The hotshot trucking business is a small but lucrative slice in the big trucking industry pie.
Trucking is clearly one of the most profitable in the United States. Today, U.S. trucks transport 70 percent of all freight in the United States — over $726.4 billion in annual revenue (2015). This number is forecasted to grow by 75 percent over the next nine years.
Here’s the interesting takeaway: As long as people have demand for products, moving freight will be necessary for years to come. Couple that with the ongoing driver shortage and increased rates, this could be a great time to start your own trucking business!
But how do you make the transition from truck driver to a successful business owner? Is it possible to start a trucking company with just one truck? Yes, it is! In fact, 90 percent of trucking companies are small fleets of six trucks or less. Therefore, there’s still enough room for you to start a trucking company with just one truck. Without these small trucking companies and the drivers who work for them, the economy would grind to a halt. So why don’t you get involved in this industry knowing it will always be in high demand?
Here are 21 essential tips for starting and growing a highly profitable trucking business:
1. Figure Out Your Niche
Find a niche that you can dominate. When you specialize, you position yourself as the authority in that niche, and you virtually eliminate a lot of the competition. Choose your niche carefully, for it will determine the rates you charge, the equipment you purchase, and the freight lanes you service.
As you figure out your niche, make sure you focus on the markets the large carriers avoid. This means specialized loads. Some examples of this might be for-hire carriers, courier firms, or refrigerated goods. In particular, hauling meat and fresh produce in reefers is a good niche due to fewer competitors, available year-round, and being quite recession-proof.
2. Decide on Your Business Structure
There are typically three types of legal business structures for owner-operators: sole proprietorship, an LLC (limited liability company), and an S corporation. Before deciding on your business structure, think about income tax and owner liability, as each structure has different tax and liability consequences for your business.
3. Create Your Business Plan
A business plan is like a roadmap. Your business will most likely change over time, but it’s still helpful to get all the basics down on paper.
So what should you include? Here are some ideas: First, the kind of trucking business you want to run. For example, do you want to focus on specialized loads or are you going to run a dry van operation? Second, your plan to differentiate your business from others. Third, your growth plans for the future. Perhaps you have the vision to have more trucks in the future with more drivers. Put these all down on paper in a solid business plan.
4. Obtain Trucking Authority
There are several requirements to start a trucking company as prescribed by the FMCSA (Federal Motor Carrier Safety Administration). In addition to a valid CDL (commercial drivers license), you need to get a United States Department of Transportation (USDOT) Number, a Motor Carrier operating authority Number (MC Number), International Fuel Tax Agreement stickers, and an International Registration Plan.
You will also need a process agent for each state that your trucking company operates in. A process agent represents you concerning court papers if ever there’s an issue in a state other than the state that your trucking company is registered in.
Also, if you are a non-exempt carrier, you are required to install an FMCSA-registered and compliant electronic logging device (ELD). This ELD mandate was implemented in December 2017.
5. Secure Business Funding
Like any regular business, you also need capital to start a trucking business. But how much would you need? Anywhere between $10,000 and $30,000 is an often cited number. This should be enough to cover the basics such as insurance, permits, downpayments, etc. But how do you come up with this amount? There are several ways to finance your new trucking business. For example, personal savings, liquidating your properties, acquiring a bank loan, or using a home equity credit line. There are also lenders who can provide you with assets to lower your overhead.
6. Choose the Right Truck or Trailer
It’s highly essential to have the right equipment for your trucking operation, as it can have a significant impact on your ultimate earning potential. Freight rates usually fluctuate from week to week, but a reefer, van, or step deck load can sometimes or often pay a better rate. But on the average, flatbed truckloads usually pay the highest rates.
7. Buy or Lease Your Truck
When it comes to vehicles, go for quality over price. This will mean fewer repairs and downtimes that may hurt your profitability.
There are also a variety of lease-purchase programs from various carriers. Under this program, you don’t own the truck (yet), but you’ll be making monthly payments on it until the contract is up. Then, you can purchase the truck or start a new contract with the same or different carrier. Many carriers provide benefits like maintenance or discounted fuel.
You may also buy your truck through a financing company that specializes in trucks. In that way, you don’t have to lease it through your carrier. Instead, you make payments on it until you eventually own it. This method will give you more freedom when deciding which carrier to drive for.
8. Insure Your Truck
If you’re a carrier, you need insurance to protect you from unexpected financial burdens due to damages to your vehicles or injuries caused by road accidents. If you want to get some recommendations for good insurance products, check out trucking forums or social media communities. Be sure to shop around first and get quotes from a few providers before deciding on an insurance provider. You want to make you’re buying enough of the right type of insurance.
9. Prepare Your Truck
You must prepare a few other requirements before you will be allowed to haul cargo in your commercial vehicles. You need your Radio Frequency identification tags displayed on your windshield in addition to your USDOT number, your company’s registered name decals on your vehicle, and your license plates — or your International Registration Plates if you operate across multiple states.
10. Know Your Expenses and Operating Costs
This is to ensure that your business is profitable. You have to set a minimum amount for your cost per mile. In this way, you won’t come up short on a load. To do this, you must know your operating costs. First determine your fixed costs, like truck payments, insurance, permits, etc. Regardless of how many miles you drive, these numbers usually stay the same. Next, determine your variable costs, like fuel. Now, these do depend on the number of miles you drive. Use fixed and variable costs to determine your “all-in-cost per mile.” Subtract this from your rates, and you get profit.
