Every business has expenses. And in today’s market, if you’re like most, you’re looking for ways to cut costs wherever possible. After all, lower costs often mean higher profitability. For small trucking companies, cutting costs may seem daunting, but it doesn’t have to be.
Understanding which costs to cut
When looking for areas to reduce expenses you first need to know which expenses to focus on. Each month your business—no matter its size—has two types of costs, fixed and variable.
Your fixed costs (think rent, insurance, permits, cell phone bills, etc.) don’t change a lot from month to month. The other type, variable costs, includes things like fuel, lodging, meals, and repairs. Variable costs are fluid and will shift (sometimes drastically) from one month to the next depending on your business in that time.
While you might be able to get a better deal for some of your fixed costs, focusing your cost reduction efforts on variable costs will likely mean greater results.
Easy cost reduction strategies to get started
Cutting variable expenses starts with small changes in various areas of your business. The order is up to you, but I suggest incorporating one change before moving on to the next.
Fuel efficiency and driving behavior
Because fuel is such a large expense for most trucking companies, it makes sense to find ways to save on fuel whenever possible. A lot of driver behavior can affect fuel efficiency. Speeding can use more fuel, while reducing idling can save it.
Maintenance rather than repair
Trucks are complex machines. A lot can go wrong if they’re not properly maintained. And normally such repairs are costly. While it may seem counterintuitive to spend money maintaining your equipment, it can actually save on repair costs down the road.
Emphasize safety always
Promoting safety not only saves money, it can save lives. The cost of an accident can add up quickly, especially if there are injuries. Safety education—from winter driving techniques to ways to avoid back injuries—goes a long way in reducing high accident, citation, and insurance expenses.
Food and lodging budget
Eating and sleeping on the road can add up quickly, not to mention rough on drivers’ health. Some drivers add a refrigerator and/or a bed to their cab to help cut down on these kind of expenses. If that’s not feasible, setting a budget and sticking to it can also help.
Tracking your cost reduction progress
You can change many areas of your business, but the only way you’ll know if your cost reduction efforts are successful is if you have an accounting process to clearly show you the results of your actions. I believe an accounting system is the critical piece to small carrier profitability, and one area that drivers often overlook.
Define your own system
Whatever method of accounting you choose—software, an accountant, or some combination—make sure you choose an option that’s easy, simple, and maintainable. I often recommend developing a process of sorting receipts when you get them and then processing them on a monthly basis.
Working with a 3PL can also help streamline your accounting process. C.H. Robinson makes the accounts payable process fast and easy so you can seamlessly incorporate it into your overarching accounting strategy.
Run your business by the numbers
Most importantly, your accounting system must be powerful enough to offer reports so you can use your information to find areas to improve. After all, in order to achieve better results to you need to take better actions.