This is a good blog post by Kevin Rutherford on his LetsTruck blog. It hits on the point that Owner Operators need to think about themselves as a business that is in a marketplace where they have some control to set rates and service levels, and seek business that matches their expectations.
Kevin Rutherford, Posted July 11: I think I’ve finally figured out why owner operators have such a hard time understanding the concept of supply and demand and why they are constantly bitching about brokers and rates:
The vast majority of owner operators and small carriers have never had to learn about or deal with marketing and sales.
Every other business I’ve been involved with lives or dies by marketing and sales. You can have the best product in the world, but if you are unable to market and sell it, you’ll have no business. Because of that process, businesses are usually forced to learn about supply and demand and how to price a product or service.
As an owner operator or small carrier, you don’t have to do any marketing or sales; the work is readily available and posted in multiple locations on the Internet. Just because you don’t HAVE to market or sell doesn’t mean you shouldn’t—more on that later. It seems that because the work is posted and you are calling to inquire about it, many owner operators also allow the customer (the broker) to set the price. Remember—brokers are the customer; they need a service, and you provide that service. In most business transactions, the service provider sets the price, and the customer decides if he or she wants to either pay that price or find a less expensive vendor.
As an owner operator, you should have a pricing structure in place. It should be in writing, and it should be detailed. You should have multiple levels of pricing; for example, you may have one price for shorter mileage hauls and a different price to run in certain lanes or to certain cities or regions. All pricing should start with your operating expenses. You need to know what it costs to run the truck and trailer per mile. Pricing in transportation is almost always stated “per mile,” so you should do the same with your expense tracking.
Herein lies another problem for most owner operators and small carriers: they have no real accounting system to know what their costs are. If you don’t have an accounting system that allows you to track income and expenses on a per-mile basis, that is step number one. You need to get one ASAP—like right now. Here is a link to our bookkeeping software, which will create a one-page report with everything you need. It takes less than an hour a month, and you’ll have the numbers at your fingertips anytime you need them. Once you know how much it costs to run your operation, you need to determine a profit margin. The profit margin is simply the amount of money you want to make above and beyond your cost. Again, the best way to state this is as a mileage rate. Do you want to make 60 cents per mile profit, or would you be happy with 50 cents?
Once you have determined your numbers, you’ll then know how to price your service. You can get more detailed as you get better at the process; for example, you may start to understand that certain lanes are more expensive to run in because of fuel or other costs. You could list out different prices in different lanes. You will find that in certain cities or regions, it’s harder to find good-paying freight coming out, so you may want to charge more going in. You may want to discount certain cities or lanes because you really like traveling in those areas; it’s your business, and you get to set the price.
Now here is the really important part:
Just because you set a price doesn’t mean anyone is going to pay it.
You have to understand supply and demand as well as rates and lanes. You may be asking yourself, “Self, why would I do all of this work if it may turn out that nobody is willing to pay the price I want to earn?” Good question! There are several good reasons why you should take the time to do this:
It will force you to think about your rates and your operation.
It will help you to understand supply and demand.
It will force you to learn rates and lanes.
It will give you a starting point to negotiate rates.
It will give you rates to use when marketing yourself to potential customers.
After you do the hard work of getting all of that into a written plan, you can then start to think about marketing your services. You may want to create an official sales and marketing plan. Remember how I said that just because you don’t HAVE to market or sell doesn’t mean you shouldn’t? This is a great way to distinguish yourself from the rest of the pack. Get your ideas down on paper—where you want to haul, what areas or lanes you will specialize in, what types of products you like to haul, what makes you different or unique, why a shipper or broker would use your services over any other carrier, etc. List the things you do well; list the things that might make you different, such as appearance (yours or the equipment’s), your on-time record, or any special technology you use that would be beneficial to the shipper or broker—the list goes on and on. Ask yourself this question: if I were the customer, would I choose me to ship the product? Why? Once you have your plan all roughed out on paper, hire a designer to create a business card and brochure. Make sure you get printed materials and PDF versions for sending electronically. Fiverr.com is a great place to find freelancers for jobs like this.
Now when you encounter brokers or shippers that you may want to work with, you’ll have something to give them. Yes, it’s a lot of work—and yes, it is hard work—but it will make all the difference in your business. Even if you are an owner operator leased to a carrier, I would highly recommend doing this now, so that you get better at it as time goes on. It’s a great investment in your business and your future.
Other good articles for Owner Operators or those considering to become one can be found here: