How Owner-Operators are Compensated: Breaking Things Down

If you're thinking about becoming an owner-operator the number one thing you'll need to understand is how you get paid. To best contextualize this, it's important to understand how the process is actually different from the type of driving that many people think of: company drivers.

Company drivers earn a set rate per mile, per hour, or even a salary, depending on the carrier. On top of that, many companies offer benefits like health insurance, paid time off, and retirement contributions.

Owner-operators, on the other hand, operate more like independent business owners. Instead of receiving a paycheck from an employer, they’re compensated based on the freight they haul. That usually means they take home a larger slice of the revenue from each load, but they’re also responsible for all the expenses that go along with running a truck. That includes but is not limited to things like fuel, insurance, repairs, permits, and more. Because of that, their “take-home pay” can vary quite a bit depending on the jobs they line up, how well they manage their expenses, and even things like fuel prices. For drivers who enjoy the freedom to choose their loads, negotiate rates, and essentially be their own boss, the trade-off is worth it.

Fixed vs Variable Freight Costs: What You Need to Know

Another important element of being an owner-operator that you need to be aware of has to do with fixed and variable freight costs. Without a clear understanding of which is which and what they truly mean, you won't be able to make the best decisions for your career.

Think of your expenses like two buckets you carry with you on the road. One bucket is filled with fixed costs - otherwise known as the things you have to pay no matter how many miles you drive. That includes truck or lease payments, insurance, and all the permits and licensing that keep you legal. Even if your truck is parked for a week, those bills still come due.

The other bucket holds your variable costs. These rise and fall depending on how much you’re driving and where you’re headed. Fuel, for just one example, is like the biggest splash in that bucket. Repairs and maintenance join in whenever something breaks down. Tolls, food, and even the occasional motel stay all fit in here too. When freight slows down, this second bucket may lighten up a little since you’re not running as many miles.

The Ins and Outs of Freight Cycles

Another key factor to consider has to do with freight cycles. Many industries, especially retail, ebb and flow throughout the year and the freight that is directly tied to them is certainly no exception.

Freight runs a lot like the seasons. There are busy stretches, almost like harvest time, where there’s more freight than trucks and rates climb. You’ll see this around the holidays when retailers are scrambling to fill shelves, during harvest when crops need to move, or in the warmer months when construction is booming.

Then there are the slower stretches, the winter after the holidays or the dips when the economy takes a breather. During these soft markets, loads can be harder to come by and rates don’t stretch as far.

It's All in the Timing

Finally, you need to understand that being an owner-operator is a timing game. Without an understanding of the timing as it is unfolding, you might run the risk of overextending yourself - especially during a slow period.

When rates are strong, it’s easy to get caught up in the momentum and take on more than you can comfortably handle - maybe a bigger truck payment or extra expenses that look manageable when money is flowing. The problem is, markets always turn. And if you’ve stretched yourself thin during the good times, the lean times can hit especially hard.

For the best results, save a little extra - even if you don't want to. Keep your personal spending under control and avoid locking yourself into an obligation you can't keep up with all year round.

If you have any additional questions about what it would be like to become an Owner-Operator, Over-the-Road driver with a Class A driver's license, or if you have any additional questions that you'd like to go over with someone in a bit more detail, please don't hesitate to contact us today.