Potential vs. actual revenue

Scope

All companies should compare total potential revenue per trip or per truck to the actual revenue generated for that trip or truck. This should be done on a regular basis to determine the feasibility of continuing to haul a customer’s freight, or whether or not to run a particular freight lane or area of the country.

Regulatory citations

• None

Key definitions

• None

Summary of requirements

Revenue is determined by looking at miles and time involved, since both miles and time affect actual revenue.

To determine the potential revenue per mile:

• First, determine the average number of days a vehicle will be operating in a log book period, using a 60 hour/7 day or 70 hour/8 day schedule. Typically a company should plan for at least one day out of each cycle, that a truck will not generate revenue. Some companies use two days, as in each truck runs 5 out of 7 days, but that will depend on the specific operation. Being conservative in this determination is advised, as over estimating may lead to inaccurate results.
• After the operating schedule has been determined, calculate the average number of hours-per-day and the average number of miles-per-hour that each truck will operate. A typical scenario would go like this:
  • Truck “A” runs five days out of every seven. Furthermore this truck runs for 9 hours each day at an average of 60 miles-per-hour. Therefore, truck “A” runs an average of 540 miles per day for 5 days, or 2700 miles per week (log cycle). If the operating revenue has been calculated at $1.85 per mile then this truck would average $4995 in potential revenue per week or log cycle. Annualized, this is potential revenue of $259,740.
• Identify variables. When projecting revenue in this way, it’s important that variables are accurately identified. For example, will this truck realistically be able to average 60 miles per hour? This would be determined by where the truck is running, such as the east coast, coast-to-coast, Midwest, or inner city. If a truck is running mainly on the east coast and is scheduled for a pickup or delivery every other day because of the length of the trip, it most likely will not be able to average 60 miles per hour consistently. On the other hand, if a truck runs from Chicago to Los Angeles every week with one pick up and delivery at each end of the trip, that truck may consistently average more than 60 miles per hour.
• Consider the actual number of days/weeks that a particular truck will run in a given year. The annualized projected revenue given above is based on an assumption that this truck will run 52 weeks a year. A more realistic calculation may include down time for repairs and driver vacation. If this is the case, using 48 or 50 weeks a year may be more accurate than 52 weeks. Revenue projections should be as accurate as possible however, it is better to under estimate than to over estimate.
  • When considering time, a company needs to look at the hours-per-day figure that is used in the calculation above. If a company is experiencing a large amount of down-time due to delays at docks, repairs, waiting for loads, etc, then their trucks may not be able to average nine hours-per-day running time. It is important to note however, that just because a truck is sitting, doesn’t mean it’s not making any money at all. If a company is receiving detention time, unloading fees, or other miscellaneous revenue, this should be calculated in when looking at potential and actual revenue figures.
• If a customer is paying by the load, not by the mile, this must be converted to a per-mile rate to determine accurate profitability. For example, if a customer pays $3000 to haul a load of freight and due to loading time, unloading time, and other delays, it will take ten days to complete that haul, the average would be $300 per day. If a truck would normally run 540 miles-per-day at $1.85/mile, the average per-day revenue would be $999. Can a company afford to run this load for $3000? Maybe the customer will need to pay added money for delay time or maybe the company has to tell the customer that they can’t haul their freight. The company may decide to haul this load for the lower rate because this will assure higher paying loads from this customer in the future. This is a determination only the company can make based on their business needs and business plan.