How to Calculate Cost per Mile?

According to a 2020 study, the average fuel cost per mile was 0.31 US dollars.

Do you ever wonder how cost per mile affects your business?

Does your business involve shipping and delivering packages door to door?

How much does the trucking business cost yearly?

From packing an order to its delivery involves—a delivery man, transportation, fuel, and time. If you don’t consider calculating the operating costs, this process will cost you the profits.

You don’t want that to happen.  

Calculating annual costs can be hectic if you rely on reading long paragraphs explaining the formula. But if understood correctly, it can save you bucks and help your business flourish.

What if you can consider four simple steps and easily calculate the operating expenses/monthly cost?

Further, you can reduce the monthly variable costs in case of a spike and save your business from falling on the market’s roller coaster! 

Sounds helpful, right?

So, if you stay and read till the end, you’ll learn about:

• Basics of cost per mile
• Simplified four-step calculation method
• Tactics to reduce the per-mile cost during inflation

Let’s simplify the process and learn how to calculate cost per mile.

Introduction to Cost per Mile

Cost per mile or CPM is the expense a business/trucking company faces that involves load-carrying from place to place. They are accountable when you want to calculate expected profit after considering all your expenses.

Let’s look at the bigger picture to understand it in-depth:

• Rate per mile (gross income) depicts the cash flow in your business
• Cost per mile depicts the expenses your business faces
• Net income is the profit your business earned

Rate per mile – Cost per mile = Net income

Both rate per mile and net income mean nothing if you don’t keep track of your business expenses. That’s where the CPM plays an important role.

But is it that big of a task to calculate the total cost?

No! Not when you know the four-step calculation method provided further.

Checklist to Calculate Cost per Mile

This method helps estimate the monthly fixed costs beforehand. Make sure you are clear about all the information mentioned in the checklist below.

We are simplifying the process!

• Raw data of all the expenses

Expecting a long checklist weren’t you! 

Calculating total cost is not a Herculean task. All you need is a clear picture of essential expenses, and it means every tiny bit of money spent.

Now that you have it, let’s start the four-step calculation.

How to Calculate Cost per Mile?

Find out how much a mile costs you in four easy steps:

1. Know the duration and distance
2. Calculate the fixed costs
3. Calculate the variable costs
4. Do the division and addition

1. Know the duration

The duration here is the period you want to calculate all your expenses. It is all up to you to make it a short-term calculation or a long-term one.

In case of a short term calculation, you can go for the period of

• One week
• Three weeks
• One month
• Two months
• Four months

In case of a long term calculation, you can go for the period of

• Six months
• Eight months
• One year
• Three years
• Six years

You can always track the costs, no matter if they are paid yearly.

Further, track all the distances covered in the same period.

The distance shall be in exact figures as provided by the owner-operator.

2. Calculate the fixed expenses

Fixed costs, as the name suggests, are the costs that don’t change, no matter what kind of spending patterns the trucking company follows, the number of miles you cover, or how many hours you work. These may include your trailer payments, the yearly cost of service insurance payments, salaries, and rents monthly.

Fixed expenses remain unaffected by the activeness of your business. These increase proportionally.

Calculating fixed expenses can be easier than a variable expense as it wouldn’t change.

So make sure you track down all your fixed costs based on the duration selected.

3. Calculate the variable costs

Variable costs tend to change over time, depending upon the miles covered or truck payments. These include transportation, trucking costs, fuel costs, distance covered, and services or replacements.

Reduction in expenses is possible. Some extra bucks can be saved if tracked and managed correctly every month.

To calculate variable costs, keep hold of every bill that pops during the delivery, could it be of truck payments, fuel costs, miles driven, direct costs, or washing and maintenance of the vehicle, dated from the duration selected.

4. Do the division and addition

This step needs no further explanation—all you have to do is divide variable and fixed costs. Then add the variable and fixed expenses in the given manner.

• Fixed costs =  X (Total miles covered)
• Variable costs =  Y (Total miles covered)
• X+Y= Cost per mile

And that’s it. You have your cost per mile calculation done. 

Now what? How is calculating the cost to drive per mile, of any benefit, to your business? If questions like these are popping up in your mind, you have a little extra reading to do yet.

What to Do Once You Know the Driving Cost per Mile?

What advantage do you have over the business that takes no load of calculating per mile cost?

A business calculating and managing expense receipts can count on many advantages over a business that neglects them. Some of them are:

1. Track your profits

The final cost to drive per mile is one primary number you can use to trace down the profits earned by your company over the period considered. 

All you need for this are the exact figures of rate per mile and cost per mile. Just subtract both the terms, and you’ll get the profit you made per mile to drive.

Rate per mile – Cost per mile = Profit earned per mile

2. Revise your rates

Based on the profit and expense ratio, you can revise your charges wisely to make more profit. A good change will help you increase your profit and keep you safe in the fluctuating market prices.

A revision of your trucking company rates doesn’t always mean increased charges. 

If your business is earning a good amount of profit, enough profit to renew the investment cycle and still be left with some backup, delivery charges for the transport can lower.

Sounds non-profitable?

Your business is already low on overall costs, and your profits are enough to serve the purpose of adding fixed costs. It indicates that your business is on good hype for now.

Lowering charges will attract more orders. It will increase the rate of your customers. And a customer earned is a profit already made.

Either way, the profit is yours.

3. Self-aware company

As a business, if you know exactly how much expenses you have and how much profit you can make, the decision-making process becomes more manageable. 

The decision-making process mentioned here is more about expansion and creating barriers to nullify the effect of a spike.

When you can track down expenses on an average, you can consider the proper use of profits. It could be about investing in some other business or creating aback.

A self-aware company has more survival chances in a spike than a company that lacks mathematical calculation of expenses and profits. 

4. But what if the spike lasts longer than your company’s profits?

Luckily tackling this situation becomes easier when you know how much it costs to drive per mile. 

Here’s how!

Your cost per mile is an important number that covers all sorts of expenses.

And one can always work on reducing the company’s expenses. So cut costs to survive and flourish during and after the spike.

How to Reduce Cost per Mile?

Cost per mile is the addition of an average of both fixed expenses and variable expenses.

Since there is no way to reduce the fixed expenses, variable expenses are negotiable.

It can be used as an advantage to cut down on expenses and thus save some extra bucks when required.

Variable expenses involve fuel consumed transportation expenses, which depend on miles covered. A few measures to be considered are:

1. Reduce the number of vehicles in action

One can reduce the number of vehicles and put the latest and highly efficient ones to work. Proper use of a vehicle’s efficiency can save some bucks.

 2. Reduce fuel consumption

Fuel is the most considerable expense in the case of variable expenses. Cutting down on fuel consumption can bring about a significant change. Driving skills and efficient driving tactics can help in reducing fuel consumption.

  3. Reduce miles to be covered

Reduction in distance covered can lower servicing charges and cut down on fuel expenses. Reducing average truck drives proves to be an essential and functional way of reducing total variable costs.

To reduce the miles to be covered, one can search for the shortest route possible towards the destination.

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