Delay is Dangerous
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Regular Checks on Expenditure and Comparisons with Earnings are.. Vital if a Haulier is to Know Whether or Not He is Making a Profit: A. Simple System of Noting Daily Earnings and Receipts is Described in This Article TO ensure that profits are being made, an operator must keep a close watch on his costs; to delay a check on incomings and outgoings is dangerous. Many heads of big concerns provide, in their organizations, for a daily statement of earnings which_are set against actual plus estimated castings to give the management some assurance that profits are not slipping back as, unfortunately, they have a habit of doing if not closely watched.
I remember on one occasion chatting with the proprietor of a large garage—the time was 5.30 p.m. As the half-hour turned, I was surprised to see that each of the departmental heads came in turn to the manager's office, knocked on the door and entered immediately, deposited a small slip of paper on the desk, said good-night and went out. I was so intrigued by this that I dared to ask what it was all about. " Each head of a department gives me a daily return of the business done during the day," I was told. "Before I leave this office," the general manager said, "I shall check each of the returns with a note I have as to the minimum earnings which must be achieved if a profit must be made. Any return which is short of that minimum is the subject of a close investigation next morning."
Daily Return The procedure could well be applied to haulage, at least in some branches. It seems to me that there should be a daily return for each vehicle; there would have to be a daily check on the earnings of each individual lorry. For this reason, it is essential that a haulier should know what his minimum daily revenue should be if he is to earn a net profit. The figure can be arrived at quite simply, and to show how it should be done I will apply the method to a 5-6-tonner engaged in jobbing haulage.
It should hardly be necessary that I should point out that the figure for revenue should include cost of operation of the vehicle, supplementary expenditure, establishment costs and profit. In ascertaining these figures, the only variable factor is the mileage run during the day. Sometimes there may be a difference in the wage paid, either on account of overtime, or because the man may be rewarded on a results basis.
n28 Leming the last-named out of the question for the time being and taking the simplest case, the difference between one day and another will normally be bound up in the mileage covered during that day. That will affect only the running costs; the expenditure on petrol, oil, tyres. maintenance and depreciation. pr, if not actual expenditure, at least a combination of actual expenditure, as on petrol and oil, plus estimated expenditure on the other three.
Standing Charges The standing charges on a 5-6-tanner can easily be found. The tax at £35 per annum is equal to 14s. per week, or 2s. 10d. per day, reckoning on a five-day week. For insurance take 15s. per week, or 3s. per day. As regards garage rent and rates, it may be anything from a shilling upwards; suppose I take 2s. Ihterest on first cost at 3 per cent. is another 15s. per week, or 3s. per day. So far the total is 10s, 10d.
The next item is "wages." The minimum is £6 12s. per week, to which I might add lls. for employees' insurances and holidays with pay. The average daily wage can be taken as £1 8s. 6d. That brings the daily total of standing charges to Ll 19s. 4d.
It is useful to take note of the other fixed charges and add them to the standing charges summarized above. Take the overheads or establishment costs. The actual amount may differ between one fleet and another and according to circumstances. If I assume an average figure, I shall take £5 per week, or CI per day. The total of fixed charges, standing charges and establishment costs is thus £2 19s. 4d. per day. A round figure of £3 will meet our requirements.
This £3 per day is a starting point. The rest is running costs governed by mileage. For data as to this, the operator can, if he does not keep accurate figures himself, refer to " The Commercial Motor' Tables of Operating Costs."
I would, in any event, suggest such a reference, if only as a check on his own figures to ensure that he is making provision for every item of cost. The following arc reasonable approximations in relation to the particular type of vehicle I have in mind. If the work is mostly on good roads, and there are not too many stops and starts per day, the operator may get a return of 11 m.p.g. for fuel consumption. If he pays 4s. 2d. per gallon that is, as near as needs be, 40. per mile. Take id. as expenditure on oil. That amount includes provision for renewing the oil in the crankcase as well as for topping up.
His tyrc cost, like his expenditure on petrol, is governed by the conditions of operation. Under the conditions. already stipulated, he will most likely get 24,000 miles from a set—sometimes more, sometimes less—and if a set costs £90, the cost per mile may be estimated to be Id. Maintenance may cost between lid. and 2d. per mile. depending upon the weekly mileage and the extent to which the driver takes a share of the work, always assuming, of course, that he can do that work in his 44-hour week. Depreciation, reckoned per mile, is affected by the weekly mileage; a fair average figure is 21d. The total, taking a mean figure when two are quoted, is 10d. per mile.
Multiply by Mileage All the operator has to do at the end of the day is to multiply 10d. by the mileage which has been run; I am assuming that it will be entered on the driver's log sheet— it should be anyway—and add the fixed expenditure quoted above, £3 per day.
Suppose, for example, that the log sheet shows that the vehicle has run 120 miles in the day. The operator will know that his total expenditure has been £8: £3 for fixed costs plus £5 for running costs. If he has earned that amount and no more, he has made no profit. Actually he should have earned at least £10.
