Introduction
In the world of freight dispatching, the rate per mile (RPM) is often touted as the ultimate measure of a load’s value. It’s a simple, straightforward metric that many dispatchers, owner-operators, and fleet managers rely on to gauge profitability. But here’s the truth: RPM is not the holy grail it’s often made out to be. In fact, an overemphasis on RPM can lead to decisions that hurt your bottom line rather than help it.
In this blog post, we’re going to dive into why RPM doesn’t tell the whole story and why you should focus on more comprehensive metrics to truly optimize your operations and profitability. Whether you’re a seasoned dispatcher, a mid-sized fleet manager, or an owner-operator running your own show, understanding the limits of RPM is crucial for making smarter, more profitable decisions.
Understanding Rate Per Mile
Rate per mile is a common metric in the trucking industry. It’s calculated by dividing the total revenue of a load by the number of miles driven to complete that load. For example, if you’re paid $2,000 to haul a load 1,000 miles, your RPM is $2.00.
This metric has become a go-to for many in the industry because it’s easy to understand and provides a quick way to compare loads. The higher the RPM, the more money you’re supposedly making per mile traveled. On the surface, this makes sense—who wouldn’t want to maximize their earnings per mile?
However, RPM has its limitations. It’s a narrow lens that doesn’t account for the full range of factors that impact your profitability. By focusing solely on RPM, you might miss out on more lucrative opportunities or, worse, take on loads that aren’t as profitable as they appear.
The Hidden Costs Ignored by RPM
While RPM gives a snapshot of potential earnings, it overlooks many hidden costs that can eat into your profits. These include:
- Deadhead Miles: These are the miles you travel without a load, usually to get to your next pick-up. Deadhead miles add to your expenses without contributing to your revenue, effectively lowering your overall earnings per mile.
- Fuel Costs: Fuel is one of the biggest expenses for any trucking operation. RPM doesn’t account for the fluctuating costs of fuel, which can vary greatly depending on the region, weather, and other factors.
- Tolls and Fees: Depending on your route, tolls and other fees can significantly reduce your take-home revenue, but these costs aren’t reflected in your RPM.
- Maintenance and Repairs: The wear and tear on your truck from long hauls can lead to costly repairs and maintenance, which are critical expenses not captured by RPM.
- Driver Downtime: Time spent waiting for loads, dealing with traffic, or resting due to hours-of-service regulations can all reduce your earning potential, yet RPM doesn’t consider these factors.
To illustrate, consider two scenarios:
Scenario 1: You haul a load with an RPM of $3.00 over 600 miles, generating $1,800 in revenue. This load takes you into an area where the return load only pays $1.20 per mile for the 600 miles back, generating $720 in revenue for the return trip. Your total revenue for the round trip is $2,520.
Now, let's factor in expenses. Assume fuel costs $725 for the entire 1,200-mile round trip, and you incur $100 in tolls. Your total expenses are $825. This leaves you with a net profit of $1,695.
Scenario 2: You haul a load with an RPM of $2.40 over 600 miles, generating $1,440 in revenue. This load takes you into an area where the return load pays $2.30 per mile for the 600 miles back, generating $1,380 in revenue for the return trip. Your total revenue for the round trip is $2,820.
For expenses, assume the same fuel cost of $725 for the 1,200-mile round trip and $100 in tolls. Your total expenses are $825. This leaves you with a net profit of $1,995.
Assuming both carriers have the same fixed expenses, the second scenario clearly results in a higher net profit of $1,995—$300 more than the $1,695 net profit from the first scenario. This demonstrates that focusing solely on the RPM of a single load can lead to less profitable decisions, while considering the overall round-trip revenue and expenses leads to better outcomes.
Focusing on Net Profit and True Profitability
Rather than getting caught up in RPM, it’s far more beneficial to focus on net profit and overall profitability. Net profit is the actual profit your operation makes after all expenses are accounted for—fuel, maintenance, tolls, deadhead miles, and more. It’s the money you take home at the end of the day, week, or month, and it’s the most critical measure of your success.
Focusing on net profit ensures that you’re not just generating revenue but actually retaining a meaningful portion of it. It’s entirely possible to have a high RPM but still see minimal profit—or even a loss—if your expenses are too high. For instance, a load with a high RPM that requires a lot of deadhead miles or incurs excessive fuel costs might leave you with less net profit than a lower RPM load with minimal additional costs.
To truly succeed in freight dispatching, you need to look beyond the surface of high RPMs. Instead, focus on maximizing your net profit by minimizing costs and optimizing every aspect of your operations. This might mean taking shorter hauls with lower RPMs but significantly lower expenses, or planning more efficient routes that reduce fuel consumption and toll costs.
By shifting your focus from RPM to net profit, you can make smarter, more informed decisions that lead to greater long-term profitability and success.
The Importance of Load Planning and Efficiency
Effective load planning is a critical skill for dispatchers and fleet managers. By strategically selecting routes that ensure consistent load availability, you can significantly boost your revenue per trip, even if the RPM for each load isn’t sky-high. Additionally, reducing downtime between loads by efficiently planning pick-ups and deliveries can help keep your truck moving and generating income.
Dispatchers play a crucial role in this process. A good dispatcher will consider not just the RPM of a load but also the overall route, the likelihood of finding return loads, and the total potential revenue from the trip. They’ll also work to minimize deadhead miles and find ways to keep trucks on efficient, cost-effective routes.
Here are some tips to improve load efficiency and boost profitability:
- Use Load Boards Wisely: Instead of chasing the highest RPM loads, look for combinations that maximize revenue while minimizing costs.
- Optimize Routes: Plan routes that reduce deadhead miles, avoid heavy toll areas, and take advantage of fuel-efficient paths.
- Keep Track of Expenses: Regularly monitor and analyze your fuel costs, tolls, maintenance, and other expenses to identify areas where you can cut costs.
- Build Strong Relationships: Work closely with shippers and brokers to secure consistent loads that fit well into your overall operation strategy.
Conclusion
At the end of the day, rate per mile is just one piece of the puzzle in freight dispatching. While it’s an easy metric to track and compare, it doesn’t give the full picture of your operation’s profitability. By focusing on net profit, effective load planning, and overall efficiency, you can make smarter decisions that lead to greater profitability and long-term success in the trucking industry.
So, next time you’re evaluating a load, don’t just look at the RPM. Consider all the factors that affect your bottom line and make choices that truly drive your business forward. Smart dispatching is about seeing the bigger picture, and when you do, the results will follow.
