Solving the Problems
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of the Carrier
Don't Work for No Pay
Owner-drivers Are Cautioned Against Ignoring Wages in Their Rates Anessment, and Ignoring Interest on Capital Outlay: Overheads Can Also Be Heavy
IT is extraordinary how many rqrier-drivers hold the opinion that, in calculating operating costs, they need not include anything for driver's wages. This is a matter to which I have frequently referred in the past. Nevertheless, I was to some extent surprised to find that an ownerdriver whom I have known and respected for some time still held that view,
1 have discussed operating costs with him many a time and am pleased to find that he has followed my recommendation to keep track of his costs. I find that I have induced him to calculate for himself each of the five items of running cost. He has admitted the existence of four standing charges, namely, taxation, levy, insurance and garage rent, but when I suggested to him that there were two others he said he would like to know what they were. When I mentioned driver's wages he said: "But I'm going to drive the vehicle myself. There will be no driver's wages to pay."
"1 appreciate that," I replied, "but you must pay yourself wages and enter those wages as an item of operating cost, because, until you have done that, you are not making a profit."
"1 think it will be enough for me if I reckon as profit all Oat I get in excess of the sums we've been discussing as operating costs."
Sufficient Wages
" You are quite wrong. I put it to you this way. You would not have any difficulty in getting a job as a driver, would you? Why not take such a job, if a driver's wage is sufficient for you? Why buy a lorry and take the risk of not being able to find work for it, of having it on your hands, of falling sick, say, and having to pay garage rent, insurance and all the other incidental expenses for nothing?"
"I don't mean to .say that I shouldn't try to get more than just what I could earn as a driver. What I mean is that I should still regard that as profit. Ifs going into my pocket anyhow."
"You must get this idea fixed firmly in your mind," I said, "and you must never let it escape. The most essential thing for, any man in business, be it large or small, is for him to have exact knowledge of what arc his costs, where those costs finish, and where actual net profit begins. You are not making a profit in the true sense of the word if you are not debiting as an item of cost of operation a full and .fair amount as driver's wages.
"I now begin to see that you are right," he agreed, "but that is only the fifth item of standing charges. You said that there were six and I see, on looking at The Commercial Motor Tables of Operating Costs,! that there is still another one that I've not bothered about, namely, interest. What's interest?"
1348 " It is the interest on the money invested in your vehicle. It is what that money would earn if you'd bought shares with it and simply sat at home and waited for the money to come in.
" It is calculated," I continued, "on the basis of the net cost of the vehicle, less the cost of a set of tyres. Your vehicle cost, shall we say, £1,000, and you have already told me in discussing the cost of tyres that a set is worth £150. The net cost of the vehicle for the purpose of calculating interest is £850, and if you take 4 per cent, per annum as the interest figure, that is £34 per annum, or 13s. 6d. per week.
Standing Charges
"Now let me set out the details of cost, item by item, taking the figures from the current issue of the Tables. I can do that quite fairly, although almost all of the items are different today, as it is the method of calculation that 4m concerned with. The standing charges are: tax, 14s.; levy, 3s. I ld.; wages, 149s.; garage rent, 10s. 6d.; insurance, 9s.; interest, 19s. The total is £10 5s. 5d. (It is sufficiently accurate to take that as £10 5s. per week.) "Now for the running costs. Assuming an average of 400 miles per week, the running costs are: fuel, 4.03d.; lubricants, 0.21d.; tyres, 1.73d.; maintenance, 2.06d.; depreciation, 2.60d.; total, I0.63d. per mile.
"That running cost together with the standing charges (£10 5s.) are all the operating costs, and if, as I understand you, you want a figure for total operating costs it is to be obtained in this way. The £10 5s. is spread over the whole week. If your vehicle covers only one mile per week, the cost of that mile would be £10 5s. plus 10.63d.
"If you do 400 miles per week, you must divide the £10 5s. by 400 to get the amount of the standing charges per mile. That is 6.15d. per mile. Add the running cost of 10.63d. to get at the total cost per mile, namely, 16.78d. That is the total cost per mile of this vehicle when it is covering 400 miles per week.
"Now, that figure is applicable only when the weekly mileage is 400. You can use it in calculating your charges , when every one of those 400 miles is run for payment If you do only 300, you divide the standing charges by 300 giving you 8.23d. Add the running cost per mile, namely, 10.63d., and you get the total cost per mile of 18.86d,, considerably more, you see, than when doing 400 miles per week."
"Then how on earth am I going to be able to find out what I should charge for a job when one week I may be running 100 miles and the next I might be running 600? Do 1-strike an average?"
"No, that would not be fair, because it would not take into consideration certain jobs which involve a good deal of waiting time, such as picking up or setting down at the docks. You might have a customer keep you waiting alt day and run only 10 mites. If you charge on an average basis, then the customer would be having his work paid for by the next One, who, perhaps 'might give you a job which would, enable you to cover 200 miles in a day."
Does that matter, so long as' I get my weekly total of mileage and ant paid accordingly?"
