Surviving 2008 will be a challenge with rising fuel prices, slashed travel budgets, and a volatile economy. Remaining profitable means watching every penny and maximizing the use of your fleet. LCT will give you tips and ideas that can help your bottom line. With fuel prices climbing toward $5 a gallon and many corporate accounts tightening budgets, it is important to start formulating a game plan to remain profitable. Obviously for most operators, income is derived from revenue earned by vehicles, so how you operate your vehicles and what vehicles you operate will determine survival. And it truly will be survival of the fittest this year.
DISPATCHING TECHNIQUES “Dispatching is the key to success right now,” says Craig McCutcheon of Rosedale Livery in Toronto. This is one area that can really improve profitability through maximizing the usage of your fleet. McCutcheon has tried hard to minimize deadhead trips. When sending a vehicle to an airport some distance away, it becomes more feasible to pay a chauffeur to wait at the airport for an arrival later in the day. Paying three hours of wages actually may cost less than sending another vehicle and chauffeur. The same technique can be applied in your local area. If you pay pre-trip and post-trip time, it may be more cost effective to keep a chauffeur on for two hours between trips than to bring in another chauffeur and pay pre- and post-time on a second vehicle.
FUEL MANAGEMENT This is such a vast subject area consisting of fuel purchasing, fuel consumption, and fuel surcharges, each having a direct effect on bottom-line profit. Christine Bennett of Showcase Limousine in Boise, Idaho, recently began more diligent tracking of chauffeur fuel purchases by monitoring fuel consumption based on individual trips.
As far as fuel purchasing goes, if ever there was a time to shop for the best buy, it is now. With fuel being the largest operating expense, shopping can save you money. Shopping can include fleet fuel suppliers such as Fleet Card Fuels or Fleet One, and programs from major oil companies that include discounts off posted pump prices, monthly rebates based on volume, or other similar incentives. There are websites showing the lowest gas prices in your town each day and good old-fashioned bargain shopping. When you see a good price, fill up.
Fuel consumption unfortunately involves human control and mechanical issues, McCutcheon says, “Obviously the general repair of your vehicles will have an effect on your fuel mileage.
Fuel is the biggest variable, but vehicle maintenance certainly applies to obtaining the best mileage.” Running underinflated tires by just a few pounds can increase your fuel consumption by 32%, according to Goodyear. Checking tire pressures during the daily pre-trip inspections is more important than ever.
Bennett is implementing a spreadsheet to track fuel consumption of each vehicle by entering the miles per gallon achieved by each chauffeur on each trip. This type of program clearly will identify lead-foot drivers by singling out chauffeurs that have consistently poor MPG results compared with other drivers of the same vehicle. This is the type of drastic measures that need to be implemented for survival today.
The most controllable factor is the application of fuel surcharges. Fuel surcharges range from percentages of the base fare, flat rates based on miles traveled, sliding scales tied to fuel prices, and everything in between. Whatever method you use, you should be trying to cover as many of your actual fuel costs as possible. People are sensitive to companies that rely on fuel to complete our jobs. Trucking companies and courier services such as FedEx and UPS all are adding fuel surcharges. People will tolerate the fuel surcharges as long as you don’t try to gouge them. Remember, they already feel that at the pump.
FLEET MIX Vehicles that don’t see a lot of demand cost money. Vehicles must be used regularly to generate their payment and insurance premium. It is fairly simple to determine what percentage of total income each vehicle generates. Vehicles not garnering much in sales may need to be sold or turned in to avoid becoming a drain. McCutcheon says he is buying new vehicles this year but only as replacement vehicles. He is quick to point out that buying green vehicles is not a way to make more money. “You will not increase your profit by buying a hybrid because they have higher operating costs,” McCutcheon says.
RAISING RATES Of course, raising rates always affects profits and hurts clients. Unlike surcharges that can be adjusted according to the price of fuel, a rate increase is usually a permanent decision. During a weak economy, raising rates looks bad since consumers will face another purchase that costs more. This could hurt corporate clients who also may be feeling the effects of slower-than- normal sales. Certainly, luxury transportation would be one of the first items on the chopping block. Marie Joiner of Luxury Limousines in Ceres, Calif., uses a formula to determine near exact hourly costs of operations on her fleet and then sets pricing with the goal of a 20% profit margin above operating costs.
SALES AND MARKETING In speaking with several operators nationwide, LCT found that many operators are adding staff, and sales and marketing programs. McCutcheon believes companies that cut sales and marketing efforts during a depressed economy are choosing a bad option. This is the time you need to go out and market more aggressively. While increased sales efforts are being used, most operators surveyed say clients are asking for deeper pricing cuts to offset their own budget problems. “Stick to your prices and ride through it. Be careful who you donate to, but make sure you fund big charities that you always have,” McCutcheon says. Presence in your community is the key to driving business to you.