How to Calculate Cost per Mile for Your Business: A Simplified Guide

keyKey Takeaways:
  • Calculate cost per mile for informed financial decisions.
  • Reduce costs with optimized routes, fuel tracking, and driving habits.
  • Understand cost per mile’s impact on pricing, fleet, and profit.

Are you wondering how to calculate the cost per mile

Well, every business needs to understand the financial calculation of their delivery or logistics operations. However, the shipping business is essential but costly at the same time. According to a 2020 study, the average fuel cost per mile was 0.31 US dollars. 

The most important number in calculating cost is the average cost per mile. This calculation might be tiring at first, but it is simple. What if you can consider simple steps and easily calculate the operating expenses/monthly cost?

Further, you can reduce the monthly variable costs in case of a spike and save your business from falling on the market’s roller coaster! 

Sounds helpful, right?

Let’s start with the benefits to calculate the cost per mile.

Why Should You Calculate Cost Per Mile?

Understanding your cost per mile helps you identify areas for cost-cutting and your spending habits. It aids in determining a reasonable transport cost so that you don’t lose money on a load.  You will know just how much to charge per mile to turn a profit if you have a clear understanding of your cost per mile.

1. Making well-informed financial decisions

Accurately calculating and analyzing the cost per mile gives firms a strong basis on which to make financial decisions. It helps companies to determine possible areas for cost savings and determine the actual cost of operating their equipment or vehicles. 

Equipped with this understanding, enterprises may more efficiently distribute resources, choose wisely where to make strategic investments, and create reasonable budgets that support their financial objectives.

2. Effective fleet management

To maximize their operations, fleet managers and logistics teams mostly rely on the cost per mile. They can identify high-cost vehicles, track the performance of specific vehicles within a fleet, and put targeted maintenance plans into place by keeping an eye on this statistic. This results in increased performance overall, decreased downtime, and higher fleet efficiency.

3. Pricing techniques and profit margins

Companies offering transport services can use the cost per mile to create strategies for competitive pricing. Knowing the exact costs for every mile traveled enables businesses to establish prices that cover costs and guarantee healthy profit margins. By using a strategic pricing approach, financial sustainability is maintained while competitiveness is improved.

If you think you can avail of the above benefits while determining the cost for the trucking business, you also need to consider a few points with the cost per mile. 

4 Factors to Consider While Calculating Operating Expenses

The total cost can be determined accurately by considering the below expenses. 

1. Variable costs

These are expenses that change according to shifting circumstances and patterns of use. Fuel and maintenance costs are the two main categories of variable costs when determining the cost per mile. Below is an explanation of each:

  • Fuel costs
    Different driving circumstances (city vs. interstate), topography, climate, and driving style (aggressive vs. gentle) all affect how much fuel a car uses. Even amongst vehicles of the same make and model, fuel efficiency can vary because of differences in engine size, technology, and design.
  • Maintenance costs
    Depending on how the car is driven and operated, maintenance costs can change. Heavy loads, uneven roads, and frequent stop-and-go driving can all hasten wear and tear and raise the need for maintenance. Conversely, vehicles driven under gentler conditions may require less frequent maintenance.

2. Fixed Expenses

Expenses classified as fixed are those that don’t change much over time and aren’t greatly impacted by usage. These expenses consistently go towards the total cost per mile. Registration fees and insurance premiums are two well-known instances of fixed costs:

  • Insurance premiums
    Generally, insurance expenses are paid on a monthly, semi-annual, or annual basis. While the actual premium price may not vary during the course of a policy, there is a chance that it would be upon renewal due to a variety of circumstances, including modifications to the driver’s record, changes in the value of the vehicle, or changes in the coverage options.
  • Registration costs
    Governmental organizations normally set registration costs, which are frequently based on the weight or value of the vehicle. These charges often don’t change much during a given time frame.

3. Vehicle type

The unique qualities of various car models affect how much they cost to operate. The following elements should be taken into account when choosing the type of vehicle for your cost-per-mile calculation:

  • Make and model
    Maintenance needs, fuel efficiency, and repair prices might vary across vehicles made by the same manufacturer or even between models made by the same manufacturer.
  • Vehicle class
    The distinct characteristics of various vehicle classes-such as trucks, cars, and bikes-have an impact on operating expenses. For instance, SUV cars often use more fuel and require more maintenance.

4. Distance covered

One of the key factors in determining the cost per mile is the distance traveled. A lot of elements become more significant as the kilometers are driven grow.

  • Wear and tear
    Prolonged driving lengthens the lifespan of parts, including the engine, tires, and brakes. The cost of upkeep and repairs may go up as a result.
  • Maintenance frequency
    Cars with more mileage may need more frequent maintenance intervals, which over time, may result in higher maintenance expenses.
  • Fuel consumption
    Fuel usage increases with the distance traveled. This higher fuel use affects fuel prices directly and adds to the total cost per mile.

Let’s read further to understand how much time and money is spent to cover one mile. 

How to Calculate Cost Per Mile- 5 Simple Steps

Cost per mile is an important metric to assess your business costs for better financial health. Ensure easy access and error-free bookkeeping process to get accurate data while calculating cost per mile. 

To calculate each mile, here’s a simple formula. 

Total cost per mile= Total expenses / Total miles

You should calculate your cost per mile for the first three months. However, if you are into the business for more than a year, you can calculate every six months. From fixed and variable expenses to miles driven, here’s the exact process to track driving costs for total miles covered. 

