How to calculate profit per trip before dispatch

Most transporters find out their profit at the end of the month, when the accountant closes the books. By then a bad lane or an underpriced party has already run for weeks. The margin on a trip is actually decided much earlier: on the phone call where you agree the party’s freight and the truck’s hire. This guide shows how to calculate profit per trip before the truck leaves, with a worked example, so you can turn down a loss-making load while there is still time.

The basic formula for profit per trip

For a market truck, profit per trip is what the party pays you, minus everything you pay for that trip. Break it into four parts so nothing is missed:

• Income: the party freight, plus any charges you will bill to the party, such as detention, unloading or an extra drop point.
• Truck cost: the lorry hire you agreed with the owner or broker, whether per trip or per tonne.
• Trip costs you carry: broker commission, loading or unloading you pay and cannot recover, charges paid to the truck that the party will not reimburse, and anything else that comes out of your pocket for this trip.
• Expected deductions: amounts the party is likely to cut, for late delivery or shortage, based on your history with that party.

Profit is income minus the other three. Margin is that profit as a percentage of income. Both numbers matter: a 10% margin on a ₹15,000 local trip is a smaller sum than 6% on a ₹90,000 long-haul load.

A worked example

Here is one market truck trip with illustrative figures, not client data. The party has agreed to pay detention, which you also pay to the truck.

Now change one number. If the hire is agreed at ₹44,000 instead of ₹41,000 because the broker pushed on the phone, profit drops to ₹2,000, a 4% margin. If the ₹2,000 detention is then forgotten on the party’s bill, income falls to ₹48,000 while costs stay at ₹48,000, and the trip earns nothing at all. Two small slips, both made in a hurry, wipe out the trip.

Own trucks: count the costs you do not see on each trip

For your own trucks there is no hire figure. The truck cost is what the trip costs you to run, and part of it never shows up on a single trip’s paperwork. Add up:

• Diesel: distance divided by the truck’s real mileage, times the diesel price. Use the mileage the truck actually gives loaded, not the brochure figure.
• Tolls and other route costs for the lane, both ways if the truck may come back empty.
• Driver allowance (bhatta) and helper costs for the days the trip takes.
• Loading and unloading you pay and cannot bill.
• A share of fixed costs: EMI, insurance, permits, tyres and servicing, spread over the days the truck works in a month.

Fixed costs are the ones most often left out, and they are why an own-truck trip that looks profitable on diesel alone can lose money. Work out a fixed cost per working day once, update it when costs change, and add the right number of days to every trip estimate. Remember the empty return: if the truck is likely to come back without a load, the return run belongs in this trip’s cost.

Set a minimum margin and check every hire against it

Decide a minimum margin for your business, in percent, in rupees per trip, or both. The right figure depends on your office costs, how long parties take to pay and how much risk each lane carries, so only you can set it. Then check every hire against it before confirming the truck, not after.

Before you confirm a truck, ask:

1. What will the party actually pay, including any charges they have agreed to?
2. What did we pay on this lane, for this truck type, the last few times?
3. Who pays loading, unloading and detention, and will the party reimburse them?
4. Is there a broker commission or another cost that comes out of our side?
5. Does this party usually deduct anything, and how long do they take to pay?

Why trip profit is usually worked out too late

In many offices the party freight sits in the booking register, the lorry hire in a notebook at the hire desk, the advances in a diary and the charges on loose receipts. Nobody sees all four together until the month ends. Profit is then counted per month, which hides the trips that lost money behind the ones that made it.

The fix is to put both sides of the trip on one record at the moment of hire. An Excel sheet with a margin column can do this, as long as every hire is entered before dispatch and nobody breaks the formula. The harder part is discipline: the munshi on the phone with a broker has to see the margin before saying yes.

Lane rates: your own history is the best guide

The best check on a hire rate is what you paid on the same lane, with the same truck type, in recent weeks. Keep a simple lane rate list, or let your software remember it for you. When a broker asks for a rate well above your recent hires, you will know before you agree, not when the month’s profit is counted.

Doing this in LR Manager

On the lorry hire challan in LR Manager by AGI Technologies, party freight and lorry hire sit side by side, with the margin shown in rupees and percent. The margin turns red below the minimum you set, and your past hires on the same lane show while you type the rate. Charges marked to bill the party are added to that party’s freight bill, so they are not forgotten.