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In an industry where profit margins for most operators are often thin, controlling costs should be a priority in keeping as much of what you earn as possible.
“I’d venture to say that if you were to get 100 limo operators in a room — from the new guy with one vehicle to the operator who runs a nice company for the past 30 years — I’d bet only 10% would know their true cost for their base airport runs, and sadly, fewer than that would know how to find out,” said Steve Qua
, owner of Company Car and Limousine in Cleveland, Ohio. Qua spoke at a panel discussion, “Cost Cutting Ideas to Increase Your Bottom Line,” held Nov. 9, 2015 at the annual LCT-NLA East Show in Atlantic City.
Qua, along with fellow panelists Matt Assolin, vice president of Nikko’s Worldwide Chauffeured Services in Houston and Austin, Texas, and Michael Callahan, president/CEO of Able Limousine in Hopkinton, Mass., shared a wide array of proven cost-cutting tips and strategies operators of all fleet sizes can use without sacrificing service quality.
The panel offered practical cost-saving advice on a variety of operations expenses, including financial management, insurance, fuel, technology, vehicles/maintenance, and vendor management.
“I think a lot of operators, especially those without CFOs or financial staff, really don’t know if their flat rate from point A to point B is profitable, not profitable, or break even, if they are not considering all of the fixed and ancillary costs associated with that ride,” Qua said.
With 20 years industry experience, Qua explained that “some people don’t really understand what it takes to rebuild income you spent somewhere else in the wrong way. They don’t understand the relationship between the dollars going out the door and the effort necessary to rebuild that income.
Qua uses a simple rule to help maximize his spending in relation to his known fixed/variable costs and profit margin. “If your margin is 10%, for every $100 of spend you do not need, you need to sell $1,000 of service to recoup the lost revenue.”
Whether it’s spending $1,000 for unexpected maintenance, or additional advertising, or whatever, you’ll need to generate an additional $10,000 more in income because of that $1,000 you had to spend in order to maintain that 10% profit margin,” he said.
Added Michael Callahan, “Operators need to look at their yearly profit and loss statement and compare line item by line item over the previous year and look for ways to cut costs.”
“We know the day we open the door each month we have to generate X amount of dollars in gross profit to pay for all overhead and semi-fixed expenses,” Qua said.
Operators nationwide have seen significant insurance spikes recently, with some going out of business because they could not secure vehicle insurance. The panelists agreed that operators need to take control of reducing their insurance costs.
“The insurance market is hardening up and the industry is seeing some ridiculous rate increases,” Assolin said. “You need to shop your agent, broker, carrier — all of them. If you don’t have 10 proposals on your desk, you’re not getting the best deal. And make sure the insurance company doesn’t send you a renewal the day it’s about to expire. If they want my business, I need it 10 days before expiration or they’re not getting my business.”
Reinforcing the point, Callahan said operators should seek bids from multiple agents who can go to different providers to secure the best policy. He added it’s important to make sure your vehicles are insured for their actual cash value, as they depreciate over time. “You shouldn’t be paying the insurance price for a $40,000 new vehicle when two years later the vehicle has 140,000 miles on it and is only worth about $15,000.”
In the event of an accident, it can be more cost-effective to repair the vehicle out of pocket than filing a claim, Callahan said. It’s all about loss runs to insurance companies, so you have to minimize your losses and know when to file a claim. Insurance companies go back three years and look at your claims. That will affect your rate increases, so out-of-pocket spend this year may pay off three years from now. Another way to save money is to increase your deductible, he added.
Assolin noted that operators can help reduce their insurance costs (or at least hefty hikes) by monitoring chauffeurs to make sure they don’t have too many accidents, speeding tickets or other negative factors that can affect rates. Having random drug testing in place can alleviate potential problems while installing drive cams — all risk management measures to save on insurance. “If you manage your risk, you can control your costs,” he said.