As many of you know, at TruckingTruth we officially recommend against becoming an owner operator or leasing a truck, especially in your first year on the road. You have entirely too much to learn as it is. The prospect of starting a business in an industry you know nothing about is absurd to say the least.
However, we recommend against buying or leasing a truck at any stage in your career. Our views draw nearly violent dissent by those who would love nothing more than to brag to their friends that they're The Big Boss Man now who owns that beautiful rig over there.
Hey, we get it! We love rigs as much as anyone. But we'd prefer to make great money, keep the stress levels moderate, eliminate the risk of ownership, and focus on driving while someone else runs the company.
In yet another beautiful rundown by Old School you're about to read an awesome explanation as to why leasing a truck is far more risky than most people understand.
We also have a conversation started in our forum on this article so if you'd like to leave a comment please stop on by!
I am a lifelong entrepreneur. After I retired from thirty years as a business owner, I decided to start driving a truck. So, you see, I came from a business background also. Thirty years of managing as many as ten employees, seven digit sales, and a fleet of six big rigs. I too wanted to start out as an Owner/Operator. I worked hard on putting together a business plan.
Now, I have a lot of experience at laying out projections of costs, sales, and profits. I literally went through my plans frontwards, backward, and sideways. Guess what? The best scenario that I could come up with was that I was going to make about $40,000 a year, and that was if I could consistently haul freight at 1.75/mile. I might be able to make a little bit more than that, but basically I was breaking even at 1.75/mile and paying myself a $40,000 salary - there really were no profits left after that.
Now when I projected that out to somewhere in the five or six year distance and I would be needing to either do some major overhauls to my truck, or try to buy a new one, guess where that money would have to come from? Out of my annual salary that I had been making of $40,000 for the past year!
Now, if you think that sounds good, then I'm all for you to go out there and break your neck doing it. Here's the real problem with this whole thing of being an Owner/Operator, it ends up being an emotional decision rather than a logical one that looks realistically at the possibilities for profits or losses.
About half of the O/O's I've spoken with regret their decision, and realized a little too late what they've gotten themselves into. The other half are just outright obliviously stubborn, and are going to grind it out until the bitter end finally rises up and slaps them down completely. If you are the type that just thinks it's "cool" to have a nice rig, and likes to be seen as "cool" by your peers, then you may enjoy being an owner operator for a little while, but it will be short lived. You will soon discover that there is nothing "cool" about chasing down a broker who owes you money, when you could be spending your precious time in a much better way.
One thing that newbies jumping into this business don't think about is just how cut throat the competition is. Owner Operators have got to find niche markets to get into if they even have a prayer at success. Guess what? Everyone is eyeing those niche markets now days. J.B. Hunt has specialized in that kind of thing for years. So now all the little guys are having to try to compete with the big players like Schneider, Swift, Prime,etc... If you don't think that someone else will jump in and cut your bids for freight just to run a few more loads on their trucks you are willfully blind.
When I came up with my own scenarios for running loads, and knew that I needed to charge at least 1.75 per mile, I then started researching what loads were going for around the country. Well, that was a shocking revelation! Some of these big time carriers were doing them for sometimes as low a 1.10 - 1.25 per mile! Not only that, they were getting huge discounts on fuel, tires, and maintenance that I had zero leverage to negotiate for. It is a commodities business - in a nutshell that means that the cheapest price gets the bid. It literally is a game of making pennies out here in the very vicious world of trucking.
Now, if you choose to think I am a nut and don't have a clue about what I am talking about, you should look up some of these very large trucking companies and do a little research into what their operating ratios are. These are publicly traded companies, and you can find this information easily, because investors need to know these types of things before they will part with their money. Many of them have an Operating Ratio of 97%. In layman's terms that means that for every dollar they take in they get to keep three pennies of it. These are some of the best managed trucking companies in the world, and that is why they have people willing to invest in them. They have the best and the brightest people doing everything they can to make sure that they can at least keep three out of every 100 pennies they generate in revenues.
A lot of the folks in here who have given you advice have said you should get your feet wet first, and then try being an Owner/Operator. I actually disagree with all that, and here's why. A little more than four years ago I started out as a company driver, learned the business, and concentrated my efforts at becoming the best I could be at this. Today, I am making about thirty thousand more dollars a year than I could pencil out for my salary when I was formulating my business plan as an Owner/Operator, plus I have all the benefits of health insurance, company matched 401K plan, paid vacations, and if my truck is ever down, they just put me in another one so that neither I nor they are losing money.
This business is very tough, and it doesn't care one bit about who it spits out and leaves behind. There are a lot better ways to make money in business if you just want to be in business for yourself. Trucking has such slim margins and such fierce competitors in the field that it takes a really hard headed nut to try and stand out as something special in a field that literally leaves no room for distinction.
Don't end up like the one Owner/Operator that I spoke with who knew exactly what was going on with his business. He even gave his trucking company a name that reflected the reality that he was facing day in and day out as he ran his own trucking business. Here's a look at his truck. I'm hoping you don't end up doing just what he was doing in his business...
An owner-operator is a driver who either owns or leases the truck they are driving. A self-employed driver.
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