Charges for Coach Hire
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in Response to a Request, "The Commercial Motor" Costs Expert Describes How Rates Can be Worked Out on a Mileage Basis with No Variation in Accordance with Time Taken : He also Gives Hints on How. to Attract Custom
I WAS recently asked by a member of a local association of coach owners to tell him what he and his fellow
members Should charge per mile for the use of their, vehicles, In his letter it was stated that the eorrimittee.of' the association had agreed upon the principle of charging for all work done in accordance with the miles run, irres-• pective of time taken. All that was wanted from.rne w,as.a. recommendation for the charge per mile which would cover all costs and show a reasonable margin of profit.
In reply, I advised them not to adopt that method of charging. Coach operation, I said, more than any other kind of commercial transport, was related to time rather than mileage. They insisted, however, that they were right, . and in the endd gave them a rate per mile.
I based my charge onesome average figures for annual mileage and I included a fairly large amount to cover contingencies. I ensured that there would be no serious loss if they adopted my figures for a rate per mile. Whether they did or not, I have no knowledge. They did not even write to thank me for my figures, let alone tell me if they accepted the rate I recommended.
There is a feeling among coach operators that rates should be such that profits increase as the annual mileage rises. There may be something worthwhile in this idea, and, in that belief, readers -may 'like to see some figures which have a bearing on the matter.
Fluctuating Mileages Coach mileages fluctuate widely. I am, in this instance, thinking of vehicles employed chiefly on tours, excursions and private hire. The annual working mileage is limited because of the seasonal nature of the business. Assuming an annual mileage, on this seasonal work, of some 18,000, equivalent to an average weekly mileage of 360, the operating costs of a 30-32-seat coach are likely to be as follows:— The first cost can be taken to be £3,850. Tyres, assuming size 8.25 by 20, cost £160 per Set of six. A fairly high residual value can be taken, on the assumption that the vehicle is replaced after five years of use or, if not replaced, put on other work, and I propose to take £790. The amormt upon which depreciation can be calculated is £3,850, less £160 for tyres and £790 for residual value—£2,900.
The work upon which the vehicle is engaged is clearly Such that the weekly and the journey mileages will vary within wide limits. This is therefore an occasion when I A38 must split depreciation, putting half on a time basis of five years, and half as a running cost. That being so, I have half of £2,900, £1,450, spread over five years, equivalent to €290 per annum or £5 16s. per week. The other half, reckoning on 18,000 miles per week, is 3.87d. per mile.
Our schedule of standing charges will be as follows: licences, £1 3s. 3d.; wages, £7 10s.; rent and rates, 14s.; insurance, £1 5s.; interest on capital outlay, £2 Gs. 3d.; depreciation (half), £5 16s.; maintenance (d), £1 2s. The total is £19 16s. 6d. per week.
It may be thought that the allowance of fl 2s. per week to provide for maintenance (d) is insufficient. I justify it on the ground that in the case of a comparatively expensive vehicle there should be little need for expenditure on repainting during the period of five years in which it remains on private-hire work or tours and excursions.
Running Costs Now for the running costs. The average figures per mile are as follows: petrol, 5.20d.; lubricants, 0.20d.; tyres, 1.60d.; maintenance (e), 1.40d.; depreciation (half), 3.87d. The total is 12.27d. per mile, and on the basis of 360 miles a week,' the running costs add up to £18 8s. id. Adding the standing charges, I get £38 4s. 7d. for the total weekly operating costs. That is equivalent to 2s, lid, per mile. If I add £7 10s. per week for establishment costs, which for reasons I shall give later are fairly heavy in connection with this class of work, I get 2s. 6id. per mile, or say 2s. 6d. The minimum profit on work of this kind should be at the rate of 20 per cent. of cost, so that the figure which I recommended to my friend and his association was 3s. per mile. This would yield an average weekly profit of £4 10s., still working on the basis of 360 miles per week.
There is this to be said for the method of charging prescribed by the correspondent whose letter of inquiry gave rise to this article. If he and his fellow members be so fortunate as to be able to reckon with certainty upon work which will ensure 18,000 miles per annum at the agreed rate of 3s. per mile, then every mile run beyond that figure will bring in slightly less than 2s. net profit, that being the 3s. charge less 12.27d., the bare running cost per mile of the vehicle.
That state of affairs will continue so long as there is no addition necessary to either the standing charges or the establishment costs, for it will be appreciated that all these are paid for out of the earnings accruing from the basic 18,000
miles of operation. It may well be that a further 6,000 miles per annum can be run under these conditions, making a £600-addition to the net profit of £4 10s. per week made on the basic 18,000 miles. The total profit would thus be £825 per annum.
The figures may be checked as follows: the standing charges remain the same at £19 16s. 6d. The running costs total £24 10s. 10d.-that is the cost of 480 miles per week at 12.27d, per mile. Add the establishment costs, £7 10s. per week, and we get a total of £51 17s. 4d.
