Why Do Owner Operators Fail? (2024)

When talking about Owner Operators and why they fail, the traditional conception is that there was too much debt or not enough working capital.While this is certainly an issue, there are as many underfunded O/O's that have made it and many debt free drivers that have lost everything. So what determines who does and doesn’t succeed?

If we look at the factors we can control, we can start to outline a clear pattern. While debt and a lack of capital are a rocky foundation to start on, the real failure derives from overly aggressive financial planning and a general misunderstanding of one’s numbers.If these underfunded, debt burdened people had a realistic understanding of their conservative projections, they likely would never have started down the path.

Daily Gross Revenue and Truck Freedom Day

Over the years, we have talked with and helped tens of thousands Owner Operators with their business plans. From this experience, we created a process that breaks things down into just two numbers that an Owner Operator needs to stay focused on day in and day out:Gross Daily Revenue (GDR) and Truck Freedom Day (TFD). These numbers represent a condensed analysis of all the other important figures and details that come with running a successful business with their truck.

For now, let's talk about the mistakes that Owner Operators make in creating a budget.

1. Starting with Income and make the Expenses “fit” -Starting with the income isn't necessarily a bad thing.I have used this many times to quickly assess a business idea that jumps into my head.The challenge comes in when, because things are often broken down to the mile, that the expenses are "manipulated" to work.Often, it is like when you "want" a new TV but can't afford it.But somehow you have figured out how you "need" the TV and justify how you can make the finances work.
2. Rounding numbers to make them work – Here is where you get very aggressive after the first round of numbers don't quite fit.So, revenue numbers are rounded up and expense numbers are rounded down.This is the, "I can get an extra 100 miles a week and, if I don't idle as much, I can get my fuel economy up."This pushing of the envelope only gets the typical O/O past the “no room for error” status and into the “it is just a matter of time” death spiral.
3. Focusing on revenue and expense per mile -Your fixed expenses don't care if your truck is in the shop, if you are taking your first long weekend for the first time in 3-months or if it's a holiday and there is no freight.Fixed expenses are still there (that’s why they call them “fixed” – sort of like rent or a mortgage that doesn’t go away just because you aren’t home).
4. Overestimating revenue- Unless you have superpowers, this can be a real killer. Whether this is the number of miles you can run, what you will get in additional accessorial revenue or how many days you will be running, this can be a huge point of failure for an O/O.Many O/O’s make financial assumptions based on running 52-weeks a year. It is rare (as in almost impossible) that someone comes in with 52 weeks of running.Remember that you will have holidays, breakdowns and, we hope, vacations. In addition, with the decreasing average length of haul and hours of service regulations, budgeting for 7-days of driving a week is not a realistic plan anymore.

Do not have a GDR

You MUST come up with what it costs you daily to keep the truck running – what we call your Daily Gross Revenue.This simple number will let you focus on making sure that every load is going to meet your fixed expenses and that you don't live with RPM blinders on.We saw what these blinders did when rates started to drop in 2015.That good paying, short mile run was still a better RPM than that longer run.What was lost on many, the ones who quickly found themselves going backwards, was that they weren't generating the gross revenue per day that they needed.That is why we switched to focusing on GDR that includes both your fixed AND your variable costs.

When you look at these common mistakes, consider what your numbers would look like if you made two of them. What about three? This is a slippery slope that can result in very unrealistic and falsely reassuring projections. It is vital that you evaluate your numbers conservatively, and make the income fit the expenses.

What we do when working with people to figure out their GDR and TFD (you'll want to know about Truck Freedom Day - TFD!) is to start with real expense numbers, account for downtime and make sure that during the days that the truck is running that you can generate the revenue that is needed to have a stable, profitable business.

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