How to calculate cost per mile as an owner operator?

As an owner operator, a key financial metric that can make or break your profitability is the cost per mile. So it becomes essential to know how to calculate cost per mile. This helps you determine how much you need to charge per mile to cover your expenses and make profit. In this blog, we will discuss the steps you need to follow to calculate your cost per mile.

Steps to calculate Cost Per Mile

To calculate your cost per mile as an owner operator, follow these steps:

1. Create a trucking cost per mile spreadsheet to keep track of your operating expenses, which are split into both fixed costs and variable costs.
2. Determine your fixed costs
3. Determine your variable costs
4. Determine how many miles you drove
5. Determine your cost per mile

Example:

Let us understand how to calculate cost per mile with a real time example of an interstate owner operator. His usual expenses are:

Particulars	Amount
Steer tire $650*2 (Good for 350k Kms)	$1300
Driver tire $562*8 (Good for 700k Kms)	$4500
Trailer tire $450*8 (Good for 700k Kms)	$3600
Brake drum $80*8  (Good for 700k Kms)	$640
Brake shoe $65*8 (Good for 700k Kms)	$520
8 hrs labor cost $85*8 (Good for 700k Kms)	$680
Oil & grease changes	$450
Truck payments	$3960
Insurance	$1900
Load board	$135
Plates	$250
Fuel	$0.74 per mile
Toll fees	$100
Parking	$500
US border decal	$410
IFTA filing	$240
UCR fee	$26
Miscellaneous expenses	$750

Total miles traveled = 12,000 miles

1. Determine your Fixed Costs

Fixed costs are simply expenses that remain constant regardless of the level of production or business activity. These costs are incurred regularly and do not fluctuate based on the number of miles you drive or the amount of work you undertake. For owner-operators in the trucking industry, several fixed costs like

• Truck payments
• Insurance premiums
• Permits and licenses
• Depreciation
• Loan interest

There may be some expenses which are paid every year. Just divide the total expense by 12 and add it to each month’s fixed costs.

The fixed costs in this example are:

Fixed Costs	Amount
Truck payments	$3960
Insurance premiums	$1900
Permits and licenses (436/12)	$36.33
IFTA filing (240/12)	$20
Drivers Pay	$6600
Load board	$135
Grand Total	$12651.33

2. Determine your Variable Costs

Variable costs, on the other hand, fluctuate with the level of activity in your trucking business. It changes each month based on factors such as the number of miles driven, fuel consumption, and the condition of your equipment. For owner-operators, the following are key variable costs:

• Fuel expenses
• Maintenance and repairs
• Tires
• Oil changes
• Toll fees
• Other miscellaneous expenses

The variable expenses in this example are:

Variable Costs	Amount
Fuel expenses (See calculation below)	$8880
Maintenance & repairs (See calculation below)	$345
Parking & Plates ($500 + $250)	$450
Oil changes	$450
Toll fees	$100
Miscellaneous expenses	$750
Grand Total	$10975

Calculations:

Fuel Expenses:

Fuel $1.70 per liter – 13% HST

=$1.479/2 miles (considering average of 3 Kms per liter of 7 miles per gallon)

= $0.74 per mile

Cost for 12,000 miles = $0.74 * 12000

= $8880

Maintenance & Repairs:

For 700k kms:

• Driver tire = $4500
• Trailer tire = $3600
• Brake drum = $640
• Brake shoe = $520
• 8 hrs labor cost = $680
• Steer tire = $2600 ($1300* 2)
• Total = $12500

To calculate for 12000 miles,  

12500/ 434959 *12000 =$ 345

3. Determine total miles you drove

Keep a record of the distance you drive to find out the total miles driven. To determine the total miles you drove in a month, use your odometer readings. The formula is:

Total miles driven =  [Month end odometer reading] – [Month beginning odometer reading]

For instance, if your odometer showed 62,070 miles at the start of the month and 71,320 miles at the end, you would calculate it like this

Total miles driven = 71,320 – 62,070 

= 9250 miles

In this example the total miles driven in a month is 12000 miles.

4. Determine your Cost Per Mile

To calculate your cost per mile, divide your total expenses for the month by the total number of miles you drove that month. The formula is:

Cost Per Mile    =      Total Expenses / Total Miles Driven

In this example the CPM is,

Total Expenses = Fixed Cost + Variable Cost

   = $12651.33+ $10975

= $23640.16

Total Miles Driven = 12000 miles

So, the CPM will be 23626.33/ 12000 = $1.96

What’s the need of calculating Cost Per Mile?

Calculating the Cost Per Mile as an owner operator provides a detailed understanding of the expenses associated with each mile driven. This knowledge is essential for several reasons like:

Setting Competitive Rates: As an owner operator, you need to determine how much it costs to operate your trucks per mile to set rates that are both competitive in the market and cover all your costs.

Profitability Assessment: By comparing the Cost Per Mile to the revenue earned per mile, you can determine whether your rates are sufficient to cover expenses and generate profit.

In the above example, the Cost Per Mile is $1.96. If you want to make profit and cover all expenses, then you need to bid at a rate higher than $1.96 per mile while negotiating. Knowing the Cost Per Mile is crucial for ensuring the financial health of your trucking business.

In summary, this is how to calculate cost per mile as an owner operator. It therefore is a fundamental aspect of managing a successful trucking business.