Helping a Newcomer
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on to His Feet
The Conclusion of a Series of Three Articles, in which the Elements of Costing are Explained to an Owner-driver
THE description of this chat with a haulier, which has already involved me in writing two articles and now a third—the last of the series—is designed, first, to expose and eradicate the fallacies entertained by the majority of newcomers. I have in mind owner-drivers, especially released Service men who have been fortunate enough to obtain licences. The second, object is to put sonic tangible and practical ideas in the place of those fallacies.
So far I have dealt with the mistaken idea that vehicle operating costs. comprise no more than expenditure on petrol, oil, rent and taxes. I have dealt positively with the notion that maintenance costs nothing and have proved that, in the case of a 2-tonner, for example; it must approximate to Id, per mile, no matter what may. be the circumstances. I have, I hope, "killed " the idea that there is no point in debiting the owner-driver's. vehicle with driver's wages:
I have establiShed so far that the vehicle costs of a 2-tanner comprise running costs, 41tt. per mile (for petrol, oil, maintenance, tyrea and depreciationl., and that standing charges (tax, wages, insurance, garage rent and interest on capital autlay). total £7 45. 11th per weel—say, £7 5s.
At the conclusion of the previous article I had reached the point of demonstrating to the operator that this-t7 5s. per week was equal to 41d. per mile at 400 miles per week. Next I went on to explain to him that that sum must be Added to the running costs to obtain. the total cost.
Influence of Mileage
You see," I said, –your total cost per mile, if you are running 400 miles per week, is this 4d. for standing charges, plus the 4.1d. we have already agreed for running costs, that is eid. per mile. If you are running only 200 miles per week, that 4id. would be doubled, because it would be spread over half the mileage. Then your total cost per mile will be 8-/d. plus glide that is Is. !id,
" If you are running 600 miles per week, the amount of the standing charges for each mile will be only 3d; and your total cost per mirewill be 71d. You will see, then, how important it is ter know what mileage you are going to run before you can decide what your charge is going to be." That," he replied, "is going. to be rather difficult" "Why?"
"Well, 'suppose I take CM a job of running only 100 miles per week and the next week I do over 600. What do I do there:. do I strike an average?"
"No that wouldn't be fair, because it wouldn't take into consideration certain jobs which involve a good deal of standing time, such as waiting at docks, or open-cast coal depots or similar work. A man might keep you waiting all day and you might run only 10 miles_ If you charge him on your average basis, that particular customer would be having his work paid for by the next man, who might give you a iob which would enable you to cover 200 miles a day " "Does that matter, so long as I get my total weekly mileage and ant paid accordingly?"
Charges Must be Proportionate "It matters very much, because in the long lain you will find that you. get more and more jobs of the 10-miles-perday crass and fewer of the long trips. 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 El or so will think you are a mug and will take all the advantage that he can. The other customer, for whom you run 200 miles per day on a corresponding basis, will have to pay you something like £9 or £10, and may think it worth while to look for someone else who will do the job a little cheaper."
"What am I to do, then?"
" Before I tell you that," I said, "there is something else we have to discuss. I want to make sure that you are not getting it 'into your head that this. 'ltd. per mile for a 600-mile week is the charge you must make. There is something else to be considered before we get to that. We have not yet taken into account what I might term as the cost of running your business."
"'The cost of running my business! Surely there is nothing in that? It doesn't cost me anything at all."
"Oh, yes. it does," said L "You will soon find that you can't run a haulage business at no expense." "1 don't suppose I shall have to spend anything worth bothering about," he replied.
"Possibly no item taken individually seems to be worth consideration, but if you take the trouble to find out how many of these items there are, assessing each fairly according to the probable annual expenditure, you will find the total much greater than you imagine. To take a single example, the item which you will probably have entirely overlooked —dead mileage."
"There isn't likely to be any," he replied, "because the lorry will be busy all day."
"It just depends," I said, "on how you quote for the work you are doing. Generally, I expect, you will quote according to the mileage from collection to delivery of the load."
"Yes, I'm thinking of that," he admitted.
"Then how many miles is it," I asked, "from your garage to the wharf where you usually pick up your load?"
" Three-and-a-half."
"Were you going to reckon that in?"
"Well, er, no. Only distances from wharf to coal yard have been taken into consideration up to now."
"There you are," I said. "I have already shown you that the bare running cost of your vehicle is 44d. per mile. You are, going to have to cover those 3i miles each way, five days per week, you will travel 35 miles at 40., which equals more than 13s. per week. If, when you quote your price for this work, you areasked to knock 13s. per week off your price, you won't like it, will you?"
"No, I don't expect there will be sufficient margin of profit to allow that," he replied.
Dead Mileage Means Loss
" Very well, then, if you take no account of this dead mileage you are actually knocking off 13s. per week before you begin and that is only one of quite a number of cases of dead mileage which you will experience during the year. I am going to suggest to you that you call this provision for dead mileage contingencies' and allow £50 a year for it.
"Now just think for yourself. Have you spent any money at all, other than on petrol and oil and the other things we have already discussed?"
"Well, I did have to buy a book of log sheets, I got some bill heads and some envelopes. ."
" Nothing else?"
"I don't think so."
"Where did you get that typewriter?"
"Oh, yes. I bought that second-hand. It cost me rather a lot."
" That's all right. You won't be spending that sum every year, but you have got to make some allowance for it. I see you have a telephone, too. . .
