How to Ensure Your Rates Lead to Profitable Trips
Setting trip rates can be one of the trickiest parts of being a charter bus or limousine operator. It may be tempting to just look at what your competitors are charging and undercut them, but there’s no point in winning business if you can’t make a profit from it.
So you need to set rates high enough that you can cover all of your expenses and turn a profit, without overcharging to the point where you can’t win business. And on top of that, you need to get quotes out quickly so customers don’t move on to another company.
CoachRail helps with the last part by letting you build a quote online, using per-hour, per-day or per-mile prices you’ve pre-loaded. Once you have a quote you like, we automatically send it to your client in an email—an email that you can now customize!
But before you can send a profitable quote with CoachRail, you need to figure out what rates you want to charge. So let’s start there.
Step 1: Decide on your rates.
The first step to setting your rates is figuring out how much revenue you need to make each month. In order to know that, you need an accurate picture of what your expenses are. Here are two different ways to figure it out.
Method 1: The Monthly Categories Method
Start with Expenses
During a seminar at the 2019 International LCT Show titled “KPIs and Best Practices of High-Performing Motorcoach Operators,” Jim McCann, who consults with roughly 70 motorcoach companies, broke down motorcoach companies’ expenses into a few categories:
- Personnel (salaries and benefits for drivers and technicians)
- Vehicle maintenance (parts, labor, cleaning supplies, safety features, etc.)
- Transportation expenses (gas, driver meals, tolls and permits, etc.)
- Equipment financing (paying off your vehicles)
- Variable expenses (accounting services, bank or credit card fees, office supplies, phone service, etc.)
- Fixed expenses (rent, utilities, insurance, taxes, etc.)
To use McCann’s method of calculating expenses, you’ll need records showing how much you spent in each of these categories over several months. That way, you can calculate average expenses per month without worrying about a weird month throwing off your math.
Figure Out How Much You Should Make
Once you know how much you spend per month, you can figure out how much you’ll need to make each month to come out ahead. Say you want to make 10% profit (McCann’s recommendation). If you spend $90,000 on overhead costs, you know that you’ll need to make $100,000 a month.
Now you have to average how many miles, hours, or days you charged for, based on your records for the past few months. You can then divide $100,000 by that number. If you averaged driving 100,000 miles the previous month, you need to charge $1 per mile. If your buses were booked for 28 days out of 30, you’ll need to make $3,572 per day between all of your buses, so you’ll have to decide how that breaks out different vehicles and shorter and longer trips.
Method 2: The Lifecycle Cost Method
Mike Antich from Automotive Fleet magazine offers a different method of calculating your expenses. He suggests using lifecycle cost analysis, where you look at how much a vehicle will cost you to acquire and maintain per mile.
How Much Does My Vehicle Cost Me?
First, you must decide how many miles you intend to put on the vehicle before reselling it so you know how long its lifecycle will be. Then you need to figure out how much the vehicle will cost you in total.
This involves some more math. Start with how much the vehicle costs:
Initial cost of vehicle – how much you can resell it for at the end of its lifecycle (get this from Kelley Blue Book or similar sources).
Ex: If you buy a $75,000 minibus that you can resell in 3 years for $45,000, the total cost is $30,000.
What About Other Costs?
There are other expenses you need to account for, too. You need to know how much you’ll spend on fixed costs (insurance, license, permit, taxes, monthly parking/storage) and projected operating costs (gasoline, oils, tires, maintenance) throughout the vehicle’s life. You can look up prices for most of the fixed costs, but you’ll have to estimate operating costs based on similar vehicles in your fleet or information you find online.
Add the fixed costs and operating costs to the cost of the vehicle to determine how much the vehicle will cost you over its life. If your $30,000 vehicle will cost you $7,000 in fixed costs and $8,000 in operating costs over 3 years, that means your total cost for the vehicle is $45,000.
You can now divide that total cost by the number of miles you plan to put on the car to determine how much it costs you per mile. So if you’re going to drive the car for roughly 100,000 miles before turning it in, that car is costing you $0.45 per mile.
