Is it wrong to think about growing your trucking business right now? There are always people willing to take risks even when the economic signs look questionable. This contrary mindset might be the start of growing an independent owner-operator trucking business into a fleet by purchasing trucking equipment.
Adding a truck often means adding a family member behind the wheel. Here is what it takes to build a family trucking business without letting the debt drive a wedge between you.
Buying isn’t the only route — before you finance a rig, weigh the alternative in To Lease On or Not? Part 2, which covers lease purchase contracts, truck loans and what a trucking company keeps when you lease on.
It is time to buy trucking equipment when the numbers say the business can carry it: revenue per mile is stable or rising and beats cost per mile, gross and net profit margins leave room for the new payment, and cash flow and working capital can cover payments, fuel, insurance, and repairs while you wait 30 days or more to get paid on last week’s loads.
Equipment costs are easier to carry on steady, predictable freight. Read why owner operators need to consider regional trucking.
Before you buy, make sure the truck you already own is earning: why preventative maintenance keeps money in the business.
Getting Started
Do you remember that excitement when you stepped up into your first cab? There aren’t many thrills like the moment when you see your dreams become reality. Going from a truck driver for another company to owning your own equipment is the first step to growing your trucking business.
Spending a year or two working for a transportation company will give anyone a good look inside the logistics industry – on their dollar. Long-time drivers often recommend getting training and certifications early. They say it’s easier to take the tests when the information you learned in driving school is still fresh in your mind.
Then you can decide if that first cab is an International or a Peterbilt. Or if you want a flatbed or a reefer. Talking to other truckers is never a bad idea, but your own experiences will tell you far more.
Buying a new truck isn’t an easy decision. Our resident truck driver, Allen Campbell, always recommends buying used trucking equipment when you’re starting out. The lower investment when starting out reduces the stress of the big monthly loan payment. A new owner-operator doesn’t need to be in a new truck – they need to be in a position to make the break into the market with the least amount of stress.
Taking Stock with Trucker Stats™
There’s a point when an independent trucker looks at the business and says
I want to grow.
But is it the right time?
The best way to determine if your company is ready to expand isn’t just a feeling. There are some metrics that might help make that decision.
Let’s take a look at four metrics to help clarify the decision.
Cost per Mile (CPM)
Cost per mile (CPM) is what it costs to move your truck one mile, calculated by dividing your total business expenses by the total miles you run. It is the one number every trucker must know, because it is what keeps you from hauling a load at a loss.
How much does it cost to move your truck?
If there’s one number a trucker must know, it’s the cost per mile. Knowing this number prevents the trucker from taking loads at a loss.
This isn’t a stable number, however, because it includes fuel. But the more expenses that get added to the number, the more reliable it is. So tracking all expenses, including the expenses that may not be applicable to a load, but are still part of a trucking business. Insurance that’s paid twice a year? It’s hard to compute a “per mile” when it’s a bill paid every six months.
(That’s why TruckingOffice PRO’s Trucker Stats™ is so valuable. The formula to create the cost per mile is preprogrammed and ready at the touch of a button on the screen.)
With the cost-per-mile number in hand, many load decisions are simple.
Revenue per Mile (RPM)
Revenue per mile (RPM) is total revenue divided by total miles, and that means all miles – deadhead, detours, and delivery – not just the paid miles on a load. RPM measures earning efficiency: how much money was made compared to how much opportunity there was to make it.
If the cost per mile is a study of how much it costs to move a truck per mile, the revenue per mile number is the opposite. How much is coming in from hauling loads?
The complication of this number is deadhead miles. The number can’t be calculated simply by using the miles per load. All miles count – deadhead, detours, dinners, and delivery.
The formula is simple – total revenue divided by total miles. That’s not so hard. But why is it valuable?
This number measures earning efficiency. “Earning” is easy – it’s the money gained by working. It’s “efficiency” that’s confusing. According to ChatGPT,
Earning efficiency is a measure of how effectively a business turns its available time, assets, or capacity into revenue.
In simple terms:
👉 It tells you how much money you make compared to how much opportunity you had to make money.
So Revenue per Mile shows how much money was made compared to how much effort was used to earn it.
How does that apply to buying new trucking equipment?
