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.