The harsh reality is that most new owner-operators fail. 25% fail in the first year, 25% of those surviving fail in the 2nd year. By the fifth year of operating, 60% of owner-operators will be out of business. The chart below shows sudden rise of net revocations of authority in 2022, as diesel prices soared and spot rates fell.
Despite the challenges and down cycles, there are steps that can be taken to increase your chance of success, whether you are just starting up and or already running your business.
High costs of operations is one of the primary reasons owner-operators aren't able to sustain their businesses. Below, we'll get into what these costs are, how much owner-operators should budget for, and how to minimize them so you can run profitably.
Operating Costs
Operating costs can be broadly categorized into fixed and variable expenses. Fixed costs encompass those that remain constant regardless of the distance traveled or the amount of cargo transported. These include truck payments, insurance, permits, and licenses. Variable costs, on the other hand, fluctuate based on factors such as fuel prices, maintenance, repairs, and tolls. Here we'll review the largest costs owner-operators face.
Fuel Costs
Fuel represent one of the largest variable costs of a truck driver's expenses and can vary between 25% to 35% of your revenue. Let’s say you drive 90,000 miles in a year. Assuming diesel costs $4.60/gallon and your truck has a fuel efficiency of 6.5 miles to the gallon, you would spend $64,000 on fuel annually!
Owner-operators can reduce driving speed and idling time to minimize fuel consumption. Choosing a good fuel card can also help you reduce these costs. Through TrueNorth’s partnership with OnRamp, TrueNorth customers can save on average $0.50/gallon or $7,000 a year across all the major truckstops nationwide.
Truck Costs
Another large expense as an owner-operator are those costs related to your truck – truck loan payments and maintenance and repair.
Truck Payments
Most owner-operators are still paying off their truck purchase. Monthly truck loan payments can be up to $3,000 per month depending on the equipment you purchase, how you finance the purchase, and other factors. Purchasing a used truck or spending some time to improve your credit score can help decrease your monthly payments. For more information, read about ways to finance your trucking business and buying a used vs new truck.
Maintenance and Repair
Maintenance and repair are estimated to be about $15,000 annually. Tire replacements alone can cost you $4,000. Regular and thorough pre-trip and post-trip inspections can help reduce the unexpected costs of repair and down-time of your truck.
Insurance
The cost of truck insurance for an owner-operator can vary widely depending on various factors. According to CarrierHQ, a general rule of thumb is that owner-operators should expect to pay anywhere from $7,000 to $15,000 based on factors like coverage, equipment, years in business, and more.
In addition, owner-operators also need health insurance, which can range from $6,000 to $12,000 per year.
It’s important to get multiple quotes for comparison. At TrueNorth, our customers can access small fleet coverage at large fleet prices through our partnership with HNI.
Income Tax
Owner-operators are required to make quarterly estimated tax payments to the Internal Revenue Service (IRS) based on your business profits. These quarterly estimated tax payments include:
- Self-employment tax of 15.3% which includes Social Security and Medicare
- Federal Income Tax and State Income Tax, calculated on your tax return.
Accounting and business consulting firm, ATBS, recommends that you set aside 25% to 30% of your net income for taxes. TrueNorth customers can also get additional discounts on ATBS services.
In summary
The operating costs of trucking can add up quickly. Here’s an overview of how these costs breakdown:
Assumptions1:
Revenue: $180,000
Miles: 90,000 miles
Fuel: $57,600 ($0.64/mile * 90,000 miles)
Maintenance: $15,000
Truck Insurance: $15,000
Health Insurance: $12,000
Net Income: $65,000
Tax Rate: 25%
Note 1: Assumptions are based on ATBS’s 2022 Owner-Operator Performance Report
Note that if you’re grossing $180,000 in one year, your profit may only be $48,780 (27.1%) after all operating expenses are paid. It's imperative for owner-operators to know these costs, budget for them, and use them to determine the minimum revenue (and rate-per-mile) you need to turn a profit. TrueNorth provides owner-operators with the resources to steer their businesses toward long-term viability.
Related articles