Experience is a fantastic teacher. Some lessons, like touching a hot stove, have immediate, severe consequences that we remember and avoid repeating. Other experiences yield valuable insights through experimentation and documentation. For example, whether you enjoy a quiet cup of coffee or an energizing workout in the morning, you determine your morning routine based on a lifetime of data on how you most like to start your day. Just as we all gather and analyze feedback to adjust our natural routines, you can do the same for your trucking business. By tracking trucking accounting key performance indicators (KPIs), you’ll have a better understanding of performance, efficiency, and productivity.
Thriving businesses have strategic objectives. KPIs are important measures that are used to evaluate a business’s performance against those objectives, define success for the company, and guide an organization to prosperity. While there are several metrics, a variety of evaluations, and a plethora of data that could be mined with respect to an organization’s performance, KPIs distill these down to the most important assessments. It’s in the name – key performance indicators. Since businesses exist to make money, it makes sense that KPIs play a critical role in financial management.
It is recommended that KPIs follow the S.M.A.R.T. acronym and manifest as Smart, Measurable, Achievable, Relevant, and Time-bound. KPIs can be categorized as quantitative and qualitative. Quantitative KPIs are numeric and precise in nature (such as revenue per mile or cost per mile). Qualitative KPIs are non-numerical in nature, but just as important (such as customer satisfaction and brand perception).
When you practice good accounting habits and effectively manage your financial records, you give yourself a trove of helpful data to develop and calculate KPIs, which, when reviewed regularly, can act as a pulse, providing insights into the health and sustainability of a trucking business. It can become evident very quickly whether a trucking business is thriving or floundering. Again, accurate and up-to-date trucking accounting is an absolute necessity to make KPIs meaningful.
While there’s many performance indicators within the trucking industry to choose from, there’s a few that should make the top of your list, including revenue per mile, cost per mile, and profit margin.
One of the top KPIs for truckers is revenue per mile, which is simply the amount of revenue generated per mile driven. It is calculated by dividing the total revenue by the total miles driven. For example, if you made $3,000 on a 2,400-mile haul, then your revenue per mile is $1.25 (3000 / 2400 = 1.25).
Revenue per mile is significant for measuring financial performance; it provides valuable insight for pricing strategies and serves as a stepping stone toward profitability analysis. Because the money made hauling loads isn’t all profit, it doesn’t tell the entire story. Business expenses are involved, which leads to the next significant KPI for truckers: cost per mile.
Trucking companies must spend money to make money. Driving isn’t free. Between the truck itself, the fuel to make it run, the maintenance involved to keep it running, and a host of other factors, there’s unavoidable costs involved in running a trucking company. How can you distill all of these disparate costs into a manageable figure?
While cost per mile may sound like a convoluted and nearly impossible KPI to determine, rest assured; with solid trucking accounting, one can easily calculate it. Simply divide your total expenses for the month by the number of miles driven that month. For instance, if your total expenses for the month are totaled at $3,500 and you drove 10,000 miles, then your cost per mile would be $.35 (3,500 / 10,000 = .35).
Cost per mile is a fantastic KPI because it highlights how much you’re spending per mile to generate income. If you can keep this metric low by minimizing your expenses and maximizing your miles driven, it will improve your profits—which leads us to the next important KPI for truckers.
While revenue is important, since profit is related to how much the business takes home in the end, it gets the last word. We can achieve a high revenue per mile, but if the cost per mile is also high, the company doesn’t make much profit.
Profit is calculated by subtracting the cost of operation from revenue earned. For example, if the monthly revenue is $10,000 and the total expenses for the month are $3,500, then the profit for that month is $6,500 (10,000 – 3,500 = 6,500).
Profit margin, a widely used financial ratio, is one of the most important KPIs for any business in assessing overall profitability. Profit margin is expressed as a percentage and is calculated by dividing profit by revenue and multiplying by 100. For instance, if the monthly profit is $3,000 and the monthly revenue is $60,000, then the profit margin for that month would be 5% (3,000 / 60,000 x 100 = 5).
Benchmarking KPIs against industry standards and comparing KPIs to industry averages helps gauge competitiveness. A simple online search can give insights into industry KPI benchmarks, but for more precise figures be sure to use reputable sources such as industry reports and publications as well as consulting trade associations and organizations.
This comparison between industry standards and your KPIs will help identify areas for improvement in your company. Then take actionable steps to address areas needing improvement such as:
Even when your KPIs are looking good, don’t rest on your laurels. Continuous monitoring allows you to quickly identify changes in operations that are affecting your costs and make necessary course corrections.
As with any industry, precise and timely trucking accounting and recordkeeping are essential for KPI accuracy and financial decision-making. When you fail to correctly log business expenses or revenue, both the cost per mile and the profit margin will appear to be better than they are.
For example, let’s consider a trucking business that generated $10,000 in revenue, drove 10,000 miles, and spent $5,000 in a month but only accounted for $4,300 of expenditures. Cost per mile would appear to be $.43 but in reality, it is $.50 per mile. The same erroneous figure for expenses would be used to calculate profit and subsequently profit margin, rendering the KPIs virtually useless.
The 21st century has afforded us a world of options to help us maintain thorough and organized financial records. Take advantage of these as well as some best practices to make the best of your KPIs. Use digital tools and software for recordkeeping, establish a routine for entering and updating financial data, and keep all receipts and invoices organized and accessible. Regularly review and reconcile accounts to ensure accuracy.
It bears repeating one last time—KPIs are significant in trucking accounting, but they require accurate and up-to-date data, so responsible recordkeeping is the first step to understanding financial performance.
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Special note: This article is for general purposes, and is not intended to provide, and should not be relied on for tax, legal, investment, or accounting advice. The best way to ensure you’re filing correctly and paying appropriate taxes is by following IRS regulations and consulting with a tax professional.
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