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BLOG: Why Fuel Percentage is King

Over the past 20 years, I've had this conversation with many drivers and would-be owner operators who want to buy a truck: What do you know about the associated costs?

Okay, you’re making x dollars per mile, and you’re insurance is y. Good! But, more often than not, that’s where the forethought ends. And when I ask about fuel percentage, the empty stare across the table tells me all I need to know.

Fuel percentage is the percentage of revenue that you will be spending on fuel. For example, if you are making $18,000 per month, and your fuel bill is $9,000, you will have a fuel percentage of 50 percent. While at the onset, $9,000 per month seems like a decent amount of revenue, yet once you start factoring in the other associated costs of operating a single truck operation, such as: insurance, tires, repairs, cell phone, trailer rental, dispatch fees, fuel card charges and any other litany of costs that you don’t necessarily see as a driver, that 9 grand disappears pretty quickly.

A good rule of thumb is you need to have the fuel percentage at or below 30 percent — whether that is straight revenue or a combination of revenue with fuel surcharge; it doesn’t matter how you get below the 30 percent, it just matters that you do.

Over the past several years, I've been having an increasingly difficult time keeping my own fuel percentage at or below that magic number with the increases in fuel costs, and the normalization of what was once an added bonus (the fuel surcharge), the operating costs are quickly catching up with the drivers who aren’t paying attention.

As I sat down and figured out the operating costs at my most recent years end, I was startled to find a disturbing trend. My outlay to the oil companies for operating fuel had jumped from around 90 thousand dollars per year to well over 115, 000 — that’s a 25,000 dollar increase in a mere 2 years. I can assure you that my income did not keep pace, and while time was spent worrying about getting the next load to its destination, my fuel percentage has crept dangerously into the 40 percent plus range.

In an effort to combat this, I have made two equipment upgrades in the past five years, switching from a beautiful Peterbilt 379, my pride and joy, to a less coveted, but fuel efficient 387, and most recently to a 587. In both cases, reducing the size of the power plant and other features in an effort to drop overall fuel consumption, while still retaining the ability to provide the on time and reliable service that my customers have become accustomed to over the years.

Everywhere we look, costs are increasing, and the revenue is not. In many cases, owner operators are being asked to absorb these new costs, but where will it come from? The only thing you or I can control is the amount of fuel it takes us to get from point to point, the best way we can.

There are a few options to improve fuel percentage, with the best way reducing consumption. Sounds simple but many who start out with great intentions find themselves behind the 8-ball for any number of reasons, and fuel economy goes out the window. When you start feeling these pressures, and you will, here are some easy numbers to keep in mind.

Please be aware that these are not actual numbers, but should give you an idea of what you need to watch for. I broke it up between Truck A and Truck B so you can easily see the difference a seemingly small amount of fuel conservation can make to your bottom line.

TRUCK A                                                                                     TRUCK B


Miles/mo.  12,000                                                              Miles/mo.  12,000


Revenue    1.20/mile                                                           Revenue    1.20/mile


Fuel MPG   5.5                                                                    Fuel MPG    7


Fuel Cost    1.10/liter                                                           Fuel Cost    1.10/liter


Actual Fuel 2182 gallons/8248 liters                                     Actual Fuel  1714 gallons/6480 liters


Cost of Fuel $9,073                                                             Cost of Fuel $7,128           


Revenue     $14,400                                                            Revenue      $14,400


FSC            40%                                                                  FSC             40%


Total Revenue $20,160                                                       Total Revenue $20,160


Fuel %            45%                                                             Fuel %          35%


Net Revenue   $11,087                                                        Net Revenue $13,032

                                                                                    

Why does Truck B have a far better chance of making it? By doing the exact same job with the exact same revenue; saving 1.5 MPG and reducing his fuel percentage, he is able to put nearly 2 grand more in his pocket.

Two grand is in many cases the bulk portion of your truck payment, no extra time away from home, no extra loads. Just by slowing down and/or making better driving choices, he's able to reduce fuel percentage by 10 percent over Truck A.

