S1 E38 Are You Accidentally Overpaying Your Drivers?

Most trucking companies aren’t overpaying drivers on purpose.

But if you’re paying drivers a percentage of revenue… there’s a good chance it’s happening anyway.

In this episode, I break down a common mistake that can quietly eat into your margins—paying drivers on revenue without separating out fuel.

When diesel prices rise, revenue goes up.
 Driver pay goes up.
 But profit doesn’t.

And if you’re not accounting for that, your numbers can look better than they actually are.

In this episode, we walk through:

•  Why revenue can be misleading in trucking 
•  How fuel surcharge distorts driver pay 
•  A simple way to back fuel out of revenue 
•  What this means for your margins and growth 

If your business feels busy but not as profitable as it should be… this might be the reason.

Transcript

SPEAKER_00 0:02

Most trucking companies don't overpay their drivers on purpose. But a lot of them are doing it. And it comes down usually to just one number. If you pay your drivers a percentage of revenue, there's a good chance you're paying them on the increased price in fuel. And fuel is not performance. Welcome to the Driven to our Success Podcast. This is a podcast for trucking company owners that want to build better businesses with better processes, less chaos, and less driver turnover. I'm Mike Ritzema, owner of Superior Trucking Payroll Service, where our mission is simple to help trucking families. This podcast is one of the ways we fulfill our mission. And in today's episode, I want to talk to you about something that can quietly create problems in your business, and you might not even realize it. This all comes from a uh conversation I had this week. There was a a trucking company owner who I met at the Mid-America Truck Show, and she had asked me a number of great questions. She was really wanting to make her business better, and she kept coming back to my booth and asking me, Well, what about this and what about that? And we had a long conversation this week about her business. And what she said to me was something just feels off. Yeah, I'm getting more money for the loads because of fuel, but I pay my driver's percentage of revenue so the drivers end up getting a piece of that. And I don't I don't think that's right. And like, wow, did my heart go out to her? Because she's exactly right. It's it's a tough problem because you agreed to pay your driver, say, 25% of revenue, or 30%, or whatever your number is for you know for the load, but that was when fuel was constant. Well, with all of what's gone on, fuel's not constant anymore. So we're gonna have to figure out what to do about it, and that's why she called me. Because she's getting more money for the load, but she's paying more to the driver and she actually loses out in the transaction. So, like we said, fuel went up, as we all know. So the revenue went up, she's able to get more money from the broker. She's a small trucking company, so she doesn't have direct shippers. Uh, but some of that fuel money went to the driver, so the profit actually went down. So revenue goes up, profit goes down. That is a bad formula for you. So if you don't separate your fuel surcharge from your revenue, your numbers are gonna lie to you because you're gonna look at your revenue of like if you compare to last year, for example. Compare, oh you go, hey, last year I did, you know, 5,000 a truck in revenue, and this year I'm doing 5,200. Well, that sounds great, but fuel's up $1.87 a gallon of her last year. Diesel is nationwide, according to the Department of Energy. So, did you really make any more money? And this is why it gets confusing, it's just what we just talked about here. It's you know, you feel like your revenue's going up. You're like, hooray, you know, I'm making more money per truck per week than I made last year. So good for me. But when you're paying percentage, your driver pay goes up, and that extra money that you got for fuel really goes right in the tank. And it works the other way too. The drivers wouldn't like it if they started with you when diesel was $350 a gallon and they were getting percentage. And let's just say, let's let's imagine the best case scenario, right? World peace everywhere, diesel's two bucks a gallon, diesel's a buck fifty a gallon. Well, these drivers would be taking big pay cuts, and they're not gonna like that either, because they're gonna be like, hey, you know, just because fuel went down, why am I getting paid less? So everybody realizes it when they're on the short side of it. So, you know, with these changes in in fuel price affecting your revenue, you might think you're growing or struggling, and neither one may be true. You're just looking at revenue versus revenue instead of looking at net of fuel revenue versus net of fuel revenue. So let's talk about how we fix this. It's I'm gonna do my best to explain it verbally on our website at truckingpayroll.com. We're gonna we have an article up already. I'll have a link to it in the show notes. If you go to truckingpayroll.com slash podcast, find this episode, you'll have a link to it. Uh, we're the article where we can show you visually more what's going on. But you have to back your fuel out of revenue. And that you need that number for a good comparison. Now, the number I'm using is the number that we used when I was at the CFO of a trucking company. And the way that we did it was we had a baseline fuel amount of a dollar ten because I'm that old and fuel sometimes went under that. And what we would do is charge the shipper a penny a mile for every five cents it went over that dollar ten, which is for every dollar increase in diesel, because now diesel prices aren't just dollar fifteen, dollar twenty, you can do it in dollars, you're getting 20 cents a mile. The idea was that uh the truck would get about five miles to the gallon. Again, this is the early 2000s, so that was about right. So you could do a little better and make a little money, but it was it was penis. So with diesel being about $5.40 this week, that's four dollars and thirty cents above our baseline amount, which means that times you know at 20 cents a dollar, you know, uh for every dollar a gallon, that's 86 cents a mile of your revenue is really just fuel surcharge. So you don't