If the trucker wasn’t working full-time, then there is potential for earning more. The question then becomes “Will more trucking equipment make me more or less profitable?”
When the revenue per mile is stable or rising AND beats the cost per mile, expansion may be a good idea.
Gross & Net Profit Margins
Gross profit margin is revenue minus direct expenses such as fuel, factoring, and fees. Net profit margin takes the gross margin and subtracts everything else, including debt, taxes, and maintenance. Together they show how much profit new trucking equipment would actually have to generate to be worth buying.
Gross Profit Margins and Net Profit Margins aren’t opposites.
Gross Profit Margin is the revenue (income) earned, minus the direct expenses such as fuel, factoring, and fees.
Net Profit Margin takes the Gross Margin and subtracts all of the expenses, not just the direct expenses. That means subtracting the business expenses such as debt, taxes, and maintenance.
Why are these numbers good metrics? It takes a good look at current profits and allows the trucker to assess how much profit new trucking equipment might generate.
Cash Flow & Working Capital
Working capital is the cash an owner-operator keeps on hand to run the business between paydays. If cash flow and working capital are thin, new trucking equipment adds to the problem instead of solving it.
Understanding how much cash on hand an owner-operator needs to run the business varies from trucker to trucker. A trucking company owner needs to have enough cash to make the monthly payments, cover fuel purchases, pay insurance, and cover potential repairs or maintenance. At the same time, the owner-operator has to have enough in the bank to wait for last week’s loads to pay – in maybe 30 days. (Maybe more.)
This is the negative number in the calculation of buying new trucking equipment. If there isn’t enough cash flow and working capital, buying new equipment will add to the problems, not resolve them.
In the end, the decision to buy trucking equipment is complex. It depends on what equipment is being considered, how much money it will cost, and what the long term impact on the trucking business will be. It’s much different buying another trailer from buying a new rig.
Questions to Ask About Growing a Trucking Business
After reviewing metrics, an owner-operator should ask:
✔ Is there guaranteed freight to haul – or a plan to depend on the load boards?
✔ Will expansion increase profits, or will the new trucking equipment’s cost exceed the profits?
✔ Will cash flow support the expanded expenses?
✔ If talking about buying another rig, can the trucking company staff manage drivers, compliance, and dispatch?
This decision will take time, metrics, and desire to grow a trucking company. At this time, the trucking industry is going through many challenges and truckers are leaving the industry, so more equipment is on the market now. This might be the right time to grow – or it may not. Talking with a financial advisor is a key part of making a smart decision.
Frequently Asked Questions About Buying Trucking Equipment
How do you know when it is time to buy more trucking equipment?
Check four metrics before you trust the feeling: cost per mile, revenue per mile, gross and net profit margins, and cash flow with working capital. When revenue per mile is stable or rising and beats cost per mile, and cash flow can absorb the new payments, expansion may be a good idea. If any of those numbers are weak, more trucking equipment adds to the problems instead of solving them.
Should a new owner-operator buy a new or used semi truck?
Our resident truck driver, Allen Campbell, always recommends buying used trucking equipment when you are starting out. The lower investment reduces the stress of a big monthly loan payment. A new owner-operator does not need to be in a new truck – they need to be in a position to break into the market with the least amount of stress.
What is cost per mile (CPM) in trucking?
Cost per mile is what it costs to move your truck one mile. It is not a stable number, because it includes fuel, but the more expenses you fold into it – including bills like insurance that are paid twice a year – the more reliable it becomes. With the cost-per-mile number in hand, many load decisions are simple, and knowing it prevents a trucker from taking loads at a loss.
What is revenue per mile (RPM) and why does it matter?
Revenue per mile is total revenue divided by total miles. The complication is deadhead: all miles count – deadhead, detours, dinners, and delivery – not just the miles on a load. RPM measures earning efficiency, meaning how much money you made compared to how much opportunity you had to make it. A trucker who was not running full-time still has room to earn more.
How much cash flow do you need before buying another truck?
Enough to make the monthly payments, cover fuel purchases, pay insurance, and cover potential repairs or maintenance – while still having enough in the bank to wait 30 days or more for last week’s loads to pay. Cash flow and working capital are the negative number in the buying decision: if they will not stretch, new trucking equipment will add to the problems, not resolve them.
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