Add in Your Non-Vehicle Expenses
This covers the cost of the car—but what about your other expenses, like driver and technician salaries, rent for your office, or phone and Internet service? You’ll need to check your records for all of your non-car-related expenses to figure out how much they cost you per month and divide that by how many miles all of your vehicles put together travel per month.
So if your other expenses cost you $6,000 per month, and all of your cars put together drive about 20,000 miles a month, you’ll need to add $0.30 to each mile. That means you need to charge $0.75 per mile to cover expenses. If you want to make a profit, you’ll need to charge more than that.
Tip: You can also use this method to calculate how much you should charge per day. Just take the total cost of the vehicle and divide it by how many days you intend to keep the vehicle. Then divide your monthly non-vehicle expenses by the number of days your cars drive per month, rather than the number of miles. Add the two numbers, and voila! You know how much all of your vehicles should make in a day.
How to Choose Your Rate Calculation Method
As you can tell, the monthly categories method of calculating prices is much simpler. However, it also relies much more heavily on past performance. If you just bought a new vehicle or type of vehicle, monthly categories probably won’t be a reliable way to calculate how much you should charge for it. In that case, lifecycle cost is a much more reliable method.
Step 2: Create a quote.
Once you’ve created your rates, you can input them into CoachRail to use our automated pricing calculator. Just log into CoachRail, go to “My Company” and “Company Rates,” and enter your hourly, daily, live mile, dead mile, or transfer rates.
CoachRail Company Rates page
Ready for the best part? When you click on “Quotes” to generate a customer quote for a trip, your rates will automatically be uploaded. Need to adjust those rates because it’s peak season or because you’re offering a seasonal discount? Just change the rate, and our calculator will adjust your quote accordingly. Once you’ve input all of your rates and generated a quote, you can save it and send it directly from CoachRail.
Creating a new quote on CoachRail
Step 3: Don’t be afraid to make changes.
So you’ve set your rates and you’re sending out quotes quickly with CoachRail, but you’re still not turning as much of a profit as you would like. It may be time for some adjustments.
Peak and Non-Peak Times
First, take into account peak and non-peak times. You can probably increase rates for your busiest times while keeping rates the same—or even lowering them—during slower times. Just make sure your overall revenue for the day or month increases when you adjust your rates, and make further adjustments if it doesn’t.
Second, take a hard look at your expenses. During his seminar, McCann pointed out that among the 70 motorcoach companies he works with, sales rose an average of 7.6% from 2017 to 2018. But expenses rose 7.7%. That means many charter bus companies are doing more business than ever, while making less profit.
Rent for both offices and storage space tends to go up every year. Buses may need new technological or safety features, and driver and technician wages are rapidly increasing. If you want to compete in a marketplace filled with modern buses and skilled drivers, you’ll have to keep up with these expense increases. Peak and non-peak pricing is one way to do this.
How To Make Yourself Stand Out
Another is to increase business by distinguishing yourself with something other than low prices. You can draw in more customers with up-to-date amenities like WiFi or extraordinary customer service. CoachRail Quote Customization is one of those small but important ways you can distinguish your company.
Quote Customization allows you to add a personalized message that fits your brand to every emailed quote. You can also select a Quote ID number and decide whether you want to send an e-checkout link or a PDF that your customer can use to pay. (The PDF provides more flexibility, letting your clients choose between paying by check, ACH or credit card form, while e-checkout requires authorize.net.) Customers appreciate receiving a quick, professional and personalized quote and having the flexibility to pay in a variety of ways.
Step 4: Approve the Quote and Get Back to Work
Once the customer accepts your quote and sends a deposit in, you can confirm that they’ve paid by clicking the credit card icon next to the quote in the CoachRail app. This will convert the quote into an upcoming reservation. You can see it on your reservation view and assign a driver and vehicle to the trip by clicking on the Driver and Vehicle icons. Then you can get right back to your work day without worrying about it any further.
Figuring out how much to charge for your charter buses, minibuses and limos is essential, but it isn’t always easy. Generating and sending quotes should be. Once you’ve decided on your rates, let CoachRail take care of the quote generation so you can focus on everything else you need to do to keep your business running smoothly.