you're not making as much as you think you're making, which sounds bad, but that depends on where you started in trucking as far as what you think fuel should be. You could set it at $3 a gallon in your own head, as long as you keep it constant, you're gonna know what to expect. And if it drops below that, you'll deal with it then. But I like the $1.10 one because we're never getting diesel below a dollar ten again. And it's not so much to measure how much over a dollar ten it is, it's really to compare it to prior periods and see when you're comparing revenue like the last to April of 2026 versus April of 2025 or 2024. And you can take that fuel surcharge component out before you start handing out bonuses to people for increased revenue, even on the dispatch side, which is why I think this is such an important topic. It's not just about paying your drivers, it's also about comparing your performance this year to last year or the year before or the month before. So let's talk about an example load. We got a thousand miles and we got 3,500 bucks to do it. Sounds great. Well, the fuel in this example, using 540 a gallon for diesel, which is the national average this week, fuel of that is you know, 86 cents a mile times a thousand miles. I picked a nice easy number, it's $860, is really fuel surcharge. And the remaining of the $3,500, which is $2,640, is your actual revenue net of fuel. So $3,500 is not your revenue here, $2640 is. That's the number you should really manage to. That's your number that you should focus on because fuel's going to go up and down. And now that sounds worse. You're like, I really like $3,500 better. Absolutely, I do too. But when you're comparing it to last year, you do the same thing for last year and figure out how much of your of your revenue was net of fuel. And you're just gonna be working with slightly lower numbers, but it's really about the comparison of year to year when you're trying to compare your performance as a company, and also for how you're gonna pay your driver, because the driver should really get paid on the 2640. The driver shouldn't get paid on the 3500 because they shouldn't get a piece of the fuel surcharge. And just so we're clear, we're talking about company drivers, we're not talking about owner operators here. Owner operators should absolutely get all the fuel surcharge if they're the ones putting the fuel in the truck and paying for it. Absolutely. I'm talking about company drivers in particular here. Uh, but you the goal of it is to measure what your operation really produced. And they didn't produce the $860 for fuel, they produced the $2640. The $860 is an external thing. It's because diesel's so expensive. Believe me, if diesel was a buck ten a gallon, you wouldn't be getting $3,500 for that load. There's no way you'd be getting $2,640. So that's really the number we want. Hopefully that'll make sense. Again, the article that we have too will show you some graphic uh uh, you know, visuals that will really help you. So a lot of companies that pay percentage pay it on the full $3,500 to the driver, which means you're paying them on the fuel. You're paying a percentage on money that was never yours. It was just a pass-through cost. Fuel fuel surcharge is a pass-through. It with pass-through is something that you're collecting, but it's going right out the door. It's almost like a lumper, if you want to think of it that way. You know, yeah, you get the bill for the lumper, but you're not going to pay your driver a percentage on the lumper, are you? It's not about performance or efficiency or execution. It's an external cost that's out of the control of the shipper and the trucking company and the broker. So I want this to seem really clear, and I want I want you to almost wonder if you're doing it that to paying full percentage to wonder, what am I doing here? Because I think that you're feeling it too. I think that you're like, man, my you know, my revenue's up, but I'm not as profitable as I was a month ago before all of the international unrest or whatever you want to say caused the fuel to go up. I'm not worried about the cause. I'm worried about that the fuel went up, so I'm not trying to turn this into a political thing here. But the fact of the matter is fuel is more expensive than it was a year ago. So you should you should be subtracting that part out. You know, so let's let's look at the bigger picture here. Fuel's up about $1.87 from last year, according to the Department of Energy. We'll put the link to this. If you don't have it, we'll put the link in the show notes as well. Truckingparrel.com slash podcast. We'll put a link right there. You can get your own Department of Energy weekly updated prices for fuel. Uh, but that's 37 cents a mile in the way that we do fuel surcharge. So if your fleet runs 50,000 miles a week, which isn't that hard to do, depending on the number of trucks you have. I mean, it's really hard, I guess, if you have one truck. But you know, if your truck, if you're running 50,000 miles a week for your fleet, that's $18,500 in additional revenue. It's not really revenue. It's addition, it's $18,500. It's like it's like $18,500 in lumpers, like we said, or that's any other kind of reimbursement. It's really just a reimbursement. It's not growth, especially if you compare to last year and you're looking at, okay, April this week in April 2026 versus this week in April 2025, however you want to measure it. Uh, and you ran 50,000 miles both, you know, this year and last year for that week. You know, that that additional $18,500 that you have this year that makes you feel like you're more successful, that's not growth. That's fuel that's going right into your tank. So, what I don't want you to do is to look at that and feel like, oh, look how much better we are. We made $18,500 more doll this week than we made last year. We're really figuring this all out. I mean, I'm glad I want you to feel good about things, but I'll tell you, when this fuel all gets settled out and you're looking at your numbers a year from now and you're comparing, you know, this week in April 2026 to this week in April 2027, and your numbers are down because fuel went back down. I don't want you to be bummed out either. I want you to go, okay, if we net out fuel, this is where we were. So, and