Time and Mileage Charges
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The Difficulty of Assessing Charges Based Only on Mileage: Computing Costs and Earnings Based on an Increase of Profit with a Rise in Annual Mileage
IN my previous article I dealt with the charges which the operator should make for the use of a coach. This series of articles, of which this is the last, was Written to cover two postal inquiries which could not adequately be answered by correspondence. One point which was raised in one of the ietters and with which I have not yet delft, concerned a schedule of rates based on mileage irrespective of time. This inquirer. wanted to be able to quote in such a manner that his figure bore some relationship to the mileage run.
He appreciated that the logical method of charging was to take time into consideration, but he had come up against a difficulty. A trip involving a comparatively small mileage, but which involved considerable waiting, might be worth more in actual rate, than one involving a greater mileage but little waiting.
The seemingly high rate for the short journey could be justified were the operator given the opportunity to explain to the customer, but unfortunately, the customer rarely gave the coach owner the chance to do so. He was apt, therefore, to think that the operator was overcharging and probably went elsewhere for a quotation.
Should he get one which seemed more in keeping with the proposed mileage, he would accept that quotation to the disadvantage of the operator quoting on a time and mileage basis.
Revenue for 1,000-mile Week
In an endeavour to meet the requirements of this correspondent, I have worked out the revenue he should make for a week in which the vehicle is presumed to have run 1,000 miles. The fixed or standing charges are shown to be £10 9s. 3d., plus establishment costs of £8 7s. per week, a total of £18 16s. 3d.
Running costs are calculated to be 10.29d. per mile, plus the driver's wages. Running costs for 1,000 miles come to £42 17s. 6d„ and driver's wages at 4s. an hour for, say, 50 hr. would be £10. We thus get an all-in figure of £71 13s. 9d. and adding to this 25 per cent, for profit, brings the total to a round figure of £90, equivalent to Is. 9.6d. per mile.
Assuming that the operator is concerned with a week's tour involving 1,000 miles of running, and that he wishes to put forward a quotation based on a charge per passenger, B24 he must divide the £90 between the 30 passengers, p sundry extras such as hotel charges, meals, tickets for sho and so on. These I referred to in last week's article.
Before going any further, it would be of interest estimate the charge per passenger per mite. This wor out at a fraction below id. In view of the custorne preference for fares being based on a mileage figure, th( presumably, the operator will fix his charges on the ba: of id. per mile per passenger.
The difficulty about assessing fares in this way is, as have often pointed out, that the charge is correct only the mileage per week is not less than 1,000. To prove ti point I will now apply the basis figures to a comparative Iow-mileage case.
Standing Charges Not Affected
In doing so, the first thing to remember is that only o basis of charges for time remain unaltered. The tott standing charges, establishment costs and profit, will 1 £23 10s.
Now suppose the mileage covered per week totals on 240. The running costs may be taken to be 240 times 10.29( which is £10 6s., and with profit on that figure at 25 per cen the total charge for mileage alone must be, in round figure £13. There is still the item of driver's wages which Ms very well be taken as the same as before, namely, £10, I which must be added 25 per cent., making £12 10s. TI grand total of charges is thus £49, made up of £23 10 fixed costs, mileage £13 and wages £12 10s. Provision ft profit has been made in each of these amounts. For ot purpose, it is convenient to quote £50.
It can be shown that whilst the method of calculating th charges is correct, the customer is almost certain to quer the high figure. For a week involving 1,000 miles of runnin the charge was at the rate of Is. 9.6d. per mile, and nov with much less mileage, the rate jumps to 4s. 2d. per milt My correspondent has had a lot of this sort of thing an he wants to get away from it. He wants to be in a positio to base his charges, not precisely on the mileage run, somewhere near that, leaving him with a differential whic he can, perhaps, explain and at the same time retain hi customers' good will and confidence.
It is possible that the two examples of charges to b iade per mile will surprise the reader who has not hitherto Kiked at the matter in this way. He will not previously ave appreciated how important is the weekly mileage in its ffect on the cost of operation and, of course, the charges ) be made. I may say that, so far as my experience goes, very high percentage of operators, both of passenger chides and goods vehicles do not appreciate how important sat figure can be. Time and time again I receive inquiries 'filch are practically unanswerable without knowledge of the sileage run.
Let me take another figure for mileage, say 480 per week. lnce again I must begin the calculatiGn by pointing out hat the fixed costs, £23 10s., remain unaffected by this hange in the weekly mileage. I propose to take it that the wages remain the same at £12 10S. Only the mileage charge s affected and is now double what it was for the 240 miles un-£26 instead of £13.
The total for a 480-mile week is thus £62 10s., or 2s. 7d. ier mile, compared with 4s, 2d. for a 240-miles week, and 10d. for a 1,000-miles week.
