Operating Ratio 101 – The Small Carrier Metric That Tells the Real Story About Your Profitability

Core Insights - The Operating Ratio (OR) is a critical metric for assessing the efficiency of a trucking business, indicating the percentage of revenue consumed by operating expenses [3][5]. - Understanding the OR is essential for owner-operators and small fleets to make informed business decisions and identify inefficiencies [2][5]. Definition and Calculation - The Operating Ratio is calculated using the formula: Operating Ratio = (Operating Expenses ÷ Revenue) × 100, which provides a percentage that reflects the cost of earning a dollar [3]. - For example, if monthly operating expenses are $16,000 and revenue is $20,000, the OR would be 80%, meaning 80 cents of every dollar earned goes to operating costs [3]. Comparison with Breakeven Point - The OR differs from the breakeven point; while the breakeven point indicates the revenue needed to cover expenses, the OR shows what percentage of revenue is allocated to costs [4]. - The breakeven point is typically expressed in dollars or miles, whereas the OR is a percentage that allows for month-over-month or truck-to-truck comparisons [4]. Importance of Tracking OR - Tracking the OR is vital for identifying operational efficiency; a rising OR indicates increasing costs that need to be addressed [5][6]. - An OR under 85% is considered healthy, 85-95% is lean but manageable, and above 95% indicates a danger zone where the business may be losing money [6]. Implications of OR Changes - A consistent increase in OR, despite stable miles and rates, suggests rising costs in areas such as fuel, repairs, or insurance, necessitating further investigation [7].