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How an Operator Makes Good a Loss on a 2-tonner

15th October 1937
Page 48
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Page 48, 15th October 1937 — How an Operator Makes Good a Loss on a 2-tonner
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Which of the following most accurately describes the problem?

by a Profit—Although Not so Large as He Imagines—on an 8-tonner

ICOME now to that part of the discussion with a haulier which deals with a situation that has arisen because, of two vehicles operated, one is making a profit and the other a loss. So far as he can visualize the problem, his business, as a whole, is profitable, and he thinks that should be enough to satisfy any man.

If proper allowance be Made for establishment charges, contingencies and sundry expenses, other than the vehicle-operating costs, it seems likely that throughout the year he is making a loss averaging approximately £3 per week.

"What do you do with the big vehicle?" I asked. "It covers three journeys per week of 120 miles each way; that is to say, 720 miles per week all in." -" Loaded only one way, I presume?"

"Oh.! no; loaded both ways," he answered.

"That probably accounts for a good deal of the profit you are making. What rates do you get?"

"I get 16s. per ton from here," he said, "and 20s. per ton on the return journey_ I should tell you however," he continued, "that the stuff I bring back is bulky and I cannot carry more than 5 tons on the return journey."

Gross Profit 12 4s. a Week.

"In short," I said, "you make a revenue of 26 8s. on t ach outward journey and 25 on the return run. Your gross revenue per week is 234 4s. Your costs, I see, according to the figure you show in The Commercial Motor Operating Costs Record, seem to average about 2.7 per week for standing charges and 215 per week for running costs. The total is 222 per week in all for operating the vehicle. On that basis, you seem to be making about £12 4s. per week gross profit."

" What do you mean by gross profit?" he asked. "It's £12 per week profit, isn't it? "

"Not by any means. You must have many other expenses besides those which you set down against the cost of operating the vehicle."

"There are a few, but I don't think they amount to much."

"Have you ever taken the trouble to find out what they are? "

u:30 " No, I have always been content with the statement of my accountant that, on my usual annual turnover, I am making a reasonable profit."

"Suppose we look into those expenses for a moment." "Very well, it shouldn't take long. What do you think ought to be included? "

"First of all, I imagine you insure the loads you carry on this big vehicle?"

"Certainly I do. I should not be .given 'the business if I didn't. The premium I pay amounts to '.£26 per annum."

"There you are, then— that is as. per week to start with. And your driver? Presumably he stays away from home three tights a week?"

'Yes _ he does, but what has that got to do s-vith it?"

"You have to pay him lodging allowance, don't you?"

"Yes, 5s. a night, which is 15s. a week."

"Doesn't it sometimes happen that he has to telephone you from a distance for instructions? "

"Yes, but it's not very often."

If I put down Is. per week for that item, is it out of the way?"

"Well, I don't know, but I don't think there is any point in quibbling about Is. per week."

" Those Telephone Expenses.

"Very well, then. And your ordinary telephone bill—what does that come to in a year?"

"It varies a good deal. Sometimes it's as little as £5 a quarter, and sometimes as much as 27 or £8."

"Then a fair average is £25 per annum, or 10s. per week. You have made no allowance for your goodsvehicle licences and, for two vehicles, that item amounts to Al a year, say, 6d. a week. Again, in connection with that, I presume you have from time to time been involved in legal costs, also in other legal charges arising out of summonses and the like. Something you told rue earlier in this discussion about the speed at which you operate your vehicles has led me to imagine that you must lay yourself open to prosecution."

"I have had one or two troubles—speeding once, noisy silencer once, and another prosecution because the police thought one of my tyres was worn to such an extent as not to be safe."

"Then, if I suggest an expenditure of £5 per annum on that account, I shall not be extravagant?"

"No, perhapS not."

That is equivalent to another 2s. per week, I must tell you, too, thaf you should pay yourself a wage as manager. I don't suppose you have ever looked at it in that light: but I ex-pect you make drawings on your bank for personal expenses."

"Yes, of course I do so."

In that case, I shall not be exaggerating if I allow £200 per annum, that is, £4 per week, on that account. Filially, there must have been occasions when your big vehicle has been disabled or off the road for some maintenance operation, during which time you have had to hire in order to keep your contract alive? "

" Yes, I certainly have some knowledge of that kind of thug" " If I put down £21 per annum on that account, will that be fair? "

'Yes, I think so."

" That is another 8s. 6d. per week. Altogether, there

is £6 5s. per week, whereas you thought there was nothing that mattered. Now, you should divide that sum between your two vehicles, approximately in proportion to load capacity, in which case 25s. -should be debited to the small vehicle and 45 per week to the large one. Deduct that £5 per week from the £12 4s. gross profit and you have left only £7 4s. per week. If you take away from that, again, the £3 which you are losing on the small vehicle, you have only four guineas per week net profit. But for the little vehicle, you might be making quite a good profit out of this business."

" Yes, but every business man has some contract or other, or some department, on which he makes a loss. Surely, it does not matter so long as the enterprise as a whole is profitable? "

"I cannot admit that any 'business man' is likely to continue to operate any particular department of his business at a loss, without making some effort either to turn that loss into a profit, or, if that be impossible, taking steps to eliminate the unprofitable department."

" I don't see how I can do either of those things."

"To me it seems that you could well make an effort to .do the first of them, probably with some measure of success, but, failing that, I certainly think you ought to do the other."

" How can I possibly set about making the small vehicle profitable? "

"By putting up your rates:

"Surely I should lose -the business if I did? "

"To lose business of that kind, it seems to me, is making a profit, because, in effect, all that you dispense with is a loss of £3 per week. I should advise you to begin by raising your mileage rate to 7d. per mile and your hourly rate to 4s. 8d. It is quite likely that if your customers be satisfiedwith the Service you are giving, they will at least meet you, in which event you will he able to cut most of the loss.

"Apart from all that, it is more than likely that you and your cut rates with the 2-tonner are the cause of a good deal of dissatisfaction among haulier competitors in this area, operating the same size of vehicle. With a little encouragement from you, rates would be increased all round. Moreover, you are just the man who ought to set the example, because you are in a position to do so, having nothing to lose if, for a time, you be unsuccessful." S.T.R.

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