An Extreme Case Now I will go to the extreme and imagine a week in which the vehicle runs only 60 miles. The cost for the mileage is 60 times Is. id. (cost per mile 10.29d. plus 25 ser cent, profit) which is 63s. to the nearest round figure. eidd the fixed charges, including wages and profit, £36 Os. 3d., old I get the weekly charge for this ridiculously low weekly nileage to be £39 3s. 3d. Divide that by 60 and the necesiary and minimum charge per mile is seen to be 13s. 4d.
The details of most of the results set out in the accompanying table have already been given in this article., It gives figures for charges on the basis Of time and mileage and the net charge per mile based on the foregoing ,calculations. I have, however, arrived at the essential figures in that table in another way. .
I have taken the fixed expenditure per week, covering standing charges, establishment costs, and wages as £28 16s, 3d., and have added to that the 25 per cent, profit giving me £36 Os. 3d. as the charge per week for time only. Correspondingly, I have added .25 per cent. to the cost figure of I0.29d. per mile, which gives me approximately Is, Id. per mile. These figures are shown in columns two and three of the table.
Mileage Charge per Week In the fourth column I have set down the charge for the total mileage run per week. For example, in the first line, relating to a total weekly mileage of 1,000, I set down 1,000 times the charge per mile; it is £54 3s. 4d. To that amount I add the fixed charge per week 136 Os. 3d. to get the figure of £90 3s. 7d. in the fifth column. Dividing that by 1,000 gives me the charge per mile, Is. 10d., in the last column.
These figures and those in the rest of the table, may seem to be slightly different from those given in the body of the article; that comes about because I have juggled them slightly in order that the figures may easily be understood. The differences are not important; even as quoted they are more accurate than they need be, in the sense that the differences between the figures are still less than might easily occur in practice.
Another inquirer voices the opinion that rates should be such that profits increase as the annual mileage rises. There may be something in that idea. In that belief I have ventured to set out some more Vgures for costs and takings.
Coach mileages fluctuate widely. That is particularly evident if the matter be investigated in the way I am doing it just now. The problem I have before me relates to private hire, and tours and excursions. The annual mileage is limited because, to a considerable extent, the business is seasonal. Assuming an annual mileage, on this seasonal work, of some 18,000, equal to an average weekly mileage of about 360, the operating costs are something like the following.
The first cost is £3,850, which is somewhat high. Tyres, assuming 8.25 by 20 equipment, cost £120 per set. 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 to other work.I propose to take £830. The amount on which depreciation may be calculated is thus £2,900.
The work on 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 must split depreciation, putting half on a time basis of five years, and half as a running cost. That being so, I have one half. £1,450-spread over five years. This is equivalent to £290 per annum or £5 16s. per week. The other half, reckoning on 18,000 miles per annum, is 3.87d, per mile.
Our schedule of standing charges will be as follows: Licences, £1, 3s. 3d.; wages, £10; rent and rates, 15s.; insurance, £1 10s.; interest on capital outlay, £2 6s. 3d.; depreciation (half), £5 16s.; maintenance (d), £1 10s. The total is £19 16s. 3d, It may be thought that the allowance of £1 10s. per week to provide for maintenance (d) is insufficient. 1 justify it on the .grounds that, in the case of a comparatively expensive Vehicle. there should be little need for expenditure on repainting for the first five years during which the vehicle remains on private hire or tours and excursions. There should hardly be the need to spend an average. of 30s. per week, but I do not mind being a little on the high side in a case like this.
The running costs I do not propose to go into in any great detail. They arc the same as those previously quoted except as regards the running-costs-half of depreciation which is now 3.87d. instead of 2d. The total is 12.16d. On the average basis of 360 miles per week, the running costs alone add up to £18 4s. 8d. Adding the standing charges, I get £41 8s. 3d. as the total of operating costs per week (2s. 3icl. per mile).
If I add £7 Its, 9d. for establishment costs, 1 get a total of £49, or 2s. 6d. per mile to the nearest penny. The minimum percentage of profit on this kind of work should not be less than 25, so that the figure of 3s. per mile, as recommended to my friend, was not very far out.
There is this to be said for the method of charging as prescribed by the correspondent whose letter of inquiry gave rise to this article. If he and the members of his association be so fortunate as to be able to reckon f with certainty upon work which means 18,000 miles per annum at the agreed rate of 3s. per mile run, then every mile beyond that figure will bring in slightly less than 2s. net profit, that being the 3s. charge less 12.16d., the bare running cost per mire of this vehicle.
This state of affairs will last so long as there is no addition to either the standing charges, the establishment costs or the wage bill, for it should be appreciated that 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 £4 10s. per week made on the basic 18,000 miles. The net profit would then be £825 per annum.
S. T. R.