Many of us in the trucking industry have already heard the words “break-even point”. Just how important is this?
In this article, we will go back to the basics and emphasize the importance of the break-even point (BEP) in the dispatching business. Also, we will list down the basic steps in calculating the BEP for your dispatching business.
All About The Break-Even Point
In the dispatching business, the hauling rate range is computed based on the company’s BEPs. You either win or lose depending on how knowledgeable you are about the costs to operate your business. The BEP, then, is the least amount of money per mile that the carrier will take a load for, or the least amount they can charge in order to cover all the expenses needed to keep the business running and get their trucks moving.
Determining a firm rate per mile and adjusting it accordingly with a fuel surcharge thinking that it will make a cut above the BEP is actually a recipe for disaster. The BEP takes into account a lot more factors including many other perspectives.
What Makes Up The Break-Even Point and How Are They Calculated?
Operating Cost – This includes expenses that are necessary for your truck such as maintenance, parts, and accessories, and is computed based on the miles, costs from the previous month, and amortization of the expenses on tires and repairs depending on the estimated life of the said repair.
Fuel Cost – This needs to be computed separately as the figures for this constantly fluctuates, depending on fuel prices and miles traveled. To calculate fuel cost, a predetermined mileage is divided by the truck’s miles per gallon to come up with the total gallons covered for that distance. This will then be multiplied by the cost per gallon of fuel at present for the total cost of fuel for that certain distance, then divided by that distance.
Load-specific Cost – This covers expenses specific to a certain load or run, such as trip permits, tolls, escort fees, and other labor expenses which may not be reflected in the loads or runs.
Driver Labor – This varies depending on the company or trucking firm. This may be hourly, per mile, a salaried rate, or a combination of any of these. Here, payroll costs must also be reflected such as benefits, FICA, and many more.
Fixed Cost – This covers any other cost incurred whether the truck is on the road or not, such as insurance,office space rental, utilities, equipment loans, leases, staff salaries, phone and internet lines, and many others.
With all the factors for your BEP laid out, you can now compute for the BEP itself. The basic and general formula will be: BEP = Expenses ÷ (Total revenue per product unit – Variable cost per product unit). This can change depending on the algorithm that your company uses or the business model which your dispatching business runs on.
Are you now ready to determine your BEP? Remember, you also have the option to consult trucking industry experts for a more accurate BEP coupled with safety nets and margins to help keep your business achieve success.
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