If someone asked you how much it cost to run your truck last month would you be able to tell them off the top of your head, or would you have to spend hours digging through receipts and adding them up? Even if you knew your total costs would you know how it compared to the previous month's total costs? How about year to year? Or what caused the increase or decline for each cost? Keeping track of your cost per mile allows you to understand this information.
Cost per Mile (CPM) is the cost of operating your truck for each mile driven.
Total Cost ÷ Total Miles = Cost Per Mile
Your total CPM is calculated by adding together all of your business fixed costs and business variable costs for a period of time, for example one month. Divide this total cost number by your total miles for the same time period to get your CPM which will be expressed as cents per mile.
Your cost per mile will change depending on the number of miles you drive. As you increase the miles you drive, your total cost per mile will decrease. Even though your variable costs such as fuel and maintenance will increase the more miles you drive, your fixed costs will not vary based on your miles. Instead you will spread your fixed costs out over more miles which ultimately lowers your total per mile cost.
In addition to calculating your total CPM, you can also calculate an individual cost per mile for each expense you have. Divide the individual expense by your total miles in the same period of time to calculate your individual CPM. You can also calculate your CPM for just your fixed costs or just your variable costs. This will allow you to compare your individual expenses month-to-month to determine how you are doing and where to focus your time and energy on managing your expenses.
Because many owner-operators get paid by the mile, knowing your cost per mile is invaluable for making an apples-to-apples comparison between costs and revenue. If you are paid on a percentage of gross revenue per load, you can determine what your pay is per mile and still make meaningful comparisons between your revenue and costs.
Knowing your pay on a per mile basis and knowing your CPM allows you to analyze your business and make projections as to your profit and cash flow. Using CPM to project numbers will help you understand the impact every day decisions will have on your business and ultimately, your profitability. It will also help you see what you need to do to meet your goals.
Next time we'll put both revenue and costs together and take a look at your financial scorecard