Becoming an owner operator is a big decision that will dramatically impact your life, your family’s life and how much money you make. I personally know independent owner operators that make over 100,000 dollars per year in profit, not gross but take home pay that is free and clear. On the other hand there are far more owner operators that end up bankrupt within the first year or just barley scrape by.
Guide to Becoming an Owner Operator in The Trucking Industry
I wrote this guide in the hopes that I would be able to help some drivers out by saving them from the all too common mistakes that truck drivers make when becoming an owner operator.
Types of Owner Operators
There are three types of owner operator in the trucking world as explained below.
Lease Operators: These are truck drivers that lease a truck from the company they are working for and continue to haul that company’s freight. I highly discourage being a lease operator. Almost every company will allow you to lease a truck because it much more profitable for them to do so than to have you on as a company driver. Many companies have had lawsuits filed against them because of unfair and deceptive lease agreements. Below are two examples:
Leased Owner Operators: These are truck drivers that own their own truck and possibly trailer. They then lease onto a company in order to haul that companies freight. It is possible to earn a living this way but is not as profitable as most successful independent owner operators. Landstar is an example of a company that uses only lease operators.
Independent Owner Operators: These are truck drivers that own a truck and trailer. They are fully independent and operate under their own DOT authority. This can be a very profitable operation (if done right) but requires you to pay the utmost attention to details.
Before Becoming an Owner Operator
There are many things that you must have knowledge of before you ever purchase or lease a truck. Some of these things include;
- Cost per Mile of Operation (CPM)
- Truck and Trailer Maintenance
- Permits and DOT Regulation
- Freight Brokering
- Where to Find High Dollar Freight
- Load Factoring
- Hours of Service (HOS) and Weight Laws
- Federal, State and IFTA Fuel Tax Laws
- Fuel Efficiency
By no means is this a complete list of things that you need to know. All too often truck drivers become owner operators overnight without giving much thought to the business side of trucking and owning a truck. These drivers will be bankrupt within the first year of operation.
Let’s first explore what information and skills you must be armed with in order to be a successful in your new adventure. Most of these things have nothing to do with actual truck driving but are more business related matters.
Trucking Experience and Finding Your Niche
The first step is to become a company driver for three but preferably 5 years as a company truck driver. This experience is critical and an essential step in becoming an owner operator. This will allow you to thoroughly understand the trucking industry, learn how to be efficient and for you to also make contacts within the industry that may further help you in the future as an owner operator.
The best option would to be to start with a large company that pulls flatbeds and then for another company that does something that is more specialized. One of the keys to success is finding a niche to profit from. The definition of niche is “a distinct segment of a market.” What that means is that you need to specialize in something that most trucking companies do not do.
Why find a Trucking Niche?
If you were to buy a dry van trailer and try and compete with large trucking companies that only profit pennies per mile you will never be able to compete. Now if you had a trailer that was used for hauling sailboats you would stand a better chance of making money for several reasons.
- You do something that most people can’t.
- It is not a scalable business model. This means that a large company could not survive in the world of sail boat trucking because the freight volume is too low. (your protected)
- Odd or niche freight pays much more than general freight
- You have a very good chance to brand and market yourself because the market is so small. In other words people will know who you are and you can build a reliable and honest reputation
Learn To Be a Fuel Efficient Truck Driver
While driving for a company you need to track your fuel mileage and learn how to drive your truck as fuel efficient as possible. Fuel efficiency is one of the most important factors in being a successful owner operator. You will find that idle time and speeds higher than 55 to 60 MPH will dramatically affect your fuel costs.
You can determine your fuel mileage by starting with full fuel tanks and recording your mileage. The next time you fuel you will want to divide the miles driven from your last fuel stop by the gallons purchased at your current fuel stop.
Most drivers will tell you that it is impossible to make money if you operate at 60 MPH. After all in 10 hours of driving you will only travel 600 miles verses 700 miles at 70 MPH right? Yes that is true but the difference between 5.0 MPG and 5.5 MPG is thousands of dollars in savings.