it's also possible that you were improving or not. One of the worst scenarios is that you're $10,000 up with our with the example that we gave where you should be $18,500 is fuel, and your revenue's $10,000 higher than last year, and you're high-fiving yourself, hey, we're $10,000 higher. You're actually $8,500 lower. And that's the real trap because you're like, well, revenue's up, so I feel pretty good about it. But you've got to net out that fuel. Otherwise, everything goes sideways. If you don't separate the fuel, you really can't objectively compare your performance year over year. You really won't understand your margins, which you really you need to understand which loads are profitable, and all that math changes if you don't account for the price of fuel. So it'll help you price correctly because right now you could know that you should be getting 37 cents a mile more than you got last year. Whatever you decided last year's number was acceptable, add 37 cents. You're also going to know if you're improving. Are we making better decisions? Those better decisions will be if our revenue is up more than the 18,500, then we are. If it's up less than that, then we're not. So that's it's that's why it's so important to know. Uh, if you don't strip out fuel, you don't know your business, you don't know if you're performing well, and you have to know that trucking is way too hard, as we all know, for you not to be able to have the best information to make decisions. This isn't some accounting trick. It is a little, but it's really not an accounting trick. It's let's carve out the things that are can be carved out and let's figure out what it our let's objectively evaluate our performance. You know, it's man, you know, trucking, like I said, trucking's hard enough. Let's not make it harder by confusing numbers. Let's not give ourselves false sense of security because we're up ten thousand dollars and we should be up eighteen thousand dollars. Or if you're up twenty-five thousand dollars, and that which would be great. That means eighteen thousand in change was fuel and the rest was your improved performance. But we need to know that. We need to know how we're doing in real time, and this is a way to do it because the revenue is going to drive everything else. So it's easy to feel stuck here, it's easy to look at your numbers and just kind of gloss it over. There's a nice, easy way to do this. We'll probably build something on our website that will help you with it, uh, and we can help you compare those numbers. Now, there's one more part of this. Drivers don't push back on that when they can't see it. So when you show the math, it's clear and it's consistent. So one of the things you absolutely, positively have to do is if you're going to pay the driver net of what I call net of fuel, if you're gonna pay them a percentage on that, then you absolutely have to show them how you compute it. I would even show them the website where the numbers come from for the fuel price. And you may have to up your percentage because you're paying them on a lower number. This is not this is not to pay your drivers less, it's to correctly pay your drivers, and that's a big difference. Because your driver right now, if you're paying them on full gross revenue, including a fuel surcharge, they've gotten a big raise in the last, you know, the last month, six weeks, right? You know, they the fuel's gone up 37 cents a mile over the last year. If you're paying them 25% of that, that's over nine cents a mile that they get as a raise. That's a huge raise. But they didn't earn it. Uh, and when it goes back down, they're gonna come complain to you about a pay cut. They're gonna be like, why am I getting paid less? And you're like, well, fuel went down. And they're like, well, that's not my problem. So it's you know, it's not their problem when it goes up either. But you've got to explain it to them. You've got to show them your math every single time. Uh, my advice would be to have something on your pay stub, something like, here was the gross, the 3,500 we talked about in that load. Here's the number of miles we went, here's the implied fuel surcharge, which was the 86 cents a mile. So this much was actually fuel surcharge dollars, which was $860 in our example. Here's the 2640, here's your percentage, here's what you get. That's the best way to do it. You're gonna walk them through the math on every single load, every single time. It's something we can help you with if you're one of our clients. Uh, we'll do it for you. But you've gotta, you've gotta do it. You've got to, number one, you've got to take fuel out of your percentage calculation for a company driver. Absolutely, because it you're gonna ruin yourself with high fuel prices. And you've got to show the driver how you're doing it so that they understand it as well. And so they can follow the math right along because you have to build trust with the driver, especially a driver who may haul different loads different weeks and get different pay for the exact same load because they're percentage. And we all know markets go up and down. You absolutely have to show them the work and build the trust with them. Because, again, ask, as I've said this before, ask any driver to tell you a story about how their previous trucking company cheated them on pay and buckle up because they're gonna talk for a while. I'm not saying the trucking company cheated them on pay. I'm saying they felt cheated. You show your work, they don't feel cheated. So you make it clear and consistent and you show your math because confusion creates conflict and clarity builds trust every single time. This isn't about complicated accounting. It's a relatively simple formula that we'll share with you on the website. But it's about making better decisions with better numbers. Because if your numbers are wrong, your decisions will be too. Thanks for listening. We hope you enjoy it. If you found this to be helpful, please like and review the podcast. It helps more people like you be able to see it. Makes our mission more successful of helping trucking families. Also, if you have any feedback, you know, comment on your podcast of choice wherever they allow comments. Let us know. We'd love to hear from you. We hope you enjoy it, and we'll see you next week.