I should make it clear that the eXpenditure of £8 per day will not he apparent to the haulier, for he does not actually disburse that amount every day, but only a small part of it. Quite a substantial portion of it is estimated. It is indeed because so much of the hauliers' expenditure is of this nature that so many, especially newcomers, underestimate their costs and thus cut rates.
It the haulier in his innocence as a newcomer merely takes into account his actual expenditure during the day as a check, he may get the impression that, as regards one of his vehicles at any rate, he has not spent anything at all. That particular lorry may have finished the day before with a full petrol tank, with adequate oil in the crankcase and nothing to pay in respect of tyres and maintenance. (Depreciation is in any case a booked expenditure and does not rate as cash.) His expenditure is apparently nil and his profit all that he has taken during the day. I do not suggest that even the veriest tyro would be as " green " as that, but the risk is there.
Knows If Work Pays The man who follows the method described above. checking his expenditure each day, making provision for all the items and comparing the total with what he has earned. is immediately aware if some of the work he is doing is unprofitable. Without some such system he may well go on for quite a long time under the impression that he is making a profit.
In the case above, I have recommended as a minimum that the operator should receive £10 as revenue from a day's work, the cost of which has been shown to be £8. That is 25 per cent. on cost.
I do not wish any reader to get the impression that the rate I recommend is precisely that which should be charged for the job. I refuse to be so dogmatic. T calculate the costs with, I hope, reasonable accuracy and then suggest the ratio of profit which is justifiable in the circumstances. My general intention is to indicate, in the rate I suggest, that the haulier who charges less may reasonably be said to be rate-cutting.
As to the percentages I use, they are as follows. Jobbing iaulage, 25. That may seem high but is not, for the reason hat a vehicle engaged on that sort of work loses so much .ime in between one job and the next that it probably works no more than 40 hours per week, or even as little is 36 hours. A minimum of 25 per cent, is little enough .0 cover expenses and make a profit. For regular work, but not necessarily under a binding contract, where the haulier gets a steady run of work from a customer, although not enough to keep the vehicle going all the week, 20 per cent, is fair.
For a contract, where the operator has regular work from a client to keep his vehicle or vehicles regularly employed throughout the year, 15 per cent. will suffice.
In all cases, however, the percentages are assessed on actual costs. I will give an example of the working of the minds of many hauliers before I finish this article, but first I must make clear another little puzzle about the method of assessing these percentages.
Reckoning Profit The question sometimes arises: why calculate the percentages on the actual costs? Profit is, as a rule, measured on the selling price. Suppose that the selling price of a car is £1,000; the dealer or agent who sells it is given a discount of, say. 20 per cent. on that selling price. That means that he pays £800 for the car making £200 gross profit, out of which he pays his overheads and makes a net gain. The £200 is not all profit. In the case of this car dealer, the profit of 20 per cent, gross is calculated on the selling price: the profit the haulier makes is calculated on the net cost which the haulier incurs in doing the work of transport. The haulier doing a job for £1,000, the cost of which to the haulier is £800, is making only 20 per cent. profit if that percentage is calculated on the selling price but 25 per cent, if calculated on the cost.
One way of reckoning profits, not at all to be recommended, came to my notice recently when I met a haulier friend of mine in quite a big way of ,business. The little chat I had with him convinced Me 'that hauliers in general are still as haphazard in their cost recording as ever they were.
When I called, he welcomed me with open arms. "So pleased to see you," he said. "I've got a problem for you." Before he told me what the problem was, he wasted a lot of time grumbling and moaning about the amount of ratecutting and' irresponsible quoting for jobs which was going on in his neighbourhood. At the time I did not realize, as the reader will soon appreciate, the funny side of his expression of discontent.
Customer Quoted Rate
" Now only the other day," he said, "I found myself in a bit of a difficulty. A man asked me to quote for some stuff to go from here to Blanktown. I had never done the job before and didn't know quite what to charge. In the end I left it to the customer and asked him what he thought the job was worth. The answer he gave me was 37s. 6d. per ton.
" It seemed to me to be rather low, but I thought I had better meet it so I said: 'Well. ni take it on and see how it goes,'"
"What's the mileage? " I asked.
"Altogether 138 each way."
"And what tonnage at a time?"
"Eight tons."
"I can tell you right now,I said, "there is nothing in
it at that rate."
"I'm not so sure, I will admit I lost on the first journey, because it took 50 gallons of petrol to do the job. That was using a rigid lorry and, incidentally, I found that my driver lost his way and added a considerable mileage to the journey. I thought the job over and for the next journey used an articulated 8-tonner. The driver of this vehicle took a more direct route and used only 30 gallons. But even now I'm not sure that I am making anything of a profit out of it."
"I'm certain that you are not. But don't you keep any record of your costs?"
"No I don't. I had started to do so just before the war and was getting on all right. But figures are not my line and I soon get tired. Then the war came and for most of the time I was engaged on aerodrome work at an agreed rate so I gave the cost records a miss and I've never taken
them up again." S.T.R.