Here is an example:
Fuel Cost is $3.00 per gallon
Driver A Averages 70 MPH for 10,000 Miles at 5.0 MPG
Driver B Averages 60 MPH for 10,000 Miles at 5.5 MPG
Driver A Fuel Cost = $6,000 Per Year Cost = $72,000
Driver B Fuel Cost = $5,454 Per Year Cost= $65, 000
Fuel economy plays a huge factor in being successful as an owner operator.
Understanding the Costs of a Trucking Operation
Not understanding the costs of operating a truck and trailer will guarantee your failure as an owner operator. This is the number one reason owner operators fail. Fuel, maintenance, insurance, permits, taxes, payments, health insurance and other costs must be understood in their entirety. After those costs are figured it is very easy to understand how much money you will be able to make in profit. Simply add the costs of operation per mile then subtract that number from how much you will make per mile.
Revenue per Mile – Cost per Mile = Gross Revenue – taxes = Net Profit
You will also need basic business accounting and book keeping skills to be a successful owner operator. Simply taking a few classes online can give you the basis you need. I also suggest utilizing educational courses within the trucking industry to help you. Kevin Rutherford offers classes, a radio talk show and print material for truck drivers interested in becoming an owner operator.
A Real Life Example of a Successful Owner Operator
Here is an example of an owner operator that has had great success with being an owner operator. I will not use the company or personal names for privacy reasons. Please pay attention to how all the things you have read come together in this example.
Jeff owns a truck and trailer and hauls logs from central Pennsylvania to the port of Baltimore. He loads the logs into a shipping container himself at a log yard that is owned by a very small company with one employee.
The niche freight is Logs. He has also made himself an asset to the small logging company because he loads himself. The logging company likes this because it is a hassle free experience.
Jeff then takes the logs to the port of Baltimore. Jeff has to have a TWIC card to enter the port.
Jeff has further deepened himself into his niche of hauling logs by having the credentials to enter the port of Baltimore. Few drivers have this so Jeff is in a prime position for anyone needing logs hauled to a port.
Ports have very strict loading time appointments. The containers must be loaded onto the ship in a certain order. Jeff is always on time for his appointments.
This makes the logging company happy because their customers always get their logs on time. This also gives Jeff a good reputation and the small logging company tells other people about how great Jeff is. Jeff then gets more work and makes more money. Because Jeff gets so much work he has to buy another truck and hires a quality driver and pays him well but also gets more money from that truck.
You can now see how important it is to have a niche or even a niche within a niche. It allows you to specialize and cater to specific companies that need your services.
Buying Equipment… Trucks Are Not Toys
Trucks are not toys; they are a tool to help you make money. Sure a chromed out W9 Kenworth may look beautiful but it will not make you more money than a T660 or a more lightweight aerodynamic truck will. Fancy trucks will actually cost you way more money in the long run.
Big engines may sound great but they drink a lot of fuel that is expensive. I have driven many trucks with 425HP engines and they all made it up the hill. Sure it would be great to have more power but when it comes down to it I would rather have more money in my bank account than attached to my truck.
Buy lightly used trucks. I love buying trucks that have about 200 thousand miles on them. All the bugs are worked out and the truck has depreciated to an affordable price. This also allows you to pull the ECM report (Electronic Control Module). The ECM report will tell you everything about that trucks like including fuel efficiency. Every truck is a little different and you want to know if you’re getting a lemon or not.
A Few Last Points About Becoming An Owner Operator
Having a passion for what you do will make you successful. If you love being a truck driver and really want to be a successful owner operator then you can do it. It may not be easy but if you stick with it you will make it.
Don’t rush things, let things fall into place as they should and never take any shortcuts. Get your experience, take business classes and search out that niche. I wish you all the best out there and above all things be safe!