Know What You
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Earn—
Or Lose!
Many Operators Believe That They Are Making Handsome Profits Because They Do Not Keep Full and Proper Records of Their Expenditure: The Fool's Paradise into Which They Can be Led is Dispelled by This Article
THE other day I met a friend who was going on a business trip to the Midlands. He was going by road, he said. "Splendid," said 1., "I wish I were going with you; I should enjoy the ride, and if I paid my whack you would save a little."
' "What do you mean?" he said "It's cheaper to go by car than to pay the railway fare."
" Cheaper than the railway fare," I replied. "How do you make that out?"
" Well, the railway fare is £2 5s. return: the distance is 250 miles and my car does 30 miles to the gallon. The cost of eight gallons of petrol at 4s. 6d. is £1 16s. Add, say, Is. for oil and the total is 37s. I save eight bob." .
1 think that a good many hauliers must reckon their costs of operation in the same way as does that friend of mine. For example, I called on one of them the other day and found him in a fine fury.
10s. Per Cu. Yd.
"What do you think of this?" he said to me. "I've been carrying gravel for a man on a 12-mile trip at 10s. per cu. yd,, using an 8-tonner carrying 6 cu. yd. and making a profit out of it. A reasonable profit, not a great deal mind you, but enough to keep the wolf from the door. The other day this customer came along and asked me to take on a further contract, carting the same sort of material to a. place 50 miles away at 15s per cu. yd. There is no prospect of a return load, so that he is asking me to carry 6 Cu. yd. of gravel, involving a journey of 100 miles, for £4 10s., much less than is. per mile for an 8-tonner. I told him it could not be done at the price."
"Hardly," I interrupted.
"Well, he was annoyed about it and said he would get somebody else to do it. I thought to myself he would not be able to do so but, believe, me, I was wrong. He has managed it. I've just come back from having a look at my competitor to see what sort of a job he is making of it.
"I find he has a new 6-ton lorry with a petrol engine— that shows him up for a start—and he is doing two trips per day six days per week. His headquarters are 15 miles away from the gravel pits so that he covers 230 miles every day for £7 10s., about 71d. per mile. He seems quite B22 pleased with himself, too, and my customer is beginning to think I am charging excessively for my little contract. What do you think?"
"It is quite obvious to me that your competitor is losing on the job, but before I go into that, tell me what you yourself calculated it would have cost." ,
"I can do that all right. With my • 7-8-tonner carrying 6 Cu. yd. at a time I reckoned on only one journey per day. As I am only six miles from the pits, 1 could save a little as against the other man and I might pick up an occasional short run when I get back to fill in the day; but without that, reckoning on this one journey covering 112 miles per day, my vehicle cost me ls. 3d. per mile to run. I reckon I should get Is, 6d. to make my minimum profit. That makes a otai of £8 8s. or, roughly, £1 8s. 8d. per Cu. yd.
" My client would only pay me £4 10s. for the job, so that I should be losing fl 18s. per day. Now tell me something of the other man's costs. Tell me how much profit he is making, or, if you can't do that, how much he thinks he is making."
Total EXpelECS ?
Think' is about right," 1 responded. What he is
doing is comparing the money he receives at the end of the week with what he has paid out during the week. He covers about 1,200 miles. Suppose . he is doing about 10 m.p.g. He is buying 120 gallons of petrol at 4s. per gallon, totalling £24. Say he uses a gallon of oil at 7s. 6d. Add for garage rent, if he pays it, 10s. per week. That's the lot, so far as he sees it.
"He receives £45, leaving him £132s. 6d. after he has paid £10 per week towards the instalments on the hire purchase of his vehicle. He thinks that he is doing very well indeed and imagines that when his hire purchase is completed he will be well on the way to becoming a "He will get a minor shock in about three months' time, when he has to pay a matter of £40 or so for a couple of new covers, and another a month after that when a second pair of covers and possibly a new tube or two are required. Then, unless he has a little spare cash somewhere, that second .pair of. covers may land him on tbe rocks.
"What he will do most likely will be to try to carry on without removing his covers. Then he will have tyre troubles galore and begin to fall behind on his deliveries, possibly missing a load or two per week. That is where you will come in and when your customer will begin to see that your prices were not unreasonable after all."
But what about the repairs?" put in the haulier. "Does this man imagine that he is going on for ever without having anything to pay on that account? "
"When our friend's 6-ton lorry needs an overhaul," I responded, "as most assuredly it will, he will not have the money to pay for it, that is if he is still running the vehicle br the time it gets to that stage."
"That's all very well, but how am I going. to tell him that? I know! You put this story into The Commercial Motor and when it appears I will show it to him."
Here is another story along the same lines. I had what anyone will admit was a rare ,experience. A haulier said he was making too much profit.
Would Job Pay ?
The circumstances, so far as 1 was acquainted with them up to the time of receiving the complaint, were not unusual. This haulier had written to me concerning a contract into which he proposed to enter. It concerned a 30-cwt. van, for which he was to be paid £40 per. week. The work involved running 700 miles per week and he wanted to know if the job would pay.
I replied pointing out that the' operating cost of his vehicle would be about £27 per week, and that his gross profit per week would be about £13 which, considering all things, was fair and reasonable. At the same time I sent him a copy of" The Commercial Motor Tables of Operating Costs."
