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and Swings
IHAD hardly completed the third long article dealing with an interview with a beginner (" The Commercial Motor," October 10), when I met another newcomer similarly situated as regards experience, but with problems somewhat
different in essentials. He was in a quandary over his charges, inasmuch as he did not .know whether he was gainr, ing or losing, For part of his Work he charged for the time for which tfwvehicle was hired, Without reference to mileage, but for the other part he charged on the basis Of mileage, regardless of time. He had the usual beginner's lack of knowledge of costs and charges, but had an idea that something was wrong, although he did not know where to put his finger on the spot.
Whilst he was probably making a profit on half of his work, he was losing on-the other. Had the conditions been slightly different, he might well have been able to make a profit on all of it. He did not understand how time and mileage are interdependent, arcl mustbe properly assessed in relation to one another when calculating a profitable rate.
He was what would be called a jobbing haulier. He did not do much 'long-distance work. Most of it was in the town, but occasionally he took a run in the country for a load. '
Could Charges be Reduced?
I had called to see him on request. There seemed to be some prospect of his losing one of his regular customers to a competitor who was cutting his rate. Before coming to a decision in.the matter, he wanted me to check his costs and charges and discover whether it might be possible for him to lower his rate to meet this competition and still earn a reasonable profit. I found that he was using a 5-tonner of fairly well-known make and in reasonably good condition.
"What are your charges?" I asked.
I charge 8s. 6d. an hour for the town work and Is. 3d. per mile for the loads which take me out of town," he replied.
"Is the vehicle fully occupied?"
"Yes, generally speaking, it is."
"How much of that I:, town work and how much out of town?"
"lit varies from week to week. I don't think I can give you any reasonably accurate figures for the proportion," he answered.
"Perhaps you can tell me what your average weekly mileage is? "
"That varies, too, sometimes considerably, but it usually lies somewhere between 300 and 400."
"Perhaps it will be just as well, then," I suggested. "if I take those two figures as the top and bottom limits and see what your costs and possibilities of profit are, first at 300 miles per week and then at 400 miles per week. Have A38 you any idea of what your own costs of operation really are? "
"I have some figures which I think may be of help," he answered. "I bought the vehicle for £600. I reckon I get 20,000 miles out of a set of tyr.ts; they are 34-in. by 7-in. tyres and a set costs me £85. The Lax is £30 a year, insurance £45, and, as I am in a Grade I area, the driver's wages are £4 18s. a week."
"That's something to be going on with," I said, "but, funnily enough, you have left out the item which nearly every, owner puts first."
" What's that? "
"Petrol consumption" "Oh! yes, of course. The average is 9 m.p.g., and I buy at ls. 1 ld. per gallon. 1 use about two quarts of oil a week, which costs me 3s.'' "What about maintenance?"
" I'm'afraid I have no figures for that."
" C.M." Figures to the Rescue
"In that case I will take figures for maintenance from 'The Commercial Motor' Tables of Operating Costs."
I started by dividing Is. lid, by nine to get the cost per mile for petrol and I began to say "and that is 2.57 . ." "Oh! dear," he interruptecl, "'an't you keep off decimals? Give it to the nearest fraction of a penny."
"Very well," I said, in that case we will call it 21d., and I don't suppose that is far out. Now for oil you spend 3s. for 300 to 400 miles—nearly Id. a mile. Now, for tyres, £85 has to be multiplied by 240 and divided by 20,000. That • is about ld. a mile," I said.
Then we referred to "The Commercial Motor" Tables of Operating Costs for a 5-tonner running 400 miles per week.
"By the way," I said, "does the driver do washing and greasing, and that sort of work?"
"No," he said, "the driver doesn't. I do that myself at the week-ends, so I should prefer you not to charge for that."
-Good," I .said; "in that case we can take out what is called maintenance (d) and if I add a little to maintenance (e), it amounts to lid, a mile.
"Now comes that awkward little item of depreciation. First, you say the vehicle cost £600. Now we take away the cost of tyres, £85, which gives us £515. I am going to assume that this lorry is done for, so far as you are concerned, at 100,000 miles. That is a fair estimate for the type of work you are doing, and at the end of the 100,000 miles I suppose you might get £65 for the vehicle. Now, I take £65 from £515, and I get a net figure of £450. That is the net amount we have to use to calculate depreciation."
Again I worked out the sum for him and showed hirn, that by multiplying £450 by 240, to bring it to pence, and dividing by 100,000, gave us Id.
"That is what I might call your net depreciation, but we have to add a little to allow for the vehicle's becoming out of date."
"What do you mean by that? he said. "How will it get out of date? "
"Well, look at it this way," I said. "If it is running 400 miles per week, it does 20,000 miles a year. That means you will run it for five years before you comptete 100,000 miles, It will be a little out of date then. On the other hand, we have to take into consideration the lower limit of 300 miles per week, which equals only 15,000 miles per year In that case seven years will be required to run 100,000 miles, and the lorry will be out of date tben."
"What does it matter if my vehicle does get out of date?"
Vehicles Must be Modern
"It matters a great deal, You are in a highly competitive industry You are already worried because you have a competitor. In any competitive industry it is essential that the equipment used be up to date. In five years from now the model which the manufacturer of this machine will be putting out will probably be streets ahead of the present one in a good many ways, and, above all, it will cost less to run. You cannot afford to be behindhand. Therefore, you must be prepared to buy a new vehicle before that five years is up."
