Money

How To Rethink Fees And Price For Better Profits

Jim Luff
Posted on January 19, 2017

(LCT image)
(LCT image)
For decades, operators have tacked on multiple surcharges with such creative terms as STC, airport tax, fuel surcharge, early morning pickup fees, etc. They basically gouged clients instead of simply charging enough on every run to cover the expenses of running a ground transportation company efficiently. Clients paid it because they had no alternative if they wanted chauffeured transportation.

Pricing In The Past
Operators have always struggled with various pricing issues, and mostly disagree on how to charge for various services. Some operators use a “transfer fee” or “flat rate” to move a client from the airport to a hotel. These brief rides are generally under one hour and in many markets can be less than 20 minutes. This method always raises the question of how to charge the client for any delays. Do you convert the ride to an hourly charge or levy a wait-time charge if the flight arrives late? If you charge a wait time, how much is it?

Mike Denning, owner of Elegant Limousines in Palm Beach, Fla., says they include information about wait-time in their client contracts so they don’t surprise a client who forces a chauffeur to wait, although not at fault.

In a September 2011 post on an online industry forum, Denning said, “It is not our fault the plane was kept on the tarmac and it’s not the client’s fault either. So, to be fair, we should split it down the middle and explain this to our client.’ That might have flown in 2011, but not so much six years later as we enter 2017.

Today’s clients are also less likely to accept miscellaneous charges such as STC (Surface Transportation Charge). This nifty little fee could include airport taxes, PUC taxes, or anything else an operator might want to throw in for an extra buck. Such expenses should have been included in the pricing structure before TNCs came around and introduced simpler pricing structures.

Pricing For The Future
One of the changes we can expect is the elimination of garage-to-garage based fees. Corporate travelers being picked up or dropped off in smaller markets may accept a nominal “travel fee” for coming to get them and take them to a larger city, but the concept of charging from the time you leave your garage until the time you get back for local inner-city trips is no longer acceptable. Why would they pay you to drive to the pickup location and back to your garage when TNCs don’t?

Cancellation fees are another charge that needs to be tweaked. Carey International charges $75 if you don’t cancel within a specified window of time, and most operators will charge the complete quoted fare if not canceled within a range of two to 24 hours in advance of the reservation start time. Compare this to Uber’s charge of $5 to $10 if you cancel a ride more than two minutes after placing an order. High cancellation fees are no longer acceptable.

What Can We Add On?
Operators can use many ways to increase their bottom line profits during this time of shrinking profits. Tech savvy passengers enjoy Wi-Fi. These same travelers never blink at paying up to $19 for Wi-Fi during a flight. Even an hour of Wi-Fi on an aircraft is $8. The same holds true with hotels. Many hotels charge as much as $15-$20 to use their Wi-Fi systems. On the flip side of that argument, it is unlikely a TNC vehicle is Wi-Fi equipped. You could charge for it or tout this as a free benefit to luxury transportation.

Child safety seats represent another source of revenue. Car rental companies don’t provide them for free. They have an expiration date and must be replaced. They require cleaning and storage. Why not charge for them?

Extra stops can be another tolerable fee. Uber begins charging a wait time after two minutes, and if you make stops along the way to your destination, the clock keeps ticking by the minute. That allows us to easily add a reasonable fee since the playing field is leveled.

Charging For Incidentals
Certain charges for things such as tolls, port fees, greeter fees, and airport fees can still be added to the total fee charged since these are legitimate expenses related to a specific trip. If you cross a toll bridge, the passenger knows you passed through the toll and seldom will balk at such a charge. However, you might want to consider including airport and cruise port fees inside of the base rate instead of making it a line item charge. One of the things consumers enjoy about TNCs is the simplicity in pricing. They are made up of a base fare, a time fare, and a mileage charge. The fees you must charge to remain profitable can easily be included in your base fare whether a flat transfer rate or an hourly rate. People don’t want to be nickled and dimed anymore.

Photo image credit: @dreamstime.com © / Anatoliy Babiychuk
Photo image credit: @dreamstime.com © / Anatoliy Babiychuk
Surge Pricing Vs. Special Pricing
While TNCs implement “surge pricing” or hike their rates up at peak demand times, our industry seems to battle with decisions such as hiking up rates on New Year’s Eve. The demand for service on New Year’s Eve is certainly higher than almost any other night of the year. Some operators hold their hourly rates but impose minimum charters of five to eight hours. Others simply raise the rate like TNCs but don’t impose minimums, and some operators do both. Many other holidays such as Thanksgiving and Christmas warrant special pricing. Clients know their chauffeur is giving up a personal holiday to work and expect an increase in rates that would most likely be used to compensate the chauffeur for his sacrifice.

Airport Pricing
No other trip type has seen so much disruption caused by TNCs than airport pickups and drop-offs. TNCs have disrupted the entire ground transportation industry at the airport, especially taxis. The extra charges for “airport tax”, “airport parking”, “onsite greeter” all add to the dismay of the corporate traveler. Travelers are annoyed when the chauffeur parks the vehicle, comes into the airport to hold up an iPad with the client’s name, and then walks the client to the car, only to receive a $35 charge because the client wanted to be met inside.

In the 1980s and 90s, airport greeters would meet arriving passengers as they deplaned at the gate, walk them to baggage claim, call a chauffeur’s pager using a payphone and enter a code for “passenger ready,” and load them in the car. The $35 fee was certainly warranted. With today’s technology of sending texts to clients with the chauffeur’s cell phone number, greeters are almost obsolete. Clients using luxury transportation expect the chauffeur to be present in baggage claim with a sign and no additional charge.

Since an airport tax is assessed to your company, bury it in the base charge rather than showing it as a line item. Look at all the other taxes your business pays such as payroll tax, tax on fuel purchases, and PUC taxes. You know you have to pay these taxes as an operational expense, so reform the simplified charges that TNCs use by incorporating them into your base rate.

Those Pesky Surcharges
Some of the hardest charges for clients to swallow are surcharges. TNCs have no surcharges, only surge rates. This means, if you order an Uber at 4 a.m., you will most likely pay the lowest rate. There is minimal demand for service at that early hour. However, many operators advertise they are a 24/7 company, but charge a premium for an early morning or late night ride. Now might be the time to rethink this. Do you pay extra for a gallon of milk if you buy it at the grocery store at 4 a.m.? Of course not. Is the clerk who sold you the milk getting paid more for working the graveyard shift? Probably, but it’s built into the price of the milk. No one should be levying fuel surcharges anymore. We may have to if fuel prices spike again. The choice for operators is to raise the hourly rate permanently or implement a reasonable temporary surcharge with an explanation. Surcharges need to be thought out as most people will question them and consider them invalid. They will simply find another provider, even if the net price is the same with both companies.

Price Matching
We will never be able to compete with TNCs. While we must adapt the way we price and show our prices for services, it doesn’t mean dropping our rates. It means instilling value in what we have to offer and presenting it as a single rate.

Andrew Armitage, owner of Vintage Chauffeuring in Plainfield, Ill., says he tells potential clients asking for the lowest rate, “I will not be the company you are looking for. If you want the highest quality and most professional company in the area, then we can discuss why you should book with me.” This is a perfect example of how we should be selling our services and presenting a single price for getting the job done.

— Jim @LCTmag.com

Related Topics: customer service, finance, fuel surcharges, How To, Limo Rates, profits, rates, revenues, service pricing

Jim Luff Contributing Editor
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