All those guys that think the only way to make it is by getting that extra load, or driving like a lunatic to get the load they have delivered are doing nothing but pouring the only controllable portion of their incomes out the stacks.

And in combination to the direct fuel savings, there is a greater likelihood that the driver of Truck B will be operating more safely, with less tire wear, further reducing his costs in other areas. This in turn will reduce other operating costs that are not as easy to quantify.

Fuel percentage is king; it does not always matter how much you make per mile, nor how many miles you make. Sometimes it is realizing and managing those things that we can control and making the most revenue we can in the limits set out by the "safety supervisors" and the governments in the jurisdictions we run. Keep in mind, we are not all going to make it as owner-operators, but entering into the equation with only a partial knowledge of the actual costs, or how to control them is a recipe for disaster. While the illustration here won’t guarantee a successful trucking business, it will go a long way to determine if where you are working and the numbers you are hearing from others within that company will give you your best chances to operate a profitable one truck operation.

Do not always believe what others are telling you either; there is no magical equation to ensure your personal success, profitability or growth in the trucking industry. But by getting the right information and understanding as much of the business side as you can prior to the purchase of your first truck, you will greatly increase your chances for success.

As a mentor, friend, and long-time trucker once told me – only drive as fast as you can afford, and never faster than your guardian angel can fly.

- Dan D.

Check out Dan's website bctrucker.com or follow him on Twitter @bctrucker1.

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Ken K

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Dan, great break down on fuel %. Since i bought my Volvo 13Lt. 435 two years ago i have been right at 28.5 %. My truck payment is paid for by my fuel savings. No one listens.

Anonymous

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I have been saying the same thing for fifteen years' I wish these guys will take this to heart and try to understand what we are trying to tell them or else I hope they will loos there truck so the rest of us can make more money! MY truck make 2.46 kilometors per liter driving like you do.I am complaing if I am not down 24% of revenu. LLOYD

Anonymous

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thanks dan for putting this out there i am on same page 30% fuel is max to make it. FSC are another way for carriers and shippers to ripoff the trucks with multiple ways of calculations.

John N.

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Very much enjoyed your article. It is highly relevant to this business and any other using 'fuel', always has been, and won't stop anytime soon. We run a farm too, and the same considerations apply there. Frankly i can't believe how many guys don't look at their accounts carefully (or at least have someone capable do it for them.) and yet believe any sort of "Coffee Shop B.S." that comes their way. I'm shopping trucks now,(the good ol' Binder with the M-11 won't last forever...but maybe one more year - it's paid for!) and let me tell you, young fella, engine size, truck wt., options and for sure chrome, are topics of serious consideration. One last point fellas: No one knows everything. Seek out and use all those smart people out there who really can and do want to help you. Read mags like this one, talk to company reps, even gov't departments. There's piles of info out there, keep your ears open, ask questions, think about the answers, and have a 'pinch of salt' handy. See you on the flip-flop, JN.

Shawn Hubbard

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Great article. I drove as an owner-operator for six years and this was an argument I had with drivers all the time. They would brag about how much money they were making and how they got better fuel economy going 75mph than they got at 65mph. I used a trucking accounting program for all my expenses, so I knew exactly what my costs and expenses were per mile. As soon as you ask the driver to show you their profit and loss, 100% of them did not use accounting software and did not have a P&L with them. So owner operators who actually track their numbers are few and far between, and in my estimation, are true professionals.

Steve Rock

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One of the easiest ways to save fuel is quite simply to drive defensively. By looking far ahead, anticipating situations, and going easy on the brakes and accelerator, you'll be surprised at just how much fuel you can save. Not so long ago I drove for a national carrier who paid a fuel bonus if you exceeded it's pre-determined fuel figures. These were calculated over time and were based on various truck/engine combinations. I had my fair share of heavy loads and hilly routes to contend with, but still regularly beat the benchmark figure by between 1 and 2mpg. This meant a huge saving for my employer and also a healthy bonus cheque for me every quarter.

Anonymous

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Well done Dan. I have been trying to tell people the same thing since 1999. Odd how so many can come up with a senario where I'm the one who is wrong, until it's to late.

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