Improve your bottom line through the middle
TFS’ entire Operate Smart concept is about working smarter and not harder. Doing what you can to improve your bottom line. It’s all about how much you keep in your pocket at the end of the day.
Where can you save the most money? Your fuel bill. Fuel is the single largest expense item for an Owner Operator. Sometimes second only to truck payments. But it is the largest variable expense that you have the most control over -- from how much you burn to where you buy your fuel and at what price. Everyone talks about getting a good MPG to save on fuel costs. Well let’s look at how much it actually does save you.
Below is a table of various MPG’s. The cost per mile and cost per year figures are based on an average fuel price of $0.621/litre and 125,000 miles driven.
Table 1:
| MPG |
Cost Per Mile |
Cost Per Year |
| 4.0 |
$0.71 |
$88,220.81 |
| 4.5 |
$0.63 |
$78,418.50 |
| 5.0 |
$0.56 |
$70,576.65 |
| 5.5 |
$0.51 |
$64,160.59 |
| 6.0 |
$0.47 |
$58,813.88 |
| 6.5 |
$0.43 |
$54,289.73 |
| 7.0 |
$0.40 |
$50,411.89 |
| 7.5 |
$0.38 |
$47,051.10 |
| 8.0 |
$0.35 |
$44,110.41 |
| 8.5 |
$0.33 |
$41,515.68 |
| 9.0 |
$0.31 |
$39,209.25 |
| 9.5 |
$0.30 |
$37,145.61 |
Create your own table by filling out the boxes below.
As you can see the annual cost difference can be significant. For example, the annual difference between 6.5 MPG and 7.5 MPG is $7,238.63. And that savings can go right to your bottom line.
Let’s look at that figure in a different way. How many more miles, in after tax dollars, would our example Owner Operator have to run to earn the equivalent of $7,238.63 (while running at the lower MPG). Let us assume that his net cash flow after taxes averages about $0.31 to $0.33 per mile. That means he would have to run approximately 21,935 extra miles to make the equivalent in after tax dollars. Now this is a crude calculation as it does not accurately take into consideration the additional expenses such as maintenance costs associated with running more miles but it gives you a good idea.
The point we are trying to make: Can you make more money while running the same number of miles? The answer is yes, if you operate smart.
Now, let’s break fuel cost down into another basic component – cost per horsepower per hour. This is called Brake Specific Fuel Consumption or B.S.F.C.
Power output and fuel efficiency can be measured for an engine in lbs./h.p./hr – the number of pounds of fuel burned per horsepower per hour. Most new engines produce 1 H.P. on about .29 lbs. of fuel. Therefore, if a gallon weighs about 8.7 lbs it will produce about 30 H.P. for exactly 1 hour. At $0.621/litre that works out to 9.41 cents for each horsepower for every hour run.
Table 2 illustrates the cost per hour to run an engine at various horsepower levels (based on our example):
Table 2:
| HP Draw |
$/HP/Hour |
Cost/Hour |
| 100 |
$0.0941 |
$9.41 |
| 150 |
$0.0941 |
$14.12 |
| 200 |
$0.0941 |
$18.82 |
| 250 |
$0.0941 |
$23.53 |
| 300 |
$0.0941 |
$28.23 |
| 350 |
$0.0941 |
$32.94 |
| 400 |
$0.0941 |
$37.64 |
| 450 |
$0.0941 |
$42.35 |
| 500 |
$0.0941 |
$47.05 |
Create your own table by filling out the boxes below.
The final analysis:
Increased Speed = Increased Horsepower draw. The faster you go the more horses you use. Therefore it costs more in fuel to run faster, not to mention the increased wear and tear costs on your truck from running at higher speeds.
How else can you improve fuel efficiency for your truck? Aerodynamic packages and properly inflated tires will help, but your driving habits will by far have the biggest affect on your fuel efficiency.
What other costs can you improve in the middle to better your bottom line? Repairs and maintenance is another large variable cost. But good preventative maintenance practices can help lower these costs. Watching every little expense on the road can also help. Those additional one and two dollar expenses can add up over a year.
There are some fixed costs you may not have any control over such as insurance, licensing, etc. But there are a few, with a little homework, you can affect. For example, the financing of your truck. Spending a little time to obtain a better deal on your financing can pay dividends in your pocket.
Let me show you with an example. Let’s say John Smith, an owner operator, is financing a new truck. He is going to finance $120,000.00 for 60 months at 9.5%. The total interest he would pay for this financing package over the life of the loan would be $31,213.20. But John decides to spend a little more time looking around for a better financing deal and is able to obtain a rate of 9.0% (all things equal). Based on the same amount to finance and a 60 month term, his total interest cost would drop to $29,460.00. That’s a savings of $1,753.20.
How many miles does $1,753.20 equate to in after tax dollars, based on the same running costs as our fuel example – 6,493 miles. That’s a nice 2 week vacation.
As you can see, it pays to Operate Smart.
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