Financial Calculations For Trucking Companies

Cost Per Mile

The cost per mile calculation is simply, but important. The equation is:

CPM = Operating Expenses / Miles Driven

The key is to make sure you use the same time period for miles and operation expenses. If you use a miles driven figure for a month, and operating expenses over a quarter, your calculation will be off. For example in a given month if operation expenses are $20,000 and I have driven 18,000 miles the CPM is $1.11.

Revenue Per Mile

Revenue per mile is also important and can be calculated as follows:

RPM = Revenue / Miles Driven

Again, make sure the time period being used to add up miles driven is the same as for the operating expenses. For example, if Revenue in a given period is $28,000 and I have driven 18,000 miles the RPM is $1.56.

Variable Profit Per Mile

Once we have the CPM and RPM we can simply calculate the VPPM as follows:

PPM = RPM - CPM

This is the variable profit per mile. Every mile you drive you earn this amount of money. For example, if my RPM is $1.56 and my CPM is $1.11, my PPM is $0.55.

Dead Heading

When deciding whether or not to take a given load truckers must look at the RPM and CPM of course, but must also look at the miles driven without a load (dead heading). Anytime you are driving with no cargo, the miles are costs only.

For example, my RPM on a given load $1.55 and my CPM is $1.11. The route is 500 miles, but I have to drive 300 miles to get there. In this case, because of the 300 dead head miles (costing $333.33) I would actually lose $113 on the load.

To calculate VPPM when dead heading the equation is:

VPPM = (RPM * LM - CPM * LM) - (CPM * DHM)

In this equation LM = loaded miles, and DHM = dead head miles.

Fixed Costs

Another thing the VPPM figure does not account for is fixed costs. That's why we call it the variable profit per mile. CPM and RPM both deal with variable revenue and costs. There is a lot of debate on how to account for fixed costs. Some advocate a fixed cost per mile figure, and many advocate a fixed cost per day figure.

Our position is that truckers should know there fixed costs per month. However, fixed costs should not be factored into the decision on whether or not take an individual load. The goal in trucking should be to maximize variable profit in any given month. Any variable profit (VPPM) that is obtained goes to the bottom line and is covering fixed costs.

We often hear that if a profitable load is offered that won't ship for 4 days, the profit is less. This is true, but not because of fixed cost. It's not as profitable because you can't maximize VPPM sitting in the parking lot. Fixed costs have nothing to do with it.

While fixed costs should not be factored into load decisions, they should be factored into the decision to be in business at all. If you the VPPM being taken in is less then fixed cost, you need to question whether or not to be in business in the first place.

Remember, the goal is to maximize VPPM each month. Factoring in fixed costs only makes the decision more confusing.