 69 cents i nearly did 96 cents it's 69 cents so here's your variable cost per mile 69 cents and your fixed cost per mile eight cents so to find out the total cost per mile all you do is you add your fixed cost per mile to your variable cost per mile so the total cost per mile is zero dollars and 77 cents for the month of july great so what do you do with that well now you can calculate your actual profit using your rate per mile your gross rate per mile so your gross rate per mile here is three dollars 35 cents right minus this total cost per mile which is zero dollars and 77 cents please excuse my handwriting it's one of those days so basically your net profit here your net rate per mile which means your actual profit is two dollars and 57 cents per mile because out of the dollars 35 cents per mile that you earn 77 cents of those miles go towards fixed and variable expenses so your net is actually 2.57 per mile so why is it so important to understand how to calculate cost per mile well because it gives you an idea of what kind of rates you need to book in order to be profitable it basically allows you to control what your profit is now the question is probably well how will you know what your variable and fixed costs per mile will be for a month ahead so you can pre-plan well you can take the averages first of all fixed costs should not change the best way to do it is to not just look at the monthly breakdown you have to make a spreadsheet of all your fixed costs even if they're annual or quarterly costs that don't repeat every month you just divide them by 12 to see exactly what your fixed costs are the variable costs all you can do is you can average them out that way you'll have an idea of what your fixed cost per mile is and your variable cost per mile is in average and it will allow you to pre-plan what kind of rates you need to get in order to be profitable so i hope you learned something new i hope this is useful to you the bummer is i actually created a cost per mile calculator and it is so awesome it does all the calculations for you i can actually show it to you and you know what i will so i'm going to do something super unprofessional right now i'm going to move you guys with me i'm going to just turn the camera around so this is the cost per mile calculator i made it's really really awesome i wish i could share it with you guys you know what let me just turn the camera around again okay there we go we're back i really wish i could share that with you but youtube won't allow me to attach any attachments i have it i created it on numbers but i have it on excel too if any of you have an idea of how i can share it on youtube that would be great because i would love to it's just it helps you know it just makes it easier but anyway i hope this video was helpful i hope you learned something new if you know how i can share my file on youtube let me know as tech savvy as i am i am not that tech savvy obviously so i want to make an announcement before i leave you guys i am currently working on a series of videos um one series is going to be towards opening your own trucking business and what i'm going to do is i'm going to do it by state like the startup checklists for every state i have created a startup checklist for every state a long time ago i did all the research so i want to do it in video form and just release those videos over time to help those in different states open their trucking business because every state has its own requirements remember oh yeah it's because every state thinks it's a different country exactly another announcement is i'm going to be making a series on negotiation so i'm going to create videos showing different tactics of negotiations in this industry and what i'm going to try to do is film myself using those tactics on brokers and showing you how these conversations actually go so it's a work in progress it's just a little project i'm working on so look out for those videos in the future and i will see you guys in the next video bye