Owner Operator: More Loss than Profit
Filed under: Uncategorized
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.
August 14th, 2007 at 2:43 am
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 14th, 2007 at 4:22 am
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.
November 23rd, 2007 at 3:41 pm
I have not been an O/O but I do know that having been a tax preparer that if one is self employed that you pay tax on your adjusted gross income not on the gross. In the example above it should be 115000-total expenses equal adjusted gross income. You would then multiply this amount times .15 for your taxes ,and subtract the result back from your adjusted gross income to get your profit. Suppose in the above example you had 60000 in expenses so:
115000-60000 = 55000 this the adjusted gross income.
55000X.15=22500 this is your taxes.
55000-22500= 32500 this is your profit.
This example holds true for any business situtation.
The main thing to be aware of is what counts as a business expense. The law changes, and you must keep up with it. Also, you can not charge for labor that you do yourself but only for parts, unless you have a business set up to do this also. Additionally, when sell or trade your truck you must pay taxes on the profit you made on the truck after you took off for truck payments or depreciation. Let’s say you buy a 50000 truck and have written off 25000 but sell it for 30000.
So, 50000-25000=25000 this is your loss.
30000-25000=5000 this is your profit ,which would be taxable like your income. In my conversations with O/O , I have found that what kills most of them is not keeping enough funds out for quarterly taxes and repairs. Also, whether you are a O/O or a company driver, finding a good company to work for has become the Holy Grail in trucking!!!
Safe Journey,
Jim Burgess
March 8th, 2008 at 5:37 am
I am a career Trucker 20yrs. I drove a company truck for 17yrs. I decided to go for it and bought a 2000 Pete. It has been like going back to Driving School again,(Advanced Training) very tough to make it but most definitly worth it to me. I Love the trucks and am willing to work 15 hrs. aday for “my business.” I wont work like this for another Persons Company. I get equity in my eq. and alot of write offs!
March 17th, 2008 at 2:22 pm
Yes, Jim is quite correct. As the eBook points out….one of the biggest problems is that drivers don’t have the discipline of setting the funds aside for repairs and the quarterlies. Of course, it’s not just drivers…..it’s hard for anyone to have this disipline, especailly when you just don’t have it !!