" The revenue is that accruing from running 480 miles at 3s. per mile, which is £62. The difference between that and £51 17s. 4d., £102s, 8d., is the net profit per week. That does not exactly coincide with the amount calculated above; the difference is because of approximations made when took the running cost to be Is.per mile and not the actual figure of 12.27d.
Of course, there comes a time when the increase in mileage brings in its train some increases in the standing charges and the establishment Costs, and when that occurs, the other ' more orthodox method of reckoning charges and profits will have to be applied. Let us assume tha when the mileage rises above 24,000, the wages increase to £9 10s. per week and the establishment costs to £10. That will mean that our standing charges will now become £21 16s. 6d., so that the total of fixed charges, that is to say standing charges plus establishment costs, will total £31 lbs. 6d.
The running costs will remain at 12,27d, per mile and if the total annual mileage can be increased to, say, 30,000, which is equivalent to an average of -600 per week, that represents £30 13s. 6d. (1 am not suggesting that the weekly mileage will even approximate to 600 per week throughout the year. It will still fluctuate according to season.) The total weekly cost is £62 10s. The revenue should be £80, giving a net profit of £17 10s, per week.
Week-end Work
Most of the mileage which is run by coaches is at weekends, and that applies particularly during the off-season. In the summer lengthy tours covering a week, 10 days or a fortnight are run, and the bulk of the mileage and the earnings arise from them. In the winter, most of the traffic is at week-ends only.
The question arises of how it is possible to attract custom to bring about a derna'nd for this extra mileage. What the coach owner wants to do is to get into contact with those people who perhaps are not among his week-end clientele, people who for some reason or other can go for tours or excursions in the middle of the week. Such potential customers are present in the retail traders of the district. They are busiest at the week-ends; but can often take a day or two off in the middle of the week.
Consideration must be given to the kind of tour which is likely to attract these people. It should offer the trades
men an entire change. Trips with an object are to be recommended but they should not cover too much ground. There should be a limit to the distance from point to point; no individual day's journey should exceed about 100 miles. The passengers .should not be expected to remain seated in the coach for more than an hour or so at a time without a' break. There should be something of interest at every stop. For each tour, there should be a little booklet, not too wordy but well illustrated. . .
Another thing that should be borne in mind is that the average 'passenger in this country, to whatever class he belongs, has become accustomed to a high degree of comfort which he probably would not expect in his other
circumstances of living. Particular attention should be given to this matter.
One At a Time
A word of warning. Do not be greedy. Do not try to tap the whole resources of the town in respect of retail 'tradesmen in one week. It does not follow that the larger the party, the more successful it is likely to be. One coach load at a time is best, not only because it is possible in this way to find employment for a coach on the one particular tour week 'after week, thus reducing overheads, but also because a sudden influx of two or three coach loads of passengers is too much for some places of interest to be visited. '
Carefulplanning is necessary for asuccessful tour, and the cost of that planning may be high. The operator, or a responsible and capable representative, must go over the ground in a car, travelling at the same rate as that at which the coach will travel, stopping at the .same places and sampling the meals and accommodation which are going to be offered.
Success can be achieved only if those responsible first go through. the route mile by mile, making notes for the guidance of their advertising and administrative staffs in respect of timing; stopping places and hotels, getting information for the driver, making references to points on the route which call for special care, and compiling material for a -booklet, giving references to landmarks; places of interest, unusual viewpoints, and so on.
Dates are important, especially those of fairs, agricultural shows and the like which may be occurring along the route. It is preferable to plan the journey so that such events, which usually create traffic congestion, can he avoided.
Time and Mileage
It is of interest to compare this mileage method of charging with the more orthodox one built up from time and mileage figures. The time and mileage figure i which apply in this case are as follows: First, the total of standing charges, £19 16s. 6d., then the establishment costs, £7 10s., making £27 6s. 6d.; to that add profit at the rate of 25 per cent., £6 13s. 6d., and the total, £34, is the revenue that must accrue per average week on account of time. Taking a 44-hour week, that is equivalent to 15s. 6d, pet hour. . The mileage charge is the cost per mile, 12.27d., plus 25 per cent., which gives us 15.34d,, say is. 31d. pet mile.
Now take two simple examples. First, a theatre trip involving a total mileage of 80 and six hours' use of the coach. The time charge is six times 15s. 6d., £4 13s. The mileage charge is 80 times Is. 31-d., £5 3s. 4d. The charge should therefore be £9 16s. 4d. If charged at 3s. per mile, the rate would he £12, so that in this particular case the operator would get a bigger revenue by charging a flat rate per mite irrespective of time.
Take another instance,,a run to the coast in which the vehicle is occupied for 12 hours and runs 160 miles. Twelve hours at 15s. 6d. is £9 6s., and 160 miles at Is. 30. per mile is £10 bs. 8d. The total revenue is thus £14 12s. 8d., whereas if charged at 3s. per mile the revenue would be £24.
Of course, what actually happens is that the coachoperator gets as much as he can. With that point in mind, I would recommend him to keep an eye on both methods of charging and regard the time-and-mileage figure as the minimum. S.T.R.