A fortnight ago he wrote to me again and said that he was making nearly £27 per week profit and could not understand it. He was extremely worried, as he was afraid he was overlooking some important item of expense. Would I go and see him? I did.
" Now, tell me what your trouble is," I said.
"I have too much money in the bank," he said.
That's easily remedied."
" Oh quite, but I don't propose to give any of it away—at least, l don't know that I am going to. The point is—but let me show you the figures.
"I've been doing this job now for six weeks and the speedometer on the van shows 4,203 miles. I have spent £57 on 285 gallons of petrol, paid £20 tax and E14 insurance premium. I bought a drum of oil for £2 10s., and there is some of that oil left.
£141 Si. in Bank
" My garage rent is 7s. 6d. per week and so up to date has cost me £2 5s. I spend £3 per week on myself and, so far, have drawn £240 for six weeks' work. There is £141 5s_ of that still in the bank.
"Next week I shall draw another £40. I shall spend £9 on petrol, nothing on oil—I shall be using some of the original 10 gallons-7s. 6d. for rent and take £3 for myself, leaving £27 12s. 6d. profit for the week.
"You said that I should make‘ £13 per week gross profit. There is a big difference between £27 12s. 6d. and £13."'
"1 certainly did say that youswould make £13 per week gross profit, and I am nearly certain that you are not making any more. That £27 odd is not all 'profit, not by a long way. Have you looked at the Tables I sent you?'' "Yes, but I don't see what that has got to do with it." "You don't? Well, look at them again with me.. Your particular vehicle is dealt with in Table I in the fifth column;
which is headed tons '. You' will -note that the essential figures are headed Standing Charges' and Running Costs '. Do you not realise that out of the five items of running cost set down in that table you have allowed for only one?"
"I don't know anything about that; what I do know is the money I have to spend and the money I am going to receive. You can't get behind facts like that you know."
"I know; neither can you. I will just get you on one point, and that quickly. You said you had bought a 10gallon drum of oil? Have you any left?" Info the garage we went, with a dipstick, and found that there were still seven gallons of oil left in the drum.
"You have used three gallons in a little over 4,200 miles, roughly a gallon for every 1,400 miles."
" Yes, but in the ordinary way I should not use so much; at least I don't expect so, for I emptied the crankcase at the end of the first 1,000 miles, as it was a new vehicle. After that I assume that once every, 2,500 miles will suffice," he explained.
"All right. Shall we say a gallon every 1,800 miles? At that rate you will have used the remaining seven gallons in about 18 weeks. You will then have to buy another drom costing £2 10s. Where will the money come from for that?"
"From the bank, of course."
Out'of Profit
"Never mind about the bank for the moment—that is for the future."
"Well, I will take it out of that £27 12s. 6d. per week profit that I am making. I shall still have more than the £13 that you said was all the profit I should make."
"Good. Now, how are your tyres going on?"
"Splendid. They don't seem to have worn at all. 1 should think they are good for four times the mileage," the haulier answered.
"They may, so long as you go on as you are doing. Let us suppose that they do. That means that you will be wanting another set in about 18 weeks--about the same time as you will have to buy that drum of oil.
" What is the price of a set of tyres for this machine of yours?"
"I don't know."
"What size are they?"
"On the front they are 6.00 by 20 and on the back 6.50 by 20."
"A new set will cost you about £49, then; therefore in that one week you will have to find £51 -10s: for tyres and oil. You can't very well take that out of £27 12s. 6d.," I pointed out.
"Hardly, but there will be enough in the bank for that." "You will keep harping on that money you have in the bank."
" Well, it's there, isn't it?"
Allocating Account
"Yes, but your trouble is that you don't know how much of it is really yours to spend on yourself and how much of it you may want at any time for oil, tyres, repairsand eventually, the purchase of a new lorry—and, mind you, am considering only running costs. Before you can be really easy in your mind you must definitely know how your banking account must be allocated to these various items."
"How can I find that out?"
"Perhaps the simplest and most direct way, until you have some accurate knowledge of your own costs, is to take the Tables as a guide and you should use them in this way. You arc running, you say, 700 miles 'per week. You will note that paragraph in the Tables headed 'Total Cost of Operation Per Week.' In that paragraph, under the heading tons,' and against the figure in the left-hand column 600 miles per week' you will find £24 14s. quoted as the total cost of operating a 11-ton vehicle per week, assuming that it' is covering 600 miles per week.
"Similarly, opposite the figure 800 miles per week' you will find the quotation £30 per week. The average of those two, say £27, is, as near as can be, the expectation of the week1T cOst of running a 1{-tonner 700 miles per week.
What you have to do, for the time being at any rate, is to set-apart £27 each week. Deduct from that what you actually Wend and leave the rest for future expenditure, making '50fre sort of a note in your bank statement, or in some little .cash book, that there is in the bank a certain sum—what is left from the £27 12s. 6d.--which must be credited to the vehicle and kept in the bank for expenditure on it.
"That must be done each week and the money allowed to accumulate. The balance of your account in the bank after deducting that accumulated amount is your gross profit to date." S.T.R.