IGNORANCE
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is Loss
THIS is the second and concluding article describing I a conversation-with a jobbing haulier who was for part of his time operating his 5-tanner mainly for the local council, charging 8s. 6d. an hour, and for the rest on medium hauls, for which he was charging Is, 3d. a mile. I have examined his costs and proved to him that on a 44-hour week his fixed charges are Ell and that if he works, as be usually does, a 48-hour week, he must add 10s. for extra wages, bringing the total to Ell 10s. for 48 hours.
He has the feeling that he is not making a fair profit, but cannot decide whether his hourly, charge or his mileage charge is insufficient, or whether both should he increased.
Wanted : A Sense of Proportion !
Superficially it seems that the charge of Is, 3d. per mile might be sufficient, but that the 8s. 6d. an hour needs td be increased. There is, however, no certainty of that, and it is becoming plain that we cannot arrive at a solution of his problem without going more into detail and discovering the proportions of hourly rates and mileage rates. It-certainly looks as though he is running too many miles per hour to justify a charge of only 8s. fid.
"Give me an example of the sort of work you are doing," I said, and let's see if we can arrive at something tangible."
"I had a job last week to carry drain pipes to a building site 20 miles away. The total distance was 40 miles and, of course, I was paid on the mileage rate of Is. 3d., and, therefore, the price was £2 10s."
"An important point," I said, is how long the job took. You see, if you took a whole day, that is nine hours, you might have been earning £3 16s, 6d. for nine hours at 8s. 6d., and, if that were the case, you were losing on the job, but. . . . "
Here he interrupted. " Oh, it didn't take anything like as long as that. I picked the load up at 2 p.m. and back at the garage at 6 p.m."
So it took you four hours. This is rather a longtime."
WAS
Delays. at Terminals "Yes, that's the snag about some of these jobs. They weren't quite ready to load up when I called for the pipes, and when my man got to the other end—or so he tells me— there was a bit of a dispute between the people concerned as to where he should unload, and these things have to be
loaded and unloaded by hand with great care." . .; "The point which concerns us at the moment is that it took four hours." ••
" Yes, and that's where I think you must be wrong, for actually I earned £2 10s., and if I. had been on an in-lown job I should have earned only El 14s."
"You can't reckon your pitfit easily as that," answered. "It may be that you are right in this case. But
we can tell only by actual calculation. What it really turns on is the average mileage per hour. In your town work you cover on an average 240 miles in 48 hours, that is, an average of 5 m.p.h. , On this run with the drain pipes you did 40 miles in four hours, 10 m.p.h. That Costs you more, and that is the point you have to watch.. You may have made more money on this job, but it doesn't follow that you made
more profit. .
You did 20 miles more than you would have done on town work, and those 20 miles, at a cost of 6d. per mile, represents another 10s., whereas you actually made 16s. more than you would have done on town work. • "Give me another example of your out-of-town work.'
"There was a load of sand and gravel to the same site," he said. "That didn't take anything like so long. The lorry was loaded in 10 minutes by hopper at the gravel pits and tipped at the other end. I don't think I was quite two hours on the job."
"And did you get £2 10s, for that 2"
" Yes, £2 10s., whereas if I had done it at the hourly rate I should have got only I7s."
A Profitable Job • "There ought to be more profit in that, then," I said. "Let's see. You did 40 miles in two hours, instead of le miles, so that the costs were increased to the extent of 30 times 6d., which is 15s. Your profit was increased by 33s., the difference between what you actually received, £2 10s., and what you would have earned on the hourly rate, namely, 17s., so that you really Were up on that particular job.
"The confusion comes, as I have already said, from applying average figures loosely without proper regard to .their meaning.. for example, it is wrong to take your total of 300 to 400 miles per week and from that to calculate your average mileage on the hourly work."
"Why is it wrong; how should I Make calculations to show that a job at a given rate is showing mesa profit or not 2"
'By the simple process of taking into account the time you take on the job and the mileage covered. Take the three cases we have just discussed."
"Two, not three, surely 2" "No, because I want to include my own original suggestion that the 40 miles out of town might have taken a whole day, that is, nine hours. To get at proper figures for time and mileage you must divide the fixed charge, which we have just discovered to be II I 10s. for the 48-hour week.
" Well: not exactly that The proper' way to deal with the matter is to take the £11 for the 44 hour week and leave the overtime out of the question. If we do that we get.a figure for your time cost of 5s. per hour On to that we have to add 6d. for every mile run. Nov in reck6iiing up what any job is going to cost—mind you, I say 'cost,' not what you
must charge-take the total time, including loading, travelling out, unloading and travelling back again, and seckon that at 5s. an hour. Add for the mileage at 6d. a mile."
"Yes, but I can't possibly make out my accounts in that way The people that I work for just wouldn't stand it. The municipal people want a rate per hour and the other people for whom I run Mileage want to know how much 1 am going to charge per mile."
Profit Insufficient
"That's all right. This is only for your own calculations. You can fix the charges from those figures. I'll show you how to do it. Let's apply my method to these three examples: first, the assumption that you take a full day of nine hours on that first 40-mile trip. Nine hours at 5s. equals £2 5s., and 40 miles at 6d., £1; total £3 5s. Now at Is. 3d. per mile you get £2 10s., which shows a dead loss of 15s. At 8s. 6d. per hour you get £3 16s. 6d., a profit of us. 6d.-not enough, but still a profit.
