Don't Throw Your Profits Away!
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ANinquiry about charges to be made for the hire of a 3-ton oiler has led me to consider that an owner-driver
is unlikely to make sufficient profit. He will not make a living in such a venture unless he makes the item wages represent a profit and thus, with the actual net profit, justify him in continuing.
In what follows I shall show that according to the orthodox assessment of a reasonable profit the operator will earn only a little over £3 per week—not a living wage— whereas if he regards the wages he earns as a driver as profit, his revenue will be ample and lead him to think carefully about rate-cutting if, as may be, the need for a fine quotation becomes apparent.
In this case it was mentioned that the weekly mileage was 240, and I was asked to go into the question of costs and profit. Certain basic information was presented to me, defining the problem more exactly than usual, and compelling me to depart from " ' The Commercial Motor' Tables of Operating Costs" as a basis for my calculations.
My inquirer asked me to deal with the matter on the basis of use of an oiler, with a carrying capacity of 3 tons and subject to the other conditions outlined in what follows.
Curiously enough, having in mind what I have just written, he makes " wages " the first item of operating cost which is to govern the answer to his query. l-fe tells me that the driver's wage, together with the usual provision for insurance premiums and holidays with pay, amount to £7 3s. per week.
A fair assessment of the rental value of the shed which serves as his garage is 5s, per week. The cost of the Road Fund licence is 12s. per week. Vehicle insurance costs 16s. per week. He tells me that the vehicle itself will cost him £900, so that, allowing £100 for tyres and £100 for residual value (what the vehicle will be worth when he wishes to sell it), the net cost on which we must calculate depreciation is £700. Interest on the original' cost, at 3 per cent, per annum, is about 10s. per week. The total of these standing charges is thus £9 6s.
The amount of the establishment costs I assess at £1 18s. per week. Added to the standing chaxgesit gives for the total of fixed weekly expenditure, £11 4s. Taking profit at the average figure for a vehicle of this capacity, namely 20 per cent, of the outgoings, we get £2 5s. per week, and the total of standing charges is seen to be £13 9s. There is in that figure no provision for running costs.
The Tables, he points out, give running costs for 200 miles per week and for 300 miles per week but not for 240. Personally, I should have been quite content to take the mean between the figure for 200 miles, £14 14s., and that for 300 miles, namely £17, which is £15 17s,. Apparently he wants to be more exact, so I must take the average of the running costs for those two mileages, 6.56d, and 6.20d. per mile, which is 6.38d., and multiply that by 240, giving E6 7s. 7d.
Add 20 per cent, for profit, £1 5s. 6d., making £7 13s. Id. as the charge for mileage at 240 per week. The total of cost plus profit is £13 9s. plus £7 13s. id., which is £21 2s, to the nearest shilling. The net profit is £2 5s. plus £1 5s. 6d.—£3 10s. 6d.
That is, as I have already pointed out, insufficient to justify a man taking the job on. If I write to this man and tell him that he is going to make only that amount per week he is likely to retort: "But there is my wages as driver, round about £6 10s. per week net." That is part of his earnings and is justifiably reckoned towards the profit he is making, thus is those circumstances he can reckon that his profit is £10 Os. 6d.
The point is this: so long as he can retain his revenues at the figures just quoted, no one can charge him with rate-cutting. Moreover, in accepting that as reasonable we are at once opening the gate to an admission that in reckoning his wage as part of the profits of his business he is doing no wrong. From that it is an easy step, in times of shortage of traffic, for him to justify a rate which is no profit at all, but finds him his wages as driver.
Having discovered that snag, and, be it noted, having found no solution of the problem it involves, let me deal with some other matters which his letter puts forward for discussion.
His next concern is with the situation which will arise when the weekly mileage passes the 240 mark. At present he is charging on a mileage basis. The rate is Is. 9d. per mile and all the work is for the same customer. It is the same company which is now proposing to make a more extensive use of the services of this haulier. It is anticipated that the mileage May go up to 400 per week and that it will fluctuate.
He appreciates that his charge on the mileage basis must be governed by the weekly mileage, but is worried about the problem of charging for this fluctuating mileage. He is aware that he can easily work out the charge for any particular figure of miles run, that it simply means that his running costs and profit should still remain at the present figure of approximately 7-14. per mile, that figure including profit. He wishes, however, to be able to deal with the matter on the basis of mileage without having to make a new calculation every week,
Build Up Table
All I can suggest is that he makes out a table for himself, starting with is. 9d. per mile for 240 miles per week, then takes out a figure for every 10 additional miles, something like this: starting point, 240 miles, Is. 9d.; for 250 miles add 10 times 7-1d., making 6s. 3d., to the original figure of £21 2s., making £21 8s. 3d. Divide that by 250, giving about ls. 81(1. per mile. Work that out for every 10 miles and so get a schedule of charges per mile rising by 10 miles each•line. The final item in that table is that Which relates to a 400-mile week. The total charge is the original sum of £21 2s. plus the debit on account of an additional 160 miles at Tid. per mile, making £5. The total charge per 400-mile week becomes £26 2s, and the approximate rate per mile is Is. 314.
