Expenses and profitability
Not every trip is good business: learn to calculate your true profit as a TCP operator
One of the things I have learned while operating my own private transportation company is that not all trips are equally profitable, even when you charge exactly the same amount.
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By Nacho TCP Driver | TCP Journal
One of the things I have learned while operating my own private transportation company is that not all trips are equally profitable, even when you charge exactly the same amount.
Many drivers get excited when they land a $200, $250 or $300 reservation. But there is a question they should ask themselves before accepting the service:
How much will it really cost me to do that trip, including the time and miles I will drive without passengers?
Let me explain using my own experience.
1. The location of your base can be your greatest advantage
My company, City Cruze L.A., is based in Paramount, California.
One of the routes that works best for me is LAX–Anaheim, because I am practically halfway between both destinations.
From my base, I am approximately 14 or 15 miles from LAX and a similar distance from Anaheim.
Depending on traffic, I can get to the airport in about 30 to 45 minutes. When there is no traffic, I can even get to Anaheim in about 20 minutes.
This allows me to work with relatively predictable travel times.
I already know the routes, the difficult hours and how much time I need to set aside for each service.
But now imagine that another operator lives in the San Fernando Valley.
Even if that operator charges exactly the same as I do for a transfer from LAX to Anaheim, their costs can be very different.
They may have to drive many more miles without passengers to get to the airport and then return home.
The same trip can be profitable for one operator and not worthwhile for another.
2. Deadhead miles cost money too
In private transportation, there is something we call deadhead miles.
These are the miles you drive without a passenger who is paying for the service.
For example:
* You leave home to pick up a client.
* You finish the service and return to your base without passengers.
* You drive from one city to another for your next reservation.
All those miles generate expenses.
You are using fuel, tires, oil and brakes, and your vehicle is depreciating.
That is why, when calculating how much to charge, you should not consider only the distance from the pickup point to the destination.
Calculate the entire route you need to drive to provide the service.
3. Your time has a cost too
Let us suppose you have two reservations and both pay $180.
Trip A:
* Revenue: $180
* Total time spent: 3 hours
* Revenue per hour: $60
Trip B:
* Revenue: $180
* Total time spent: 5 hours
* Revenue per hour: $36
In both cases, you charged $180.
But on the second trip, you invested two additional hours of your day.
And we have not yet deducted fuel, maintenance, insurance and other expenses.
Bringing in $60 per hour does not mean earning $60 per hour in profit.
That difference is extremely important.
4. Picking up at LAX is not the same as picking up in Universal City or West Hollywood
Here is another example from my operation.
For me, picking up at LAX or in Anaheim is usually relatively straightforward because I am familiar with those routes and their travel times.
But if I have a reservation in Universal City or West Hollywood, especially during the morning rush hour, the situation changes.
I have to calculate how long it will take me to get there from Paramount, consider possible congestion and leave with enough time to spare.
I may need to set aside much more time to complete that service.
And even if the trip pays well, I have to ask myself:
Is it really worth it compared with other services I could do during those same hours?
This brings us to another important concept.
5. Opportunity cost: the money you could be missing out on
Opportunity cost is the value of the best alternative you give up when you decide to do something.
For example, imagine you accept a $200 reservation that takes up practically five hours.
During those same five hours, perhaps you could have completed two services at $150 each.
That would represent $300 in revenue instead of $200.
Of course, you will not always have those two reservations available. That is why you must consider real demand, not imaginary income.
But the point is that accepting a trip also means committing your vehicle and your time, which will no longer be available for another client.
That is why it is not always a good idea to accept any reservation just because the price looks attractive.
6. Calculate your contribution margin, not just what you charge
A simple way to evaluate a trip is:
Service revenue − variable service expenses = contribution margin.
Among the variable expenses, you should consider:
* Fuel.
* Wear and maintenance related to mileage.
* Tolls and airport fees.
* Payment processing fees.
* Driver pay, if you use a driver.
* Other expenses directly related to the service.
That margin still needs to contribute toward paying your fixed expenses, such as commercial insurance, permits and software.
And if you do the driving yourself, you also need to assign a value to your time.
Do not confuse the money coming into your account with your business's actual profit.
7. Learn to identify your most profitable routes
Every operator has a different situation.
Someone who lives near Disneyland may have advantages when it comes to local Anaheim transfers.
Another operator who lives in the San Fernando Valley may have better opportunities working in Burbank, Universal City or nearby areas.
In my case, because of my location in Paramount, LAX and Anaheim are among my most convenient routes.
That does not mean I never accept trips outside those areas.
It means that when I quote a service farther away, I have to consider the additional miles, traffic and time I will invest.
It is also important to learn how to combine reservations. If you finish a trip in Anaheim and get another one starting in that same area, you can considerably reduce the miles you drive without passengers.
My advice for new TCP operators
Do not make the mistake of thinking that the more trips you accept, the more money you will earn.
There are times when doing fewer trips, but selecting them better and quoting them more carefully, can leave you with a higher profit.
Know your costs, know your city, study the traffic and learn to identify the routes that work best from your base of operations.
And above all, do not copy another operator's rates without understanding their circumstances.
Perhaps that operator can charge $150 because they live five miles from the client, while you have to drive 35 miles just to pick them up.
Not all $200 trips are the same. What matters is not just how much you charge, but how much you have left after covering your expenses and how much time you invested to earn it.
I am Nacho, operator of City Cruze L.A., TCP 49025-P, and here at Nacho TCP Driver I share real experiences from my business, including prices, reservations, mistakes and what I am learning along the way.
Because knowing how to drive is one thing, and knowing how to operate a private transportation business is something very different.
More information: www.nachotcpdriver.com