Sunday, May 6, 2007

Owner Operator: More Loss than Profit

In the world of truck driving, many newcomers are lured into the realm of becoming an owner operator. Given the choice of earning .34¢ per mile or $1.15 per mile, it is not difficult to understand why someone would choose the route of higher earnings. At 2500 miles per week, the difference of $2025.00 extra per week deserves attention. However, when dealing with professional truck driving jobs, you must deal with reality.

In an industry where the driver averages 100,000 miles per year, an owner operator compensated at $1.15 per mile is looking at grossing $115,000.00 annually. Compared to the average company driver at .34¢ per mile, their annual gross is a mere $34,000. Why would anyone choose a $34,000 yearly income more than $115,000 while performing the same duties?

Although owner operators are declining, there are still those companies that advertise proudly that they are a 100% owner operator fleet. Some have even raised the compensation to an enormous $1.50 per mile. At 100,000 miles per year, you are now facing a gross income of $150,000 per year! As a newcomer searching for a new career and a company willing to place you in “your own truck,” the excitement of earning that kind of money is hard to turn down. You want the freedom . . . you want your own business . . . you want $100,000 plus per year. It all sounds great. Now, let me take you to reality.

Owner operator lease programs are a way for new drivers to “own” a truck. The driver is responsible for all expenses, including fuel and repairs. Although there are some who do well with it, the majority of these owner operators will fail. To me, a lease owner operator is nothing more than a glorified company driver. Let’s take a look at a profit and loss analysis sheet for an owner operator and a company driver, and you be the judge:

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Company Driver: Profit and Loss - Based on 100,000 miles per year

Compensation : .34¢ per mile = Driver’s Gross income - $34,000
Misc. Expenses, including meals @ $125.00 per week = Total Cost - $6500
*Tax withholdings @ 15% = Annual deductions - $5100
Company Driver NET annual income = $22,400.00
Company Driver NET weekly income = $430.77

*Tax withholding is estimate only at 15% average

And now . . . the “owner operator”:

Owner Operator: Profit and Loss - Based on 100,000 miles per year

Compensation : $1.15 per mile = Driver’s Gross income - $115,000
Truck Payment @ 1,333.35/month = Annual Cost - $16,000.20
Collision/Comp. Insurance = Annual Cost - $6300
Bobtail Insurance = Annual Cost - $804
Licenses = Annual Cost - $1,835
Permits = Annual Cost - $525
Accounting Services = Annual Cost - $725
Tractor Fuel = Annual Cost - $39,397.06
Truck Wash = Annual Cost - $701
Telephone = Annual Cost - $1,624
Meals = Annual Cost - $6500
Tolls = Annual Estimated Cost - $1,275
Taxes (Road, Use, Fuel) - $1,755
Taxes (Personal @ 15%) - Annual Cost - $17,250
Misc. Expenses - Annual Cost - $500
Maintenance @ .06¢ per mile = Annual Cost - $6000

Total Income to Owner Operator = $115,000
Total Cost of Operation = $101,191.26

Owner Operator NET annual income = $13,808.74
Owner Operator NET weekly income = $265.55

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The figures speak more loudly than words. This analysis is also based on the fact that everything goes just as is. A few tires blow out . . . a blown engine . . . and you are now in the red. It is not difficult to understand why the trucking companies love the lease owner operator. 100,000 miles per year at 60 MPH will take you 1666.66 hours to drive in a perfect world. This owner operator’s net annual income shows that they performed this hard, difficult life for $8.28 per hour.

The “freedom” of being an owner operator is a myth. Turn down a load or “head home” whenever you want, and see how long the company will make you sit afterwards. As a company driver just drive . . . without the headaches and expenses associated with the owner operator program. If over the road truck driving is in your plans, think hard about the possibilities that await you. Like everything in life . . . learn all you can BEFORE you begin the journey. It is imperative that you know the truth about trucking.

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2 Comments:

Anonymous said...

Given that the author of this article has been in trucking for 29 years I certainly value his opinion, however I think that this article does not really show the upside to being an owner operator.

Example if an owner operator has the proper business structure (business entity that is set up properly) the owner will make money and if the owner negotiates with the company his or her properly set up business entity contracts to drive for. The company that the properly set up owner operator contracts to should pay a lot of the expenses such as base plates, fuel surcharges, licenses, permits etc. the author states that an owner operator or a lease driver has to pay (and the author is correct thus the need for negotiating up front and getting everything in writing) then the properly set up lease/owner operator will make considerably more money.

Incorporate your business or use an LLC. These business structures pay tax on what is left not what is grossed. Truth known a business can pay for your everyday living expenses right down to your toothpaste and toilet paper. This has to do with having the business sense and know how to run a business. If you do not have the business sense to run a business or the intelligence to hire someone that does then drive as a company driver or find something else to do.

August 13, 2007 9:43 PM  
Truth About Trucking said...

Anonymous has hit the key to being an owner operator: Business knowledge. As the article states, there are those Owner Op's who are making money, but they are also good business people. For the most part, the "company" will pay for such things as base plates, permits, etc., but without a proper business structure, i.e. "accountant", etc., the "business" is doomed to fail. Also, when fuel is $2.679 per gallon, and pay is $.92 cents per mile, it is impossible to make a profit. The majority of Owner Operator wannabe's will fail...the major cause being what "anonymous" has pointed out : without "business savvy", you will be defeated before you even begin.

August 13, 2007 11:22 PM  

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