Taking Advantage, " It matters very much, because, in the long run, you'll find that you will get more and more jobs of the 10-mileper-day class and fewer of the 200 miles per day. The man who can persuade you to take on a contract which will last for a day at a cost to him of no more than £1 a day will think you a mug but will, nevertheless, take all the advantage of you that he can, The other customer, for whom you run 200 miles in a day, and who, on 'a -corresponding basis, will have to pay you for 200 miles at 17.28d. per, mile, £14 8S.. may possibly think it worth while to look for someone who will do the job for less-money."
-',What do I do then? "
I will tell you, but before I do So I must warn you that you are not yet: at the end of Your calculations of cost. You -know what your vehicle costs: to operate but you have.not yet made any"allowance for the cost of running your business, nor is there any provision for profit."
"Cost of running my business? What On earth do you mean by that?"
"You don't suppose you can run a haulage business at no expense whatever, do you? "
"I don't ,reekon I shall have to spend anything that's worth bothering about," he replied. .
"Probably no single item, taken 'apart, seems to be worth consideration," I said, "but if you take the trouble to find out how many items these are, assessing each fairly according to the probable annual expenditure, you will find the total to be much more than you imagine. To take a single item as an example, one which you have probably overlooked altogether,namely, dead mileage—mileage that s„'ou have run and for which you eannot make a direct charge."
Busy All Day
There isn't likely to be any," came the reply. At any rate there won't be if I get this contract, because the lorry will be busy all day and every day under the terms of the contract."
"In calculating the charge you are going to make for that contract," I pointed out, "you are basing your price on the point-to-point mileage, aren't you? "
" 1 hat's right. At least that's how I understand you to recommend prices to be calculated in such a case."
" Good, How many miles is it from your place to the wharf where you pick up your loads? "
" Three."
Were you going to reckon that in?"
"Well, no. Only distances from wharf to coal yard have been taken into consideration as yet."
"And we have found that the bare running cost of your vehicle is 10.63d. per mile: call it 10d. to make the calculations easier. You have to cover that three miles twice a day, six times per week. That's 36 miles, so that your dead mileage is going to cost you 36 times 10d. per week, which is £1 10s. per week apart from anything else: If, when you quote your price for the contract, you, are asked to knock ft 10s. off your quotation you won't like it, will you?"
"No. there isn't going to be so big a margin of profit."
"Very well, then. If yOu take; noaccount of this dead mileage, you are actually knocking 'offabout £1 los: a week before you beginto run some nioney-earning miles. And that is oniy one of quite a number of items which is included in what I call the cost of running your business."
"What are the others then?"
"I'm afraid it's rather a long list, but I can easily show you how important establishment costs may be, if I cite a few of them.
• Telephone Charge
You'll have to have a telephone and if you make much use of it, it will cost you from £12 to £20 a year. You must have stationery, even if it is only bill heads, and you can't allow less than £2 a year for that. And take postage, 2s. 6d. a week for a year adds up to £6 10s. It will probably suffice. for you, so long as you can fill in all your time on a steady 'contract, but if you do a fairly reasonable amount of jobbing haulage you will need all that and more.
"You' ought to have a typewriter, even if it is only a • secondhand one. Suppose you buy one for £20 and it
• lastsyou for five years. That's £4 a year even if you never have to have it serviced or buy a ribbon for it. Then' you are bound to spend something on outside telephone calls and possibly send a telegram every now and again. Suppose I allow E5 a year for those items.
"All these little things mount up, you know. It's more than likely that, now and again, you'll want to make a few adjustments to your vehicle and will have to do that at night, and when you are not doing that you may have to stay at home and make up your books or get out some accounts. For that Work you will need light and heat which will amount to another £2 a year at the very least. Let us see what we have got now.
"Dead, mileage, £75; telephone, £16; stationery, £2; postage, £6 10s.; typewriter. £4; outside telephone calls and telegrams; £5; light and heat, 12. Total, £110 10s."
"£110 10s. a year," he said, amazed. "I should never have thought it possible. Why, it comes out at more than £2 per week."
EY Per Week
"And at that," I rejoined, "there are more items than those quoted. I should say that the real :total is More than £3 per week, but we can reckon that 13 per week as being near enough to actuality to serve my purpose, which, you should remember, is to convince you that 'you cannot run a business, even that of an owner-driver, for nothing. I have made no provision for what may well turn out to be -quite expensive; it is commonly referred to as 'contingencies' and, in the case of a job like yours, involving a contract, it covers provision for the -extra expense of finding another vehicle to do the work while your own is undergoing repairs.
"Now," I said, "we can go back to the point we were at when I mentioned the matter of the expense of running your business, which you didn't agree existed, and I can explain to you how, with these figures in your mind, you can calculate your charges in such a way as to make proper allowance, on the one hand for the man who wants you to do a job which may involve only 10 miles of running in a day and, On the other, for the customer whose work involves 200 miles a day: "If you look at these figures again you will see that one of them, the total running cost, depends entirely on the weekly mileage. That is the figure of 10.63d. per mile. The others, the standing charges of £10 5s, and the establishment costs, £3, depend entirely an time. There is another item which is usually, based on time. . . ."
"What, yet more expenses?"
"No, this time it is the question of profit which we have agreed you ought to make over and above the amount set aside as driver's wages, which you will actually pay yourself. I suppose you have no idea what profit you would like to make?" S.T.R.