A Coach Owner's Overheads
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In this Article, the Third of a Series Giving Advice to a Newcomer, "The Commercial Motor" Costs Expert Describes How to Deal with those Business Expenses not Incurred in Direct Connection with the Vehicles; the Importance of Weekly Mileage is Stressed
jiN my previous article, I stated that there were three sets of figures ,to be taken into consideration when assessing rates that a coach operator should charge. The first of these was referred to as operating costs of a vehicle, and I pointed out that there were 10 such items. Expenses excluded from this set must be provided for elsewhere and'I referred to these as "establishment costs." There are other names; they are sometimesCalled administrative charges and sometimes overheads. The best term to describe them, although it is too cumbersome to, use as a heading for a column of figures, is " cost of running the business." , Proceeding on the assumption that the reader has no knowledge whatever of costing; Fcan certainly take it that he will fail to appreciate even the existence of establishment costs, let alone have any idea as to what those costs are likely to be. I propose, therefore, to deal with them in detail. In so ,doing .I :",shall use hypothetical figures for expenditure under each heading which will be found to be
reasonably accurate. ' '
First of all let us assume that the operator has a small room set apart as his 'offiee. It may be in his house or it may' be' a corner of the garage in which his vehicles are housed. Something must 'be allocated ufideethe-heading of establishment costs in respect 'of office.rent. I 'aft agreeable to taking a low. figure for. this. as it is a gruel room. Tam assuming thatthe outgoings Will amount to £15 per annum and that, the appropriate -portion.' of rates be £10 per annum.
Next I consider provision for lighting, power, and heating, and I take that to be £1.0 'per annum. , The water fate will probably approximate to £2 -10s.. per annum, The next item is a more important one, rand that relates to thetelephone. The operator in this line of business will find that he has, to use the telephone with great frequency, ihd I think £35 per annum is 'a minimum figure fel that. The next item I include is the auditor's fee, which I am assuming to be
£10 10s. •
Legal expenditure in the form of payments to a solicitor 'for dealing with such things as applications for licences, defending drivers against charges of having exceeded the speed limit or driving carelessly, I am assuming to cost no more than £3 10s. per annum. The next item on my list is sundries; I have put down £15 for that, and for fines, £10.
Checking the Route
In connection with the use of a coach for tours and excursions, the proprietor will be put to a large expense inasmuch as it is up, to him to check in person every route which he proposes to traverse with his coach during the 'season. He will no 'doubt carry out this' investigation in the winter, and the cost—which is what I am considering now—will be at least £250.
It will be necessary to have someone in the office during the working hours of each day, if only to deal with telephone and other inquiries and filing away record sheets, driver's log sheets, and so on. I have put down only £130 per annum for that because I am well aware that a person engaged to do the job will be a junior. National Insurance, etc., in connection with the clerical staff I have set down as being £15 per annum.
Then comes the manager's salary. I assume that the
owner of a few coaches will have quite enough on his hands organizing trips,: providing for examination of routes. and so on, to prevent him from being able to drive one of the coaches. He will therefore want a Wage as manager, and for that I suggest £200 per annum. Now come some small items-depreciation of' garage fixtures, £5; subscriptions to associations, £8; bank . charges, £10; interest on hirepurchase, £35; printing and statior,ery, £5; insurance of
buildings, £1 10s.; maintenance of buildings, £10. .
Interest on capital is an item Which may not apply in every case. I have put it in because it often happens that the operator in starting his business has borrowed capital to enable him to make a' start, and the interest on that borrowed capital is what is meant by this particular item. I have taken the amount to be £1.0. Postage takes another £10, and licences, that is a-Certificate of Fitness, a P.S.V.
licence, and so on, £5. Advertising at the very least involves £25. The total of these amounts is £831 per annum. That means to say. that £415 10s. must be debited against each vehicle; that is approximately £8 7s. per week.
The reader who noted the previous article will know that 1 found that the bare .operating costs of a 32-seat coach amounted to £11 9s. 3d, per week for the standing charges and 9.61d. per mile for the running costs. To that £17 9s. 3d.
must now add the establishment cost figure of £8 7s., giving me altogether £25 16s. 3d. as the total of fixed charges. That is per vehicle: it should be remembered that this operator wrote and told .me that he was considering the purchase and operation of two coaches, both of them
32-seaters. .
The reader should now fully appreciate the 'meaning of these two figures, £25 16s. 3d. and 9.61d, What they mean is that the total expenditure per annum is such that the average expenditure per week is £25 16s. 3d., and that does not include any provision for running the vehicle. It covers orily expenses involved in the purchase of the vehicle, its licences, the wages of the driver, the cost of capital outlay, garage rent and on proportions of depreciation and maintenance, as Well as establishment costs.
