While setting up your transportation or trucking business may prove to be very lucrative, the competition in the industry can make it incredibly tough to succeed. In fact, many optimistic entrepreneurs try out their luck in this sector every year but usually end up failing.
It is common for business owners who are good truckers, but not good businessmen, to experience this outcome. It takes more than just truck driving skills or route planning to run a successful trucking or transportation business. In order to point you in the right direction, below are seven tips to keep in mind if you would like to reap the fruitful results of your business. Rest assured, they will provide you with the support and guidance you need to transition into a successful business owner.
Target The Right Market Niche
Choosing the right market niche is the most important step to become a successful owner-operator. The change also affects smaller fleet owners. Your choice of the market determines what kind of equipment and rates you will charge, as well as the freight lanes you can service.
Typically, owner-operators should target markets that the major carriers tend to avoid. In other words, you might want to consider hauling specialized loads.
Owning a dry van and making decent revenues can prove to be very challenging. Too many large carriers and other owner-operators compete for the easier loads. But there are many markets you can focus on. For example, transporting fresh produce or meat in reefers is a great option as there is less competition, work available the whole year-round, and it is resistant to recessions.
DOT (Department of Transportation) sets strict guidelines for how transportation companies must operate. Maintaining accurate records is among the requirements. A fleet owner or driver must comply with the rules and regulations set out by the Department of Transportation, or face stiff fines and penalties.
In addition, one of the more costly mistakes a transportation company can make is not updating their Motor Carrier Identification Report. Every two years, or biennially, the information associated with the DOT number assigned to the vehicle or carrier needs to be updated. This is done by filling out a new MCS 150 Form. Failure to do so can result in heavy fines and even having your DOT number deactivated. Therefore, make sure you update this information every two years.
Determine Operating Expenses
A detailed understanding of your operating costs is essential. Otherwise, you will not be able to decide the right rate that will allow you to make a profit.
This includes determining your fixed and variable costs. Fixed costs are costs that remain the same regardless of how many miles you drive. Examples include insurance, permits, truck payments, etc. On the other hand, variable costs are costs that vary and will most likely depend on the number of miles you drive such as the cost of fuel. Because the more you drive, the more fuel you will require.
After determining your total operating expenses, you will be in a better position to decide a rate that you can charge your clients that will allow you to keep a percentage of profit you desire.
Set A Reasonable Rate Per Mile
One of your main objectives as an owner-operator is to determine what price you will charge for hauling a load. In order for you to make a profit and cover all the costs of running your business, you must choose a rate that is high enough.
Choose The Best Fuel Buying Strategy
Fuel is perhaps the biggest expense that transportation companies incur. Nevertheless, many new and experienced owners buy their fuel incorrectly. It is believed that the cheapest pump price means they will receive the cheapest fuel. But there is a problem with this approach. In fact, you could end up losing hundreds or even thousands of dollars.
The problem is taxes. Generally, regular drivers are subject to fuel taxes in the state where they originally purchased the fuel. In contrast, truck drivers are subject to IFTA. Truckers pay taxes based on the fuel they use while driving through states, regardless of where they purchased the fuel. As a result, you should always buy fuel at the cheapest base price regardless of what the pump price is.
Contact Shippers Directly
Brokers and load boards serve an important purpose in your business. They can be extremely useful when the truck is empty. They are, however, very expensive. Brokers typically retain a percentage of the load price between 10 – 20%.
Therefore, use load boards and brokers as little as possible. Instead, you should compile a list of direct shippers. If you do it right, you can build a list of trustworthy shippers who will keep you busy. This way, you can charge them a rate that is competitive to what the brokers charge but instead can keep everything to yourself.
Have An Efficient Back Office Function
For a company to remain profitable and grow, it is critical to have a robust back office. Once you begin dealing with leased drivers, the importance of your back office becomes even more apparent. This can be done in two ways: you can either do it yourself or choose to outsource the function entirely.
Doing it yourself is a better solution if the business is small. This will not only allow you to save costs but keep you more in control and in the know. However, if the business seems to be growing fast, outsourcing could be a good alternative. The downside to this option is that it can be more costly but on the upside if you outsource to a trusted company they will be more experienced.
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