If the operator works that out he will undoubtedly arrive at the information he wants, but I think it is a cumbersome way. A more satisfactory method is, in my opinion, to use the time and mileage system, not, however, quite in the way it is set out in the Tables, where the time charge is per hour, but to take the time charge per week, adding the rate per mile to that.
In this case the time charge is £13 9s. That covers standing charges at £9 6s. per wpek plus establishment costs at .£1 18s. per week and profit at £2 5s. per week. His charge per mile run, which I must emphasize must be added to the time charge, is 70. per mile.
Rising Profit
I should point out that there is provision for approxi mately lid. per mile profit in that 7-1-d, per mile charge, so that, whereas when running 240 miles per week the profit on mileage is £1 5s. per week, it rises to £2 Is. 8d. when, the weekly mileage is 400. That profit is additional to the £2 Ss. per week accruing from the time charge.
Actually, there are several ways in which a rate for a job of haulage can be calculated, provided that the operator has an accurate idea of what his vehicle costs to run. To some extent the method is determined by the kind of work the vehicle is to do. Others are arbitrarily determined by the customer, as was the case in the problem put to me and described in the earlier part of this article. He wanted the charge to be on the basis of miles run and, in matters of this kind, the customer is always right.
• That dictum is subject to the recommendation that the haulier should endeavour to persuade the customer otherwise. Even there the operator should be careful not to go
too far in any insistence on discussion. It is easier to make out a scale of charges than to find a new customer.
Let us try to decide which is the best of several methods of calculating what charges should be. The first and most direct is to reckon how many miles per week the vehicle is likely to run in the ordinary way of business. By reference to the Tables, the operator can find what his earnings should be per mile and charge the customer' accordingly. That is the most obvious way and one in which the Tables can be used to maximum value.
Another way is to charge on the basis of time only, hiring the vehicle out at a regular figure at so much per day or per week or even, sometimes. per hour. This is usually adopted when the number of miles Lobe covered is low, when most of the time is taken up by waiting for loads and waiting to discharge, and when a rate per mile would be absurdly high because of the low weekly mileage. For this method of reckoning rates there is also direct provision in the Tables.
Fixed Time Charge
Another way of charging—one which is popular' with people who let out vans on hire--is to provide for a fixed charge per hour, per day, or per period of a number of hours or days, with an extra charge per mile or per hour by which the stated number of miles or hours is exceeded.
In those circumstances, the hirer is allowed a certain number of miles per hour and he is charged extra if he exceeds it. Alternatively, he may be given the stated number of miles which he may cover in the period for which the vehicle is on hire, paying the excess mileage rate when this is exceeded.
This, as it is generally arranged, is the most profitable method of hiring a vehicle. The charge for excess mileage is usually high and is nearly all profit, whilst it is almost always the case that the vehicle, in the hands of the hirer, covers-a good many more miles than is stipulated in the contract.
None of these ways is open to the jobbing haulier who holds himself out to take on mileage contracts of any description, provided they may be carried out•conveniently by the vehicle he has available. He is usually asked to quote a specific price, either per ton or per mile, for some job which will take up only a part of a week and thus leave him with the vehicle on his hands for the remainder.
What Time h Worth
It is for the man in that position that the method outlined earlier in this article is designed. He should reckon up how much his time and the time of his vehicle are worth, He should also have in mind an additional amount per mile which he must get on any job if it is to be profitable. If he has these figures in mind, he will be able fairly readily to estimate for any job which he is offered.
I propose now to take a few examples of the various kinds of job which may be offered and show how to apply these various methods of tendering for them. So far as the first and second are concerned, examples can quickly be given and the figures taken directly from the Tables.
A typical case in which the first method will apply is that in which the haulage 'contractor receives an offer of regular work from a company of manufacturers, say, in a big city or large industrial town involving the distribution of the 'company's ptoducts in a variety of places from a central depot. An examination of the conditions discloses that the weekly mileage will average approximately 600 for a vehicle of 2 tons capacity.
Referring to the Tables, it is apparent that the quotation should be Is. Id. per mile for a petrol-engined vehicle, but only 111d, if the vehicle is an oiler. He realizes, or shotild do, that these figures in the Tables are minima, and therefore tries to get Is. 3d. per mile or even more if he can. What his quotation is will depend on his knowledge of the circumstances and what the prospective customer is likely to be willing to pay. S.T.R. (To be continued.)