His expenditure of £25 lOs. 3d, is the average figure throughout the year, some weeks it may be more and some weeks it may be less, but even so it is incurred quite apart From any running which the vehicle may do. As soon as the vehicle begins to work, additional expenditure is involved in connection with the running costs, the cost of petrol, oil, tyres, a proportion of Maintenance and a proportion of depreciation. In the Previous article I showed • that the total of these five items was 9.61d. per mile.
Basis for Charges
These are our basic figures:. If in any one week the vehicle runs 1,000 miles, the total cost is that figure of £25 His. 3d. for fixed charges plus 9.61d. times 1,000, that is £40 Os, 10d. The cost to the 'operator of running this 32-seater 1,000 miles per week is £25 16s. 3d. plus £40 Os. 10d., which. is £65 17s. Id. That is the amount which the operator should use.as the basis of his calculation of charges.
I have dealt with two of the three principal sets of figures involved in the economic and profitable operation of a 32-seat coach. The third set of figures relates to the profit which the coach earns for its owner. It is usual, in the beginning at any rate, to assume minimum profit as a percentage of expenditure, and at 'least 25 per cent. should be added on that .account, That means that for the week in which the vehicle runs 1,000 miles, the cost being £65 17s. 1d., the net profit must be at least 116 9s. To earn a minimum of 25 per cent, profit, the operator must so set his charges that his revenue is at least £82 6s. Id. Personally I would suggest a minimum of £85, which is equivalent to is. 8-1d, per mile run. That is the charge which must be made for the use of the coach alone. If there arc meals, entertainments, theatre tickets, hotel fees and other things involved in the operation of tours, they must be added to the £85 or that is. 81d. per mile in order to arrive at the charges.
Another way of looking at it is to split this £85 per week
for a 1,000-mile trip among the 32 passengers, in which case -the minimum fare for the coach transport alone is rather more than £2 13s. per head. Here again provision must be made above that £2 13s. for other expenditure involved on the trip.
. It is of interest to-estimate the charge per passenger per mile. It works out at a fraction over 1d., which seems absurdly small in these days. It is also of interest to take a much smaller mileage and assess a small set of figures.. Iii doing so. the first thing to remember is that our basic total of fixed charges per week remains unaffected. It is still £25 16s. 3d.
But suppose that the vehicle runs only 240 miles in a
week. The 'running. cost is 240 times 9.61d., which is approximately £9 12s. The total cost of running 240 miles per week is thus £25 16s. 3d. plus £9 12S., which is £35 8s. 3d. Add profit at 25 per cent., namely £8 17s., and we obtain £44 5s. 3d. This is f I 7s. 8d. per persoh and the charge per mile, which is obtained by dividing £44 5s, 3d.. by 240, is 3s. 81d., as against, is. 8d. when running 1,000 miles per -week.
That figure of cost per mile will probably startle the newcomer, who is not likely to know ,how important the • weekly mileage is in calculating the cost per mile, We might take another figure, 480 miles per week, in order to emphasize the irnportance of this matter. At 480 miles per week, the cost for the mileage is 480 multiplied by 9.61d., which is approximately £19 5s. Add £25 16s. 3d. and we get £45 Is: 3d. as the total cost; add again 25 per cent. profit, which is approximately £11 5s., and the total charge is seen to be £56 6s. 3d. That is for running 480 miles. The charge per mile, obtained by dividing £56-6s. 3d. by 480, is approximately 2s. 4d., compared with only Is. Nd. for a 1,000-mile week, and 3s. 81,d. for a 240-mile week.
To go to the extreme and imagine a week in which the vehicle runs only 60 miles. The cost for the mileage is 60 times 9.6W., which is approximately £2 9s. 81d.; add £25 16s. 3d. and we get, leaving out the odd pence, £28. Add 25 per cent. for :profit, £35, .divide by 60 and we get 1.1s. 8d. per mile--a tremendous figure, hardly to be believed by those who do not appreciate the importance of mileage in its relation to costs and charges.
Table .H gives figures for charges on the basis of time arid mileage and the net charge per mile run based upon the
foregoing calculations. I have, however, arrived at the essential figures in that table in another way.
I have taken the fixed expenditure per week, namely £25 I6s, 3d., and added 25 per cent. to that giving rue £35 5s. 3d. as the charge per week for time only. Correspondingly, I have added 25 per cent, to the cost figure of 9.6Id. per mile which gives me; as near as makes no matter, Is. per mile.
In -the fourth column I have set down the charge for the total mileage run during the week. For example, in the first line 1,000 miles at 1 s. per mile is £50; add the fixed charge per week, £32 5s, 3d., to get the figure of £82 5s. 3d. in the fifth column. Dividing that by 1,000 gives me the charge per mile, Is. 71-d„ in the last column. Note that this is. 71-d. per mile differs from the Is. 8id. per.mile calculated earlier in this article. The difference is because in arriving at the is. 8-1d. I took the arbitrary figure of £85 per week as
the operator's .charge. S.T. R,.