What is Cost Per Mile (CPM)?
Cost per mile (CPM) is arguably one of the most important metrics for your trucking business. It represents the expenses incurred for every mile driven by your truck. This calculation covers the wide range of costs for running your business, including fuel, maintenance and repairs, insurance, equipment costs, taxes, and other operational expenses. CPM provides a clear view of how much it costs to operate your equipment per mile, which is essential for understanding your business’s profitability.
The cost per mile can vary significantly based on several factors, such as the type of truck, distance traveled, type of cargo, and operating conditions. For instance, the cost per mile for a refrigerated truck is generally higher than that of a dry van due to the added expenses of refrigeration equipment and increased fuel consumption. On average, trucking companies may expect CPM to range from $1.50 to $2.50 per mile, although this figure can fluctuate with changes in equipment type, fuel prices, inflation, and other variables.
Why is Cost Per Mile So Important?
Understanding your CPM is essential because it directly impacts your bottom line. Without knowing your exact cost per mile, you’re essentially driving blind when it comes to pricing your services, negotiating rates with clients, and making key decisions. Here’s why CPM is critical:
Profitability Insight: CPM allows you to assess your profitability on each trip. You're losing money if your CPM is higher than your rate per mile.
Rate Negotiation: Knowing your CPM empowers you to negotiate rates confidently. You’ll know the minimum rate you must charge to cover your costs and ensure a profit margin.
Budgeting and Forecasting: With a clear understanding of your CPM, you can create more accurate budgets and forecasts for your business, which is crucial for strategic planning and growth.
Cost Control: Tracking CPM helps identify areas where costs can be reduced. For example, if fuel costs are a significant portion of your CPM, you might explore more fuel-efficient routes or fuel discount options.
Competitive Edge: Understanding and managing your CPM can give you a competitive advantage in the market by allowing you to set competitive yet profitable rates.
How Do You Calculate Cost Per Mile?
Calculating CPM is relatively straightforward. You’ll need to total all your operating expenses and divide them by the total miles driven. Here's a simple formula:
Total Expenses / Total Miles = CPM
For example, if a truck driver logs 100,000 miles in a year and incurs $150,000 in expenses, the CPM would be:
$150,000 expenses ÷ 100,000 miles = $1.50 CPM
This calculation accounts for nearly all business expenses, including variable costs like fuel and fixed costs like insurance. If you’re just starting out or haven’t been in business for a full year, estimate your expected mileage and expenses as accurately as possible to establish a baseline CPM. Alternatively, you can calculate CPM on a monthly basis by totaling your monthly expenses and dividing it by your monthly mileage.
When Will You Use Cost Per Mile?
You should not only use your CPM to set your service rates, but also use it to benchmark your business health against your historical CPM and other trucking businesses. If your CPM is rising, it could signal increasing costs that need addressing. Use your CPM as a decision-making tool. If your CPM is at a dangerous high in a market offering poor rates, it might not be the right time to expand your fleet or take on more debt. Tracking and evaluating your CPM is a great way to keep your finger on the pulse of your business’s health.
Calculating your cost per mile is not just about knowing a number—it’s about gaining critical insight into the financial health and profitability of your trucking business. Don’t overlook this essential metric; it’s the key to driving your business forward.
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Soshaul Logistics LLC and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. It is meant to serve as a guide and information only and Soshaul Logistics, LLC does not assume responsibility for any omissions, errors, or ambiguity contained herein. Contents may not be relied upon as a substitute for the FMCSA's published regulations. You should consult your own tax, legal and accounting advisors before engaging in any transaction or operation.
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