• "Now take the second example-, where you do the same job in four hours. Your time cost is four times 5s., which is £1. Your mileage is the same as before, that is another £1, so that your total net cost is £2. At is. 3d. per mile you get £2 10s., and show a profit of 10s., but at 8s. 6d. per hour you get only £1 14s., showing an actual loss of 6s. You see, that is the opposite result to what we got in the first case, where we showed a profit on the time charge and a loss on the mileage charge. In the first place, the time factor was against you, and in the second it was with you.
"Now examine the third case in which you did 40 miles in two hours. Then your cost was 10s. for time, the -mileage cost was still £1, so that the total is £1 10s. You charged Is. 3d per mile, so that you made £2 10s. and you earned a profit of £1, which is quite good. If you had charged at the hourly rate of 8s. 6d.,you would have got only 17s. and shaft a loss of 13s.
"You see, you have to be very careful how you apply the mileage charge if you don't know what time you are going to take over a job. Are you quite sure," I said, "you can't give me some idea of what proportion of your work is on this hourly basis and what is on a mileage basis ?"
"I'm afraid I haven't worked that out," he said.
"But you must make out bills for your work. Let's have a set of bills for work done in any week. They will do."
He produced his books, from which I compiled the schedule which accompanies this article.
"Now," I said, "let's analyse this. First of all, the work you did on a time basis at 8s. 6d." We added the hours up and found they came to 20, and the mileage on those particular jobs added up to 100.
"That is rather interesting for a start," I said. " It shows that you definitely average 5 m.p.h. on local work. Your earnings at 8s. 6d. per hour for the 20 hours total £8 10s. Cost, at 5s. an hour plus 6d. a mile, is £5 for the 20 hours, plus £2 10s. for the 100 miles, total £7 10s. On that you made a profit of £1, but it's not enough."
How do you mean= not enough.' How can you tell?"
"Wait a minute," I said, "let's finish this analysis first. The next thing we want to do is to add up the number of miles run for wnich you charge Is. 3d. per mile." The figure was 210.
Day Time
Monday .. 8 a.m. noon
Tuesday ,. 8 a.m. noon
Wednesday Thursday ., 8 a.m. noon
Friday .. 8 a.m. noon
Saturday ,.
Still Not Enough
"There you are," I said, "210 miles, and you took 28 hours to cover them. You earned 210 times is. 3c1.-£13 2s. 6d. Cost was 28 times 5s., which is £7, plus 210 miles at 6d., which is £5 5s. The total is £12 5s., so that on your mileage work you made only 17s. 6d. Your 'total profit was only £1 17s. 6d. in the week. I still say it's not enough.
"But we'll look at it another way. We'll check that profit. You did 48 hours' work at a cost to you of 5s. an hour, which is £12, and you ran 310 miles at a cost of 6d. a mile£7 15s. The total is thus £19 15s. Your total earnings" (these are worked out on the schedule) "come to £21 12s. 6d.
A40 The difference between earnings and cost is £1 17s. 6d., which is the figure we got before.
" First, let me explain what I mean when I say that that profit is insufficient, It is the custom in the haulage industry to reckon profits as a percentage on cost, and there are three figures for that percentage. The first applies only to contract work-work which is absolutely regular-and the percentage is 15.
"The second refers to work such as yours, not quite so sure and certain as contract work, but, nevertheless, of a kind which, as you have told me, keeps you regularly employed for the greater part of your time. The proper percentage in those cases is 20.
"Mark-up" for Odd Jobs
"The third percentage is used on an occasional job, one which probably puts you out a little, but one which you don't like to lose. With an odd job the percentage to be added is 25.
"If we take 20 per cent, as applying to your case, and I think it is fair, you add 20 per cent. to £19 15s., which is your cost, and you get nearly £25, and £25 is the least you ought to earn per week on this work. Now let's go back to this week's work of yours.
" We found that you did 20 hours' work, running 100 miles, and you earned £8 10s. We also discovered that the cost to you was £7 10s. Now 20 per cent. of £7 10s. is onefifth of £7 10s., which is £1 10s. Add that to £7 10s. and you get 0-the amount you ought to earn. As you did 20 hours' work, your rate ought to be 9s. per hour.
"Again, in the other Rase, you did 210 miles at a cost to you of £12 5s. You made a profit of 17s. 6d., because you got only £13 2s. 6d. for it at Is. 3d. per mile. Now 20 per cent of £12 5s. is £2 9s.; £2 10s. would be near enough. That means that you ought to have got £14 15s., or almost Is.
per mile, for running those 210 miles.
Rates Must be Raised "So you see that if you are going to make a profit, your rate should not be 8s. 6d. per hour and Is. 3d. per mile, but 9s. per hour and is. 7d. per mile.
"We'll check in another way if you like," I said. "First of all, your hourly rate: we have seen that 'our average mileage per hour for the job for which you charge on a time basis is five, so that for every hour you run your net cost is 5s. for time plus 2s. 6d. for five miles, that is 7s. 6d. Twenty per cent. of 7s. 6d. is Is. 6d. Add those together and you get 9s., and that is really the way you ought to work out your job.
"On the mileage basis I see you did 210 miles in 28 hours. Well, that is almost exactly eight miles in the hour, so your cost at that rate is 5s. for time plus 4s. for eight miles at 6d. a mile, total 9s. Twenty per cent., or one-fifth, of 9s. is Is. 10d., so that you should get 10s. 10d. per eight miles. Eight miles into 10s. 10d. gives Is. 40. If I were you, I should charge Is. 5d. per mile to be on the safe side."
I hope that this particular haulier is now set on the right path and that others will be helped by following the argu ments set out. S.T.R.