"The Road Home" Podcast

Transcript: Don't Be Fooled By Owner Operator Math

Hey folks, this is Brett Aquila with truckingtruth.com and welcome to another episode of our Podcast ‘The Road Home’ where we help new drivers prepare for life on the road.

Today we have a real treat for you guys, it’s the first podcast done by Old School who is a legendary mentor at truckingtruth and I’d like to tell you a little bit about him.

Old School joined TruckingTruth about 6 years ago when he was first launching his trucking career. He has been a moderator in our forum for many years now, has written almost 30 articles for our blog, and has helped thousands of drivers over the years with elegant and detailed essays explaining how the trucking industry works and what it takes to be successful out there as a driver.

Another thing that’s important thing to know about Old School is that he owned his own design and manufacturing company for about 30 years before becoming a truck driver. So not only is he an incredibly accomplished driver, but he’s also a man with decades of success as a business owner.

Now Old School, as you’re about to hear, sounds like a super mellow, laid back guy, but don’t let that fool you. He’s an intense competitor in the trucking world and he’s highly ambitious, turning over 3,000 miles per week regularly as a flatbedder.

There isn’t anyone that I trust more when it comes to mentoring new truck drivers so I hope you’ll take the time to listen closely to what he has to say.

Here is Old School with his take on making money in trucking.

Hello, this is "Old School" from Truckingtruth.com. I want to talk to you today about making big money in trucking. Truck drivers use math all the time. It's by far one of the most helpful things we use everyday. It helps us be on time. It can keep us safe, and a good understanding of it can make us very effective at our jobs. Today I want to talk to you about an unusual miscalculation that I've come across several times in our forum discussions. These funny calculations usually come to the surface when we have a fairly new owner operator telling us how great life is as the "owner of the truck." It is such a unique way of doing math that we have come to call it "Owner Operator Math." It is a misleading way of calculating one's pay by leaving out a few very important details. The problem I have with "Owner Operator Math" is the way the numbers are just thrown out there as if they were factual. This practice can be very misleading to rookie drivers or folks that are just doing research into the trucking industry. I want to try to spend a little time with you today and hopefully help you have a little better understanding of the money part of trucking. It can get a little confusing, which is why it's so easy to get away with fooling people with unrealistic numbers. To be honest with you, I think most new owner operator's don't even understand their own numbers. It can be that confusing.

I'm gonna try to break this down and simplify it so that we can all have a little better understanding of something that confuses a lot of people when it comes to making money at this business. One of the first keys to making sense of "Owner Operator Math" is to take a good look at the financial performance of some of the most successful trucking companies in the country, and that would be the large publicly traded trucking companies. Even the largest most successful trucking companies, who produce billions of dollars in revenues, only manage to squeeze out profits in the range of three to five percent. That is an important part of this discussion. The trucking business is a commodities business, which means it has slim margins and a lot of competition. These companies that have the assets, the financial backing, and the savvy business practices to produce billions of dollars in revenues are still only producing maybe up to five percent profit margins. Okay, let that fact sink in for a minute, and then let's ask ourselves, "Where does all that other money go to? Are you saying there's something like 95% of those revenues that just disappears?" Well, it doesn't exactly disappear, and that is what I want to help you understand in this discussion. Remember those old Wendy's commercials where the little old lady's would ask, "Where's the Beef?" Today we are going to ask ourselves, "Where's the money?"

When I was in the sign business, I learned more about accounting than I ever wanted to know. Some of my friendly competitors would come to me for advice on how to calculate their operating expenses. Some of them just never could get a grasp on the whole concept of overhead, or the cost of being in business. To help them understand it, I would try to break down the concept of where the money goes into three basic categories.

Number one was Payroll.

Number two was Materials.

Number three was Overhead.

We can do the same thing for the trucking business, only we need to change number two from Materials to Assets. We don't buy materials to manufacture anything in this business, but we must buy trucks to move freight. Trucking is considered an asset based business. For us to provide good service to our customers, we need to have the necessary assets to get the job done.

I can recall some very interesting past conversations in our forum where brand new owner operators would make outlandish claims about the great new income they were taking in. I remember one fellow telling us he was making six times what he had been making at Prime as a company driver. Wow, that's a huge difference, and it is likely to grab anyone's attention. Let's see here, a decent rookie driver who will really apply himself at Prime should be able to pull in about fifty thousand dollars that first year. Good grief, here's a brand new owner operator claiming to make $300,000 dollars a year after just a few months of owning his own truck!

I remember another one who claimed they could now work less, take their weekends off at home, and still take home a check each week of around 4,800 dollars. Wow, let's do the math – that person is claiming to make $250,000 dollars per year!

Here's another example that stands out in my memory. We had a fellow who had been secretly running his own truck without telling us, and about six months in he just couldn't stand it any longer – he had to tell us how great he was doing at it. While he was going on about his great new income, he asked us, "What am I missing?" He was mystified at how he was doing so well after all he had heard from us about how there just wasn't a lot of extra money to be made by being an owner operator. The first thing I asked him was, Did he know what his operating expenses were. I told him that any CFO of a well managed trucking company could tell you right off the top of his head how much it is costing them per mile to run their trucks on the road. His response went something like this, "Well I have been able to pay off my credit card debt and save a little money in the bank. Neither of those things were happening while I was a company driver." He didn't have a clue concerning how much it was costing him to be in business, or to operate his business. He was paying his personal bills from revenues that should have been accounted for in other ways. When a small business owner does this, they are stealing from themselves without ever realizing what is going on. It is a very short sighted way to operate a business.

