Operations

Industry in Dire Need of Uniform Operating Expense Methodology

Sara Eastwood
Posted on January 1, 1991

Several months ago we set out to prepare an article on calculating fleet operating expenses.  We were amazed and somewhat dismayed that no consistent method exists for our industry.  In fact, many small operators we contacted said they used the “eye ball” method.  They had absolutely no tracking system. 

While some of the larger fleet operators told us they had their “own way” of tracking operating costs, there was still no uniform procedure.  Just as the National Association of Fleet Administrators (NAFA) structured a “Recommended Classification of Automobile Expenses,” we would like to coordinate with the National Limousine Association a uniform method of tracking and comparing operating costs for the for-hire vehicle industry.

The system NAFA utilizes covers three major areas: Operating Expenses, which include fuel, oil, tire, maintenance and repairs; Standing Expenses which involve investment cost, depreciation, tax, license and insurance; and Incidental Expenses which entail washing, parking, tolls and other miscellaneous expenses.

A universal system would not only help companies properly classify their running expenses but would afford them the ability to make industry wide comparisons.  It is vital for limousine companies to have a uniform methodology that can serve as a tool to analyze true costs so costs can be controlled.

For example, when structuring rates, most operators set hourly rates based on competitor pricing.  They seldom sit down and calculate via a methodology what they have to charge to cover expenses and, more importantly, he profitable.  Additionally, a company that has a true grasp of its operating costs is better able to plan cost cutting strategies.

Let’s say a company with fleet of five stretch limousines is averaging 35,000 miles per year per vehicle.  The company sets a goal to reduce costs by two cents per mile.  By the end of the year the company will have saved $3,500.

We all stand to gain if we can institute a uniform method of running our businesses more efficiently.  Operators of all sizes will not only increase its chances of staying healthy but will also realize a greater possibility of growth in the almighty bottom line.

 

 

 

Related Topics: operating expenses, service pricing

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