The hidden expenses of business.

April, 2021
fundamentals-of-logistics

When using the Mooov Haulage Exchange you should ensure your bids/pricing are as accurate as possible, it’s important to also try and factor in your business overheads so that you can be sure you are covering all of your operating costs.

So what are “business overheads”?

They are essentially any costs that are not directly related to you moving freight from the given collection point to the destination (fuel). Some common examples of overheads for haulage operators are phone bills, truck maintenance, insurances and truck parking (overnight stays) - none of these costs can be directly connected to the bids/pricing you are submitting, so you consider them to be an “overhead” of running your business.

As overheads can’t be allocated directly to bids/pricing easily, they are almost impossible to factor into your pricing with the same accuracy as fuel costs (Rule of thumb, Cost = miles x fuel cost per litre). However, leaving these expenses out means that overtime any profits are eaten up by these hidden costs which is of course not good to run a sustainable business.

To factor in overheads, you’ll want to create a simple formula or spreadhseet that tries to fairly incorporate a proportion of these costs across your bids/pricing. There are a couple of common approaches that you can use, so it’s just a case of finding the one that works best for your business.

Our tips on this would be as follows;

Firstly, tally all indirect costs that you incurred in the last financial year to give you your total annual overhead cost.

If you use accounting software like Xero or Quickbooks, you’ll be able to generate this quite easily from your reports section.

Last Year Overheads ÷ Last Year Sales = Last Year Overhead per load

If your sales/loads are fairly consistent from year to year, you could firstly try to calculate the overhead amount using your last year’s sales figures. You can use the following formula to do this:

If you ran 200 loads last year and had an overhead (yearly) of £5,000 then your overhead per load would have been:

£5,000 ÷ 200 = £25.00

If you anticipate the same amount of overhead expenditure and sales / loads for this year, then it may be reasonable to ensure that an average overhead of £25.00 is included in each of your bids/pricing.

If you are experiencing growth in your business (which we hope you are), or using a tool such as the Mooov Haulage Exchange to deal directly, you should modify the above formula and use your last year’s sales to estimate your likely sales for this year.

Total Projected Overhead ÷ Total Projected Sales = Overhead per Sale

For example, say you grow an average of 10% a year, then if you ran 200 loads last year then it would be fair to assume that you can base your new calculations on 220 loads. The art of business is to ensure your overheads are not increasing at the same rate as your sales, so let’s say that they only rise by 5% to an estimate of £5,250 for the coming year.

The new year estimation for your overheads, including anticipated growth would therefore be:

£5,250 ÷ 220 = £23.86

Whatever path you choose to calculate your businesses overheads, the important thing to keep in mind is that you are factoring in some consideration of these expenses. The more operating costs you try to factor into your pricing, the better your margins will become.

For more information about how the Mooov haulage exchange can become a integrated tool for your day to day business operations please contact us by email on [email protected]

Mooov , simply connecting businesses to local haulage companies on a platform free from intermediaries.