That is the part that always gets left out of "Owner Operator Math," and that is the very part that their accountant will charge them good money for calculating so that they are not paying income taxes on 2 or 3 hundred thousand dollars of income. They don't pay that kind of taxes, because they don't make that kind of money. It is a funny thing how when we try to tell them that, they get all offended and storm off never to be heard from again, but when they get to pay good money to an accountant to tell them the same thing, they are thrilled that they don't have to pay that huge tax bill. Do you remember back at the beginning of this discussion when we mentioned these really big trucking companies generating billions of dollars in revenue? That is not their profit. The three to five percent margins they work like crazy to keep is their profit. It is the same way for an individual owner operator. He has to know how to calculate his operating expenses long before he can ever figure out what his income is.

There are so many things that new owner operators leave out of their calculations. One thing most people don't even realize is that the depreciation of their truck is considered an overhead expense. We hear some of these new entrepreneurs come up with these crazy financing schemes. I don't know how many times I've heard someone say, "Well, I plan on paying cash for my truck. That way I won't have the constant drain of the payments fighting against me as I'm trying to get established." Oh, that's real smart – not only do you not have a truck payment, but now you don't have any cash either! It really doesn't matter how you pay for that truck. An expense is an expense no matter how or when it goes out of your account. It still has to be accounted for on your books. You can't just set everything into motion and then think all that money rolling in is your salary!

I want to tell you what really got me started thinking on this whole subject. Recently I was down in Georgia and ran back and forth a few times from Atlanta to Savannah. There is a ton of truck traffic in that area, and most of it is owner operators pulling shipping containers back and forth in between those two areas. Most of those trucks are consistently tired and weary looking older rigs. They do not look like the kind of trucks that people making 250,000 dollar salaries would be driving. I'm not trying to be snarky. I'm trying to help people understand a reality that gets brushed aside in so many conversations at truck stop cafes and driver lounges. Most of the owner operators I come across are driving really worn out rigs. There is a reason for that, and it is the same reason that owner operator math sounds so good. People are spending their revenues like it is their salary, and there is nothing left to invest into their business or equipment for future plans or growth. There is no vision for the future of their business. They are stealing from themselves and being short sighted when it comes to running a successful trucking company.

Business is fragile, and if you want to stay in it you've got to have a plan and a strategy. People really want to believe that if they just own their own truck they will be rolling in the cash. Well some of the best and brightest managers in the trucking industry struggle every year trying to come up with some way of squeezing out just another half of a percent in profits. They are responsible to their investors to improve things and not only increase revenues, but that much more important number called profit. Revenues can be increased fairly easily, but increased profits have proven to be a much more difficult goal to reach. Knowing the difference between these two numbers and how you produce them is vital to success as an owner operator. Knowing the difficulty of achieving higher than average profit margins in a one or two truck operation as compared to a company with thousands of trucks on the road, is what keeps me happily earning a good solid living as a company driver.

Now, let's get back to that question, "Where's the money?" How is it that we can make a good solid living as a truck driver? If you want really good solid advice about being an owner operator, I am convinced you've got to ignore these folks who have just been in the game for a short time. Talk to the owner operators who have been doing this for twenty plus years. Those are the ones who will tell you exactly what I'm talking about here. This is a very competitive business and one person out here on their own is like a minnow in a shark's tank. There is a lot more to success at this than just cashing those checks and depositing them in your personal account. Time has a way of leveling the playing field in business. There are mean averages to this endeavor that all the major players are fully aware of. People have been trucking for generations now and the actuary tables have been well established. One individual who thinks he can rewrite the rules for success at this would be a head strong maverick indeed. Here's a tip to help you realize when you are hearing the kind of misleading nonsense I've been talking about: When an owner operator or lease operator keeps hammering away at how much they make per week, your radar needs to start going off. That is the same little trick they use to fool themselves. That number really doesn't mean anything – it is a revenue number. The checks they get are not paychecks, they are revenues. The numbers their accountant comes up with at tax time are a lot closer to your numbers at tax time than they want to admit. That is why they only ever want to talk about their weekly income. Seriously, just this week I had a conversation with an owner operator in the driver's lounge at a truck stop. He told me that he started driving two years ago, and as a company driver he only made twenty eight thousand dollars. So after that first year he bought his own truck and now he is making eight thousand dollars per week! Yeah, big red flags were being raised in my mind!

Here's my advice if you want to make the big money in trucking. Work hard at making yourself a dependable solid driver. Find your own niche in the trucking world and outperform your peers. That is what I have focused on and it has been very rewarding for me. I enjoy my career and my time on the road immensely, and I make a great living at it too. I don't have to deal with all the financial risks and surprises that come with truck ownership, and I can focus on being the best I can be at this. There is precious little extra money to be made as an owner operator without incurring considerable risks both financially and legally. There is some really good solid money to be made as a company driver, you just have to learn to be good at it. And trust me, if you are struggling as a company driver, becoming the owner of the truck is not going to make things any better. This business is a performance based enterprise and the ones who can outperform their peers are the ones who are getting all the work and the special privileges. Keep yourself at the top of the food chain, and you will also be keeping yourself at the top levels of pay – it's really that simple. To the victors go the rewards!