" Now, look," I said, "I will put down just a few items which you have already admitted. There is this dead mileage, £50 a year; telephone, say, £15 a year; stationery, 15s. a year; postage—you can't spend much less than 6d. a week on it—that's £1 6s. a year. The typewriter—we will make an allowance of £1 a year for that. I am going to put down 10s. per annum for outside telephone calls and telegrams, and then there is cost of lighting and heating in your little office, say £2 a year. Now," I said, "if we add all these together we get as much as £70 I ls. per annum. You wouldn't call that exactly nothing, would you?" "Well, there are other things, too, but I don't want to go too much into detail with you to-day, but we will put down another 5s. a week for what I will call 'sundries' and you will find that the total is equivalent to £1 15s. a week throughout the year. You will probably find, as you go on, that it will cost you more than that, but if you take £1 15s, and add that to the £7 5s. per week standing charges, we get a total of £9 a week for fixed costs, which.you have got to pay sooner or later. Do you see that?" "Well, I suppose I do," he said. "At 'any rate, I can't find fault with what you have said. But," he went on, "you were going to tell me how to fix a rate for short mileages and a rate for long mileages."
"It is a bit early to do that," I said, " but at least I will give you a preliminary idea. You have a figure of £9 per week for your fixed charges. That covers a 44-hour week and if you divide £9, that is, 180s. by 44" (here I set out the figures and worked out the little sum for him) "you get 4s. Id. per hour, which is the amount of your fixed charges. In addition;you must remember you have—what?" He jumped a little at being questioned so abruptly, but collected himself sufficiently to answer, "The running costs, 40. per mile."
Costs per Hour
"Right. Now, you see, if you run your vehicle 10 miles in the hour, it costs you 10 times 40., which is 3s. 9d. for running costs, plus 4s. Id. for fixed charges; that is 7s. 10d. per hour. If you run only four miles in the hour, your running cost is four times 41, which is Is. 6d., and your total is ls. 6d. added to 4s. Id., which is 5s. 7d. And so on. That is how you work out your own costs, but that is not the amount that you must charge. We have something else to take into consideration .yet."
" What, another expense?" he said.
"No, not an expense this time," I replied. "You have got to think about some profit. All that we have talked about up to now is what you are spending. You want to make something out of it, don't you?"
"I rather think so, if you say I mustn't regard my wages as profit." "There are several ways of reckoning profit," I said. "You can fix how much you want to earn a week,' you can add it as a percentage and even when you have gone so far, there are several ways of dividing it between your fixed costs and your running costs. In the old days there was a rough rule of adding one to the capacity of the vehicle in tons and taking that figure as a basis. For a 2-tonner the profit would be £3 per week, for a 4-tonner, £5 and for a 7-tOnner. and so on. The trouble with that rule is that it falls down when you get to the larger sizes of vehicle— the 10/12-tonners—although it is easier to earn a profit with a big vehicle than with a small one."
"How is that?"
"Well, if you look at this copy of The Commercial Motor' Tables of Operating Costs, I think I will be able to make the matter clear, Assume for the moment that you have a 1-ton lorry which is covering 800 miles per week and a 12-tonner which is travelling 800 miles per week. The cost per mile of the 1-tonner is 51d. (I am still keeping those decimals out of your sums) and for every 100 miles that is 575d., or 47s. 11d, per ton. You can call it £2 8s, if you like. "Now the cost per mile of a 12-toriner running 800 miles per week is Is. 24d. For 100 miles that is 1,450d., which is 120s. 10d., but that is for carrying 12 tons, so that the actual cost per ton is only 10s., as against £2 8s. with the Homier; 11 you add is. a ton extra as profit, it would earn you only is. in the case of the 1-tonner and you would have to charge £2 9s. per ton. But it would earn you 12s. in the case of the 12-tonner and you would have to increase your rate only from 10s. to Ils, per ton. Those are extreme cases, but the principle is the same, provided always that you are in the position to fill the big lorry and do the weekly mileage with it."
"But doesn't the weekly mileage make a difference to the profit which ought to be earned?"
"Yes, it does, and that in itself is another reason why it is impossible to lay down hard-and-fast rules. In your case, with a 2-tonner, you can assume that £3 10s. per week is a fair profit, but that would be sufficient for only small mileages. In the medium mileages you ought to get about £4, rising to as much as £5 for 1,000 miles a week." Here I drew up Table I.
Now this shows you clearly how the cost per mile drops from as much as 25. 2id. per 100 miles per week to as little as 61d. for 1,000 miles per week. These figures are
costs only. Now we will draw up another table and put in the profit. We accordingly drew up Table II, which gives the necessary additional information.
"Now," I said, in the bottom line of Table II you have an idea as to what you ought to charge per mile for different jobs according to the number of miles you run per day or per hour. I have put in the figures of mileage per hour so as to give you a better idea of what I am talking about. You see, for example, that 400 miles per week equal 91 miles per hour. That is the mileage which you say you are going to cover. For that, as Table II shows, you ought to charge is. CV. per mile, in order to be able to operate economically.
"Now I will give you this further advice. If you are doing a small mileage, as you would on municipal haulage in a comparatively small town, you will be covering between 21 to 44 miles per hour. Those are the figures in the first and second columns of the table. In that case, it wouldn't be advisable to work out your charge per mile, but by the hour. You will see you will need to charge between 6s. 7d. and 7s. 5d. per hour, depending on whether you are doing 21 or 4i miles per hour. Actually, I would recommend you to work on the figure of 5 miles per hour and charge 7s. 6d.