The Minimum Margin Threshold Revisited: A Blueprint for Sustainable Trucking Profitability

With the ongoing delay in freight rate recovery, the KSM Transport Advisors (KSMTA) team has launched a new article series containing practical recommendations designed to help carriers “level-set” in any market environment. The need to “prepare to thrive” has become a powerful mantra, reminding us and our clients to stay focused and resilient, even in the face of significant challenges.

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The trucking industry has always been a game of tight margins. With fluctuating freight demand, volatile fuel costs, and rising labor expenses – now including impending market impacts of tariffs – sustaining profitability requires more than just adding more trucks and running more loads. It demands disciplined network management and pricing strategy.

One of the most critical yet underutilized tools in a trucking company’s arsenal is the Minimum Margin Threshold (MMT) – a defined floor on margin expectations that ensures every move contributes to the company’s financial health, whether through direct profitability, or indirectly through moves that position trucks to maximize profitability.

Why a Minimum Margin Threshold Matters

Establishing and enforcing an MMT prevents carriers from running unprofitable freight under the guise of “keeping trucks moving.” While it’s tempting to chase volume during market downturns, hauling freight at unsustainable margins erodes cash flow, burdens maintenance reserves, and deteriorates long-term viability. Highly profitable trucking companies recognize that not all revenue is good revenue and have the courage to shrink or maintain status quo when necessary.

Building the MMT Model: A Data-Driven Approach

A well-defined MMT isn’t a one-size-fits-all number; it must be structured around the unique cost structure and operational profile of each carrier. The following model outlines a structured approach to setting and maintaining an effective MMT.

Step 1: Establish Baseline Operating Costs

To set a rational margin threshold, carriers must first have a granular understanding of their ongoing (and current) cost structure. This includes:

• Variable Costs (driver compensation, fuel, maintenance, tolls, other variable on-road expenses)
• Fixed Costs (insurance, equipment depreciation/leases, support staff wages and benefits, corporate overhead)

The above costs should then be allocated to loads, customers, lanes, and areas in order for carriers to distribute costs fairly based on relative activities in their network. These costs are referred to as “network-specific costs.”

• Network-Specific Costs (deadhead percentage, driver and trailer detention, toll exposure, regional fuel variance, broker freight %)

The baseline cost per mile should be continuously updated with real-time data from TMS, fuel programs, and maintenance systems.

Step 2: Define the Minimum Acceptable Margin

Once baseline costs are established, a minimum margin per mile or per load can be set based on:

• Targeted Operating Ratio (OR) – If a carrier targets an OR of 97% (note: very few truckload carriers have consistently achieved true profitability over the last three years), the threshold margin should be designed to ensure the company maintains that ratio even in a down cycle.
• Cash Flow Requirements – Ensure each load contributes positively to covering fixed costs and meeting debt obligations. In other words, if you need to move a truck from one highly profitable destination to a highly profitable origin, make sure that the connector load (backhaul load) covers as much of total operating cost as possible, with fixed cost coverage being the price floor.
• Market Variability Buffers – Account for rate volatility, fuel surcharges, and potential service disruptions.

For example, if a carrier’s total cost per mile is $2.17, and the target margin is 12%, the MMT should ensure a rate no lower than $2.08 per mile.

Step 3: Implement Transactional and Contractual Pricing Discipline

Once the MMT is defined, it must be enforced through pricing discipline and load selection strategies. The FreightMath^™ methodology segments pricing into “transactional (spot)” and “contractual (RFPs).”

Over the past three years, carriers that have placed significant emphasis on maintaining discipline on maximizing the margin on every spot transaction have fared significantly better than their counterparts. In fact, many of our clients have built significant initiatives around ensuring that they are extracting every potential dollar out of their spot market transactional business. Some key components of a successful pricing model include:

• Customer-Level MMT Analysis – Evaluating customers based on their historical pricing and profitability (gross and net), operational velocity, accessorial revenue capture, and overall profitability.
• Lane-Level Pricing Guardrails – Identifying lanes that consistently fail to meet margin requirements and either renegotiating pricing or exiting those lanes.
• Market Reality – Whether it’s a shipper or broker on the other end of the transaction, carriers must accept that trucking is the most free of free markets. When evaluating transactional and contractual opportunities, being aware and accounting for current rates allows carriers to adjust their expectations to reality. Sometimes this reality is simply walking away from previously profitable lanes and customers.

Step 4: Measure, Adjust, and Hold the Line

A static MMT is a weak MMT. Market conditions shift, fuel costs rise and fall, and customer behaviors change. Highly profitable carriers:

• Regularly review and adjust MMT benchmarks based on monthly/quarterly cost assessments. This requires amping up the financial transparency in the business. Highly transparent businesses are highly profitable over the long term – full stop.
• Empower pricing teams, planners, and fleet managers with real-time margin and market visibility to ensure compliance.
• Develop accountability mechanisms to enforce discipline, including incentives for booking high-margin freight and restrictions on underperforming lanes AND brokers.

Courage To Shrink: The Hard Decisions That Drive Profitability

One of the most difficult yet essential aspects of an MMT strategy is the willingness to walk away from freight that does not meet margin requirements. This may mean shrinking overall revenue, repositioning assets, or even restructuring the network – but maintaining a disciplined approach ensures long-term financial sustainability over short-term volume gains.

Profitability Is a Choice

The most successful trucking companies do not rely on the market to dictate their fate; they establish and enforce a Minimum Margin Threshold to protect profitability in all conditions. By committing to disciplined cost analysis, transactional and contractual pricing enforcement, and data-driven decision-making, carriers can ensure that every move contributes to a stronger bottom line.

The path to profitability isn’t just about running more freight – it’s about running the right freight, at the right margin, (almost) every time.

To learn more or discuss any of the ideas shared above, please contact a KSMTA advisor via the form below.