On Target 15 – adding a profit margin
Whichever the type of private hire, getting the price right is the hardest part. In theory, it follows the same rules as pricing a contract, as I explained in my school contract costing example.
By the way, I won the contract, the school accepting that there was a need to recognise that coaches had to comply with Euro VI in their area, so saw my price as cheaper than paying £100 a day just for the ULEZ, even if not at the outset. This is a great opportunity for our industry to get an increase in price, to more realistic levels, as the ULEZ is a well-known issue. There will be more zones around the country, so most operators at some point will be affected. You can either see it as an opportunity or a threat; I prefer the former. We also have PSVAR coming up, which will come as a shock to many of us. CPT keep me informed, so I hope to be able to negotiate its requirements without too much pain.
The trouble with private hire costing is the varying nature of the client’s requirements, dates, times, mileage and hours required, all must factored in and often in a hurry, especially when the client rings for an immediate quote. That used to be the case, but increasingly enquiries come in by email, in my case over 90%, which gives a bit longer to consider the price. However, I want it turned around quickly, as often the first to reply gets the job.
We always check the previous bookings, to at least be aware. I am not in favour of ripping people off
Our coach booking software enables pricing by inputting the base costs and margin required, but there is always a need to be creative in sweating the assets, and adjusting the price up or down. That takes experience, but I encourage my staff to be courageous. If they get it wrong and it is too cheap, it is usually a one off; it is not as if they are committing the company for five years.
Sometimes you only learn by your mistakes, although it can be awkward when the client comes back for more and finds the ‘proper’ price is 50% higher… Sometimes it works the other way and our subsequent quotes are cheaper, following an outrageous price charged in the past. For that reason, we always check the previous bookings, to at least be aware. I am not in favour of ripping people off, just being fair.
There are very few financial savings with volume, although peace of mind has a price
To price private hire, I have given an example, based on the same coach used for the previous school contract quote. The direct cost calculations are similar, assuming the hire is weekday, as is the proportion of overhead each coach incurs regardless of timing, as the school contract assumed 240 days utilisation. After that I might need to add a second driver, a weekend supplement where drivers are paid more (the coach doesn’t care which day of the week it is) and of course, public holiday supplements.
Even if you don’t pay more at the weekend, people will expect to pay more, as the normal world doesn’t work on a Sunday or public holiday. Likewise, if there is a special event on, where coach demand will be greater, I load the price to reflect supply and demand. Likewise, when there isn’t much work around, the price reduces, but never below the direct operating cost of the vehicle and driver.
Typical Private Hire Costing (based on a £170,000 Euro VI – 53 seat coach, utilised over 240 days per annum)
|Direct Costs||Cost make up|
|Drivers pay hours||13 hours x £12.82 inc NI/Pension||£166.66|
|Drivers subs||£5 per day (untaxed)||£5.00|
|Fuel||234 [email protected] mpg = 25.43 gallons x 114 litres x £1.04p/l =||£118.56|
|Motor Insurance||£18.43 per day||£18.43|
|Tyre wear||4.8p per mile x 234 miles||£11.23|
|Vehicle maintenance||£45.58 per day||£45.58|
|Vehicle Depreciation/Interest/Lease||£89.21 per day||£89.21|
|Cost assigned to 53-seater||Based on 53 seats x £328.79 per seat pa = £72.60 per day||£72.60|
|Peak Period||Add 20% on cost||£105.45|
|Price for peak period||£632.72|
|Off Peak Period||Add 10% on cost||£52.72|
|Price for off peak period||£579.99|
|Parking/toll charges||Added on quote or charged as incurred||+|
This example assumes a full day hire, so relatively simple. A half-day hire that allows potentially further utilisation of the vehicle, would reduce the general costs, motor insurance, vehicle maintenance and depreciation/lease contribution to a 50% charge, but no less. A full day, based on this mileage and hours, cannot afford to go out for less than its costs (direct and general) of £527.27, unless it is in excess of the 240-day annual utilisation target. Can you be sure that it will?
All extras such as a second driver, on board catering (remember the VAT) and other services are charged at cost, plus the margin.
Volume business seems, on the face of it, to be attractive and if more than 240 days, the general cost contribution reduces further, but direct costs are no lower. There are very few financial savings with volume, although peace of mind has a price…