"But I don't quite see what depreciation has to do with that," he objected.
"Depreciation," I said, "is the amount which you should put on one side to buy a new vehicle when this one is done. If you put ld, a mile on one side, you will have enough money, together with the return from selling the lorry, to buy a new vehicle at the end of 100,000 miles. But you will want to buy a new vehicle before 61 years have elapsed, so that is why I suggest, instead of taking Id. a mile, you allow a little more, say lid."
" O.K.," he said; "I see what you mean."
"Now let's see what we've got. We have 2id, a mile for petrol, id. for oil, ld. for tyres, ltd. for maintenance, and lid. for depreciation. Those items add up conveniently to 6d. per mile. That is your bare running cost. Your petrol consumption seems rather high," I observed.
"Yes, it does, but I don't seem to be able to do anything about it. It may be that we do a 'lot of short-haul work, with the vehicle standing idle with the engine running."
"I see," I said. "Now let's get on. We'll deal with the standing charges and I am going to reduce them to a weekly basis. Tax is £30 a year, or 12s. a week. Insurance, at £45 a year, costs 18s. a week. The net amount of the wages is
£4 18s." .
"What do you mean by net amount?" he asked.
Those Extras on Wages
"Well," I said, "you have other. things to pay besides just the wage. You have to pay National Unemployment and Health Insurance, and I suppose your men are insured under the Workmen's Compensation Act?"
"Yes," he said, "they are."
"Well, then," I said, "you have to find, roughly, 3s. a week for those three items. Then you have to t rovide for holidays with pay, and altogether that is equivalent to adding two weeks in 50 or 1-25th to your wage bill; 1-25th of £4 18s. is about .4s. a week."
"There is 7s. a week," he said, "that I should never have thought of."
"Now, what about garage rent? You didn't mention that when you gave me your figures for cost."
" No," he said. "The reason is that we have a large warehouse, part of another business which my brother and I run. We keep the lorry there and don't reckon to charge for garage accommodation; the warehouse space is not required for anything else."
"But suppose. your other business became more active and you wanted that space. You would have to find garage room then, wouldn't you?"
"Yes, certainly."
"In that case, what would you do-increase your rates to meet the extra cost, or allow your profit to diminish accordingly? " H'm! I shouldn't like to do the first and I wouldn't want to do the second."
"Exactly. You must make full provision for cost and you must look ahead. I am going to suggest that we include 5s. a week for garage rent. It may be more than that, but as you are situated at present, perhaps it is a fair amount."
" Very well."
There is now only the interest on capital outlay to consider, and at 4 per cent. on the original £600, that is £24 a year, or 10s. a week."• To my surprise he raised no objection to this item, but took it for granted.
"Now, the total of these standing charges," I said. "is £7 10s. a week. Next we have to consider establishment costs."
There was a good deal of wrangling over these, but I put the argument to him in the same way as I did to the operator in the concluding article of the series in the issue of "The Commercial Motor" dated October 10. I pointed out to him that he would have to make provision for contingencies, telephones, stationery, postage, and so on, and in this case. as he was not an owner-driver, I added £2 a week on account of management, and in that way brought the total to £3 10s. a week.
"There you are," I said "your total of fixed costs is Ell a week, and to that we have to add the running cost. If you are running 300 miles per week, the running cost is 300 sixpences, which is £7 103. Your total cost is, thus, £7 10s.. plus £11-£18 10s. a week. If you are running 406 miles. the total of your running costs at 6d. per mile is £10, and your total cost is £21 per week.
4s, for a Week's Work
"Now," I said, "suppose we assume in the first place that you are getting 8s. 6d. an hour for the hire of the vehicle. Forty-four hours at 8s. 6d. cost £18 14s., so that, in any event, you are not making a profit. At least, you are making only 4s. a week if you do 300 miles, and 4s. a week is not nearly enough. And you are losing if you do 400 miles per week. As a matter of fact, I don't suppose you do more than 300 miles per week in your town workpossibly not even that. Even so, 8s. 6d. isn't enough,"
"But wait a minute," he said. "1 usually run a 48-hour week."
"And pay overtime?" I asked. . "Yes, it costs me an extra 10s, a week."
"in that case," I said, "your total cost for a 300-mile week increased by 10s. to £19. Your revenue is 48 hours at 8s. 6d., which is £20 8s. Nothing like enough. On that basis it looks as though your hourly rate needs to be increased, even at 300 miles a week.
"Now, let us suppose you have a full week on the mileage basis. At 300 miles a week at Is. 3d, a mile, you would make only £18 15s., so that if you had to work 48 hours you would be losing 5s. a week, and if you did not work overtime and could still cover 300 miles, you would be making a net profit of no more than 5s. a week, which, of course, is just silly. If you did 400 miles per week, your revenue would be £25, against a cost per 44-hour week of £21, showing £4 a week net profit, or, if you worked 48 hours, only £3 10s. profit. Four pounds is about right; £3 10s. is rather a narrow margin.
"Broadly speaking, it seems that your mileage rate is reasonably correct, but your time rate is insufficient. But I think we'd better go into it a little more closely. You must give me some exampleof the sort of work you do."
(To be Continued.) S.T.R.