Step 1: Select a time slot

Select a time period that you want to observe the cost incurred. We suggest you track the cost every two-four weeks. 

Pro tip: 
If it’s for the first time that you are tracking the cost per mile, you can start with a shorter time frame, like a day or a week. You will have to collect only a few data and figures to work with. 

Step 2: Determine your mileage

Once you have selected the time period, it is time to determine the total miles. Evaluate the total mileage of a vehicle type. Also, understand the total mileage of the entire fleet for that time period. 

You can invest in route optimization software to track the KPIs over time. These have a robust analytics feature to track and review real-time data. 

Step 3: Add all the expenses

Next, track your variable and fixed expenses for the selected time period to track mile cost. Using accounting software is the best way to track the total expenses. You must select a time slot to get a complete overview of fuel costs. 

The situation becomes a little trickier with variable costs. Here, you have three choices:

  • Receipts can be gathered, and daily tracking of variable expenses can be done by you or an accountant.
  • Variable costs are subject to restriction. Establish a fuel budget or cap over time, for instance.
  • You can assign drivers the duty of producing daily reports that include a list of all variable costs.

NOTE:
There is a significant chance of human error in any of the three situations. which implies that if you don’t use software, your cost per mile could not be as exact.

Step 4: Divide expenses per mileage

To calculate your cost per mile after gathering all the information, simply divide your total spending by the total number of miles driven. For example, As per the IRS, the standard rate for business use is 65.5 cents per mile driven which is applicable from Jan 2023.

        Total Expenses  = Cost per Mile/Total Miles

Step 5: Store data and keep checking the cost per mile

Finally, here’s a reason to track your cost per mile:

One crucial business statistic that helps you calculate operating expenses is cost per mile. By assessing the effectiveness of your mobile workforce and operations, reviewing it over time will help you ascertain the profitability of your present business model.

Using software is the simplest—and currently best—way to accomplish this. This makes information more easily accessible to you. 

Once you follow the above steps to calculate the cost per mile and you get to know that total expenses are increasing, you should consider a few points to manage the expenses. Let’s find a few important things to consider. 

Things to Consider to Reduce Your Cost per Mile

The running costs that affect your cost per mile traveled are difficult to cut. Nonetheless, if you use the appropriate tactics and resources, you can save a lot of money. Utilizing a sophisticated route planner like Upper, for instance, can drastically lower your gasoline costs.

The top three methods that Upper can lower your fuel and transportation expenses are listed below:

1. Make an optimized route plan

With the help of route optimization software, you can quickly design fuel-efficient routes with Upper’s multi-stop route planner.

When calculating your routes, software like Upper takes into account a plethora of elements, including weather, traffic, obstacles, delivery window timings, and much more.

Additionally, route planner makes sure your cars are properly loaded to prevent your engines from running too long and burning too much fuel.

2. Track your fuel costs

Fuel usage and driver performance can be monitored with the reporting and analytics tool included in Route4Me’s vehicle routing software.

Track your fuel costs

You may view average savings, average trip petrol cost, total petrol cost, and more. Additionally, you can set a unique price for every kind of fuel and track the fuel costs of a certain car as it travels from one stop to the next.

3. Decrease aggressive driving

Make sure your drivers don’t deviate from the route, stop needlessly or idle their cars for extended periods of time, as these actions may also raise your fuel costs.

The best aspect is that you may test Upper’s delivery scheduling software without any commitments for seven days by using the free trial version. So, register right away to discover how Upper may greatly reduce your cost per mile!

FAQs

Cost per mile generally depicts the expense per mile covered. Cost per mile signifies a business/company’s expenses, primarily in courier services or quick delivery.

To calculate cost per mile, you need to find the average fixed and variable expenses by dividing them by the total miles covered. Then add both variables to get your calculated cost.

Cost per mile depicts the charges the company faced per mile covered. It is crucial for a business because

    • It helps regulate expenses.
    • It contributes to calculating profit made per mile as well.
    • It helps in making variable expenses negotiable.
    • It is significant for charge revision to choose the best price and earn profits.

Rate per mile depicts the gross income, i.e., money flowing in and out of business, whereas the cost per mile depicts the business’s total expenses.

Short-term durations work best when it comes to tracking down expenses as it gives a more profound observation of all the expenses, making it easy to identify loopholes.

Fuel consumption by vehicle and distance traveled are the two main key factors that affect profit-making in a business that involves much driving. Going extra miles or driving without a proper route map that provides the best route can affect profit-making. So, finding the shortest route must be a priority before setting out to make significant profits.

Conclusion

Finding out how profitable your company is requires first figuring out your cost per mile. You can determine if it’s worthwhile to run a specific route or provide a certain service by accounting for all of the expenses related to operating your car.

Instead of speculating about whether shipments will turn a profit, your business will remain solvent by analyzing data on average cost per mile. Compiling data points and calculating your cost per mile will benefit your business both now and down the road.

Author Bio
Rakesh Patel
Rakesh Patel

Rakesh Patel, author of two defining books on reverse geotagging, is a trusted authority in routing and logistics. His innovative solutions at Upper Route Planner have simplified logistics for businesses across the board. A thought leader in the field, Rakesh's insights are shaping the future of modern-day logistics, making him your go-to expert for all things route optimization. Read more.