Money

A Walk Through Coach Profits

Tom Holden
Posted on November 14, 2018
An ROI (return-on-investment) on a moving vehicle is easy to understand, but difficult to keep consistent. (LCT image)
An ROI (return-on-investment) on a moving vehicle is easy to understand, but difficult to keep consistent. (LCT image)

In the July issue, I wrote about “The True Cost of Running a Bus," where you need to understand the differences between fixed and variable costs.

As a follow-up, I’d like to share two formulas for calculating your ROI on each motorcoach and minibus so you as an operator are always aware of your rolling bottom line.

An ROI (return-on-investment) on a moving vehicle is easy to understand, but difficult to keep consistent. There are so many situations that can occur. If you are an investor in real estate, your ROI remains stable most of the time.

Vacancies are mostly the biggest change in real estate ROI, whereas with buses the variable is in maintenance costs. The newer the bus, the less maintenance cost you will have; the older your bus, the more you will need to spend on maintenance.

Here are two examples on how to calculate ROI:
1) ROI = CF / IC  (Cash flow divided by invested capital)
2) ROI = NI / CI (Net income divided by cost of investment)


#1
ROI = CF / IC (Cash flow divided by invested capital)

 

 

 

Expense

Don’t you despise that word? Here is where the problem comes in. In my July article, I included a detailed list of fixed and variable costs. That’s one reason why operators tend to be all over the board when thinking about profits, or ROI. I listed 59 examples of fixed costs and 12 examples of variable costs. BOTH of these line items are your “expense” total. So as you start to use this example, please return and read this article again.

#2
ROI = NI / CI (Net income divided by cost of investment)

Grab your financials from the CPA, go to your year to date, and take your net incomes and divide it by your cost of investment.

The following are two real numbers. In the motorcoach industry, Spader Business Management, a leading financial consultancy, uses 10% ROI as a break-even point, which is what you could get by just leaving money in the stock market. That’s from an investment standpoint. 21% is considered excellent, 11.4% is above break even, and 10% is considered profitable.
In addition to that awful word “expense,” comes. . .

The International LCT Show exhibit hall in Las Vegas is a prime place for sizing up motorcoaches and talking to experts on all of their ROI potential and financial metrics. (LCT file photo)
The International LCT Show exhibit hall in Las Vegas is a prime place for sizing up motorcoaches and talking to experts on all of their ROI potential and financial metrics. (LCT file photo)
Fleet Usage

You cannot control usage, also known as utilization, and it has a big impact on your ROI. Usage is the quality of being able to be used or obtained. In the bus world, usage should be at least 58%, and the higher the better. But what happens during a slow season? Cancellations, holidays, unexpected event date changes, and most importantly. . .

Driver Availability

You may own the bus, but if you don’t have a driver for that requested date, you are “S.O.L.” and your ROI will decline. So what do you do to ensure your ROI will hopefully maintain a double figure profit?

Think outside of the box…..watch a webinar I hosted a few months ago with LCT associate editor Lexi Tucker titled “Matching Minibuses and Motorcoaches to Client Types.”

In Slide No. 4, “Who are you driving?” will give you some out of the box ideas you may have not thought about. When you get a contract, you need to understand what vehicle you will be using.

Long-term contracts for shuttle work do NOT need all of the horns and whistles. Your pricing “income” will be lower, and you need to maintain lower cost “expense.” Here are some areas to consider to keep your buses moving: Corporate transfers, corporate shuttles, groups, churches, elementary, middle, and high schools, private school bus routes, universities, casinos, traveling sports teams, weddings, evacuations, tour guides, Department of Defense/military, holiday and Christmas tours and events, and employee shuttles from remote parking lots or decks.

So remember: Match your buses to your client types, and as you add to your fleet, be sure you keep matching up with the appropriate vehicle. You may or may not need all of the horns and whistles a traditional limo company is used to. Why pay extra to own a black bus if it’s really not what your client needs? Remember, it’s mostly about your ROI.

Two Examples:
A) New 2018 36-passenger deluxe minibus purchased in March 2018 and placed in service in April 2018.

Annualized ROI
Net Income = $38,292
Cost of Investment = $185,380
ROI = 20.66%

B) Slightly pre-owned 2017 56-passenger motorcoach placed in service Jan. 1, 2018

Annualized ROI
Net Income = $54,240
Cost of Investment = $474,500
ROI = 11.43%

Related Topics: finance, financial planning, fleet management, How To, investment, motorcoach operators, motorcoaches, profits, revenues, ROI

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