Copyright FreightWaves
What Is an Operating Ratio (OR)? At its core, your Operating Ratio (OR) is the percentage of your revenue that gets eaten up by operating expenses. More simply, the cost of earning a dollar… Formula: Operating Ratio = (Operating Expenses ÷ Revenue) × 100 Let’s say your monthly operating expenses are $16,000, and your revenue for that month is $20,000: OR = ($16,000 ÷ $20,000) × 100 = 80% That means 80 cents of every dollar you earn goes toward operating costs. The remaining 20 cents? That’s what’s left to cover taxes, reinvestment, debt payments—or ideally, profit. Here’s the simple breakdown: OR under 85% = Healthy OR 85–95% = Lean, but manageable OR above 95% = Danger zone When your operating ratio creeps up to 100%, you’re treading water. Anything over 100% means you’re losing money. Period. How This Differs From Breakeven Point Let’s clear this up, because a lot of drivers confuse the two. Breakeven Point tells you how much revenue you need to bring in to cover your expenses. Operating Ratio tells you what percentage of your revenue is going to costs. The breakeven point is usually expressed in dollars or miles, like: “I need to run at least 5,200 miles at $2.00/mile to break even this month.” The operating ratio is a percentage that lets you compare month over month, or truck versus truck. “Last month, our OR was 78%. This month, it’s 84%. What changed?” Think of your breakeven like the “how much,” and your OR as the “how well.” Why Should Small Fleets and Owner-Ops Track This? Because you can’t fix what you don’t measure. The OR doesn’t lie. It doesn’t care how many miles you ran or how good that one big week felt. It reflects whether your operation is efficient, bloated, or on the brink. Here’s why it matters: 1. It exposes inefficiencies. If your OR is creeping up every month, but your miles and rate per mile haven’t changed much, guess what? Your costs are rising. Fuel, repairs, insurance—something is draining the bottom line. Go find it. 2. It benchmarks your business. An OR of 78% is great. But if you’re running at 91% while your buddy with the same kind of truck and lanes is at 83%, it’s time to look in the mirror. 3. It’s what lenders and investors look at. Want to grow? Thinking about financing another truck? Your OR will come up. It shows whether your business can handle more volume or if it’s barely hanging on. 4. It predicts your future. You might still be paying the bills at 96%, but for how long? One major repair or a market dip, and you’re upside down. Let’s Do Some Real-World Math Here’s an example using realistic numbers for a single-truck operation: Monthly Revenue: $21,000 Expenses: Fuel: $7,000 Truck Payment: $2,000 Insurance: $1,800 Maintenance: $1,200 Tolls & Misc: $300 Dispatcher/Back Office: $1,500 IFTA/Permits: $200 Driver Pay (if you’re paying a driver): $6,000 Total Operating Expenses: $20,000 OR = ($20,000 ÷ $21,000) × 100 = 95.2% That means you’re keeping less than five cents per dollar after costs. That’s a dangerous spot to live in for long. What’s NOT Included in Operating Ratio? This is key. OR only includes operating expenses, not things like: Taxes Equipment depreciation Owner draws or dividends Loan principal payments (only the interest is counted) That’s why it’s even more important to keep your OR below 90%—because profit after tax and reinvestment only comes after you subtract those additional costs. Improving Your Operating Ratio – Where to Start If your OR is too high, it’s either a revenue problem or a cost problem. Sometimes both. Here’s how to troubleshoot: Revenue Side: Negotiate better rates – Don’t settle for $2.10/mile if you can consistently target $2.40. Focus on efficiency, not just miles – 3,000 loaded miles at $2.40/mile is better than 4,000 miles at $1.90. Reduce deadhead – Even 10% empty miles adds up. Cost Side: Fuel – Shop for discounts, join fuel networks, and drive smart. This alone can drop OR 2-4%. Maintenance – Preventative maintenance beats reactive repair. Schedule it. Back office – Review tools and subscriptions. Are you overpaying for a TMS or factoring service? Insurance – Shop policies every renewal. Don’t auto-renew blindly. What About Multi-Truck Fleets? Now it gets even more powerful. Once you scale past one truck, your operating ratio helps you compare performance by truck, by driver, or even by lane. If Truck A is consistently at 78% and Truck B is hovering at 92%, it’s time to dig into why. Is the driver taking longer routes? Is the truck older and requiring more maintenance? Are the loads less profitable? You can’t scale chaos. Operating ratio gives you a flashlight. Common Mistakes Carriers Make With OR Not including all operating costs. Don’t forget things like ELD fees, subscriptions, and dispatch support if you outsource. Only reviewing once a year. You should track OR monthly, or at worst, quarterly. Year-end accounting is too late to course-correct. Confusing “busy” with “profitable.” Just because trucks are moving doesn’t mean you’re making money. OR tells the truth. FAQs Q: What’s a good operating ratio for small carriers? Ideally, under 85%. This current market is an anomaly but in normal conditions this is a good place. Under 80% is strong. Anything over 90% for more than 2 months? You’re skating on thin ice. Q: Should I track OR if I only have one truck? Absolutely. Especially if you want to stay in business. Even owner-operators benefit from tracking it monthly. Q: Is OR better than breakeven? It’s not better—it’s different. Use both. Breakeven tells you “how much,” while OR tells you “how efficiently.” Q: What tools can help me track OR? A simple spreadsheet works. QuickBooks, TruckingOffice, or even a TMS can all calculate OR automatically. Final Thought – OR is the Oxygen of Your Business You wouldn’t drive without checking your fuel gauge. So why run a trucking company without tracking your efficiency? Operating Ratio isn’t just a finance term. It’s a survival metric—especially in a market like this. You can’t outwork a bad OR. You have to fix it. If you’re serious about building longevity in this business, it’s time to stop eyeballing numbers and start measuring what matters.