11. Charge the Right Rate Per Mile
You cannot determine what rate to charge your clients to haul a load without doing Step 10 above. Because your rates need to be high enough to give you a nice profit and pay all your operating costs yet competitive with what brokers are charging them. So before you start calling shippers to make sales, you need to know your rates first.
12. Use the Right Fuel-Buying Strategy
Fuel is the most significant expense for owner-operators. It can account for up to 40% of a trucking company’s operating expenses. But the lowest pump price doesn’t provide the most economical fuel. Why? Mainly because of taxes. While regular drivers pay fuel taxes in the state where they purchased the fuel, truck drivers must consider IFTA (International Fuel Tax Agreement). They pay taxes based on fuel used as they drive through states, regardless of the fuel source. Thus, you should buy your fuel at the lowest base price (which is fuel price MINUS tax) regardless of the pump price.
13. Market Your Business
All business lives or dies on marketing. It’s one of the essential functions you need to perform to get customers. You need to develop a marketing plan — an effective way to ensure your potential clients know about you — for example, social media, direct mail, your website, or your email list. An effective marketing plan will help you to reach out to your potential customers and get jobs.
14. Grow Your Client List
Having only one loyal customer is not sustainable in the long-term. You need to diversify to stay profitable regardless of what happens in the financial lives of each of your clients. Here’s an excellent guideline to follow: A single client should never account for more than 20 percent of your revenue. Therefore, plan to have at least five clients sending you a constant supply of loads. This is where marketing your business (Step 13) comes in.
15. Choose A Carrier You Will Drive For
Know where you want to drive and what type of operation you want to run. Carriers will typically list what parts of the country you will be operating in and the types of freight you will be hauling. First, try to narrow down your options based on your driving preferences. Next, research the reputation of each fleet. Learn how much they pay per mile and if they consistently have loads available. And very important: Learn if they pay their drivers on time.
16. Hire and Retain Drivers
According to the American Trucking Association, the driver turnover rate for large truckload carriers was 94 percent in 2018. That’s 20 percent higher than the first quarter in 2017. The turnover rate for small carriers was 73%. Given those facts, how do you hire and retain good drivers? While cash-based incentives are great, you need to focus more on driver fulfillment and happiness. And when offering performance-based rewards, try to use ELDs and driver safety scores data to rank drivers based on safety, efficiency, and performance. Try also to use a Pre-Employment Screening Program to view a prospective driver’s roadside inspections for the last three years and crash data for the previous five years.
17. Find Loads to Haul
When you’re new to the trucking industry, how do you find freight? Try online load boards. This is a great way to start hauling immediately. They can also help you establish relationships with many shippers and brokers. You can then build on those relationships once you have a solid customer base. You can even start hauling directly for your customers and establish your lanes. This can create a regular and stable income for you. You can try free load boards like https://www.nextload.com, or you can also elect to pay a monthly subscription.
18. Work Directly With Shippers
While load boards and brokers can be handy when you have an empty truck, they can be expensive. Usually, brokers keep part of the load price — about 10% to 20%. Therefore, minimize using brokers and load boards. Instead, develop a client list of direct and reliable shippers that will keep you busy. Charge them a price that’s competitive to what brokers charge.
19. Check Their Credit Standing
If you want to be paid regularly, you don’t want to neglect this critical step. In fact, assessing brokers and shippers by running credit checks on them before hauling a load is an excellent habit to develop. Of course, you can always subscribe to credit services, but they can be expensive. But if you want to truly maximize your efforts, choose loads that pay more per mile, not necessarily faster.
20. Use Freight Bill Factoring to Manage Cash Flow
Managing cash flow is a challenge for truck operators since trucking is a cash-flow intensive business. You’re constantly buying fuel, making truck and insurance payments, and more. Unless you get quick-pays, your invoices can take 15, 30, or even 45 days to be paid. This delay can cause cash flow problems for you, especially if you’re just getting started.
So what you can do is use a factoring company. As an alternative to bank financing, they can provide you with operating cash flow by purchasing your freight bills. For small- and medium-sized trucking companies, it’s a smart way to manage their cash flow. Rather than waiting for customers to pay, the factoring company will give you an advance on a percentage of your load on the same day that you deliver. In this way, you will already have the operating cash to pay for payroll, fuel, truck repairs, insurance, and more.
21. Run an Efficient Back Office
Many entrepreneurs hate paperwork, and truckers are no exception. Yet, you cannot merely ignore the paperwork. If you’re starting a trucking company as an owner-operator or small carrier, you’ll need to make time for contacting customers for payment and other mundane but necessary duties. These can easily steal a lot of your time from running the business if you don’t set up good systems. So, find a partner who can help you streamline billing and collections, so you can then focus on operations.
The Bottom Line
Starting any business is not a walk in the park — a trucking business is no different. Anything worth doing needs a good plan, but you also need to work that plan. But if you’re consistent and persevering, you can grow a thriving trucking business. So use all 21 tips given in this article, and you will see how much faster you can get your business off the launching pad.