The on-demand trucking business can be very profitable for both owner-drivers and the trucking companies and brokers who contract them. Independent van and truck owner-drivers add value to their existing courier delivery services with last mile and express deliveries, so inevitably the niche is highly competitive. However, many truck owners try to break into this business every year, but fail to build a profitable business without tapping into online networks and apps.
The truth is that great truck drivers but are not necessarily good business owners, because a trucking business involves more than knowing how to drive a truck well and choosing appropriate routes to take. Fortunately, as a driver, on demand trucking system providers are coming to the rescue for those who have the drive, but perhaps lack expertise.
There are, nevertheless, seven pointers, which when combined with the power of online networks can not only help you find more work as an individual owner-driver, but see the opportunity to tap into the wider network of owner drivers to establish a viable delivery company, able to compete with the big rollers. This article is aimed to prepare you to become a successful truck delivery business owner.
1. Find Your Delivery Service Niche
As in any competitive market, finding a niche can mean you steal a march on others, building a reputation that helps you corner that sector. Whether setting up as an owner-operator, or fleet owner and third party delivery service, identifying a market niche where return on time, resource and investment delivers results helps establish a solid business foundation on which to build.
Your ideal market determines the equipment you invest in, the rates you can charge, and the freight routes you can cover. Of course, you may also identify a potential market gap, while serving others too, albeit, generally owner-operators can profitably focus on markets that the large carriers avoid, such as last mile logistics and more personalised service for local businesses. Another idea might be hauling specialist loads, such as toxic or hazardous waste. Even if food deliveries from supermarkets seems to have been cornered by the likes of Ocado, it offers year round, recession resistant work and income consistency if you can build the retail connections.
Remember, the larger parcel carrier companies and other owner-operators will already be covering the ‘easier’ loads, so going niche can save wasted time and angst.
2. Delivery Rate Charging
Owner-operators key early decision will be the appropriate freight rates to charge clients. This should form part of your business planning prior to any investments, as the figures need to stack up so that your business operates with decent profits. A full and realistic assessment of all your operation costs means that you can decide the level of up-front cost you are able to bear, then plan towards break-even and beyond.
In order to establish professional credibility, you need to be totally clear about your rates before you promote your service to shipping customers and begin deliveries. Reliability and consistency are key to reputation building. While you need to be competitive with what brokers charge their clients, a lack of preparedness in costs and under-capitalisation will drive you off the road.
Comcapfactoring.com suggest a method to calculate your break-even point, thus:
- Select your preferred daily route out
- Go to an online trucking load board
- Find 10 deliveries that are on route to each other
- Call a few brokers to find out their various rates of pay
- Get the average fee, then add 10-15% which gives you the price they charge shippers
- Repeat this process for the direction back home to maximise earnings
Understanding the costs of a round delivery trip over a particular distance means you can roughly calculate costs and earnings for alternative routes, assuming equal variables. Being able to factor in detours with GPS alerts, tariff zones and parking fees develops your business acumen. This article: ‘Trucking Company Rates Per Mile’ takes you through the process in more detail.
Knowing your detailed operating costs is essential to turning a profit. This means considering fixed and variable costs. Fixed costs remain the same regardless of how far you drive, such as insurance, loan repayments, special licences or permits, etc.
Variable trucking business costs are determined by the number of miles you drive and associated fuel consumption. They could also include localised issues, such as toll bridges, variable parking rates, tariff zones, albeit these could just as well be calculated as fixed costs.
The combination of fixed and variable business costs help determine your total ‘cost per mile’. This figure is important in calculating delivery rates. If you subtract this total from your rates, this gives your estimated profit and your real earnings.
3. Build Relationships with Regular Shippers
Delivery brokers can offer regular sources of income, so are significant to your on demand business when you have an empty or ‘less-than-load’ truck. However, their ‘middle-man’ rates eat into your profits. Brokers can keep anything between 10% to 20% of the load fee charged to the customer. Their commission pays for providing you with a service of connecting you to shippers and back office administration. They too are running a business, which is fair enough, but if you want a greater share of profits to be made, then building your own network of contacts is your most valuable resource next to your rolling asset.
To earn more per mile, it is vital to eventually minimise working through brokers and online delivery request boards. A list of reliable, regular shippers will keep you busy, but this takes time. Obtaining market share is the name of the game here. Charging a fee that is competitive to the brokers means that you can undercut, while still profiting more.
Here’s some further help you grow your shipping business network:
4. Back Office Efficiency
Administrative efficiency saves headache and angst later, come tax calculation. Not only that, having a regular eye to cash-flow and paperwork helps keep your trucking business cost calculations accurate. Efficiency of your back office administration becomes even more important as you start to build your trucking empire, adding leased drivers to your operation.
You options are as follows.
- Do it yourself. It is possible to run your business from the cab of your truck with a smartphone. With a Wifi internet connection, a mini printer and accounting software, you can run your business when still small scale. Truckbytes offers a free entry-level accountancy software package.
- Outsource administration to a dispatcher. This option can be expensive, however, but if interviewed thoroughly, with references received, your team are another fundamental business asset. Conversely, a poorly performing dispatcher can be your biggest business risk. Running an online competition via a freelancer website can help simplify your recruitment of someone else who can concentrate on handling this side of the business.
5. Cash-flow Management
Trucking is a particularly cash flow-intensive business given the number of transactions handled daily, together with fuel and truck payment outgoings. Some clients you work with will have longer payment cycled than others. Established shippers and brokers can pay invoices anywhere between 15 to 45 days; smaller individual clients may pay immediately. These cashflow delays can crease operations, especially in the early days of the business. This underlines an earlier point about under-capitalisation being one of the greatest threats to an ‘uber for trucking’ start-up.
One possible solution is to use freight bill factoring, which can advance a large part of your invoice, often the date of submission. The remaining proportion of the standard delivery rate, less a small fee, is rebated once a shipper pays (e.g. 95%/5%). Comccapfactoring.com suggest: “Many factoring companies provide fuel advances, cards, and other services as well.” They have a form on their website for such services. However, before undertaking any transactions whatsoever, it goes without saying that as a business person, you should always seek legal and professional advisors to ensure you are operating on a sound footing.
The other consideration in cash-flow management is ensuring that you are using software that helps you keep track of your daily earnings goals by recording your deliveries made and associated earnings. Seeing potential earnings from accepting a despatch from an on demand trucking system means you can anticipate outcomes and plan your load management accordingly.
If you are managing a fleet of vehicles and drivers your courier management system will be a vital asset for tracking drivers and your business earnings.