Limousine operators call me regularly for help in becoming profitable or more profitable. After all, as a limousine industry consultant this is primarily what I do. When I address the issues of a certain company there are a number of factors I take into consideration. Are they in the city, suburbs or the boondocks? Are they an airport company? Do they focus on the retail side or the corporate side? These three primary factors will help me determine what recommendations to make to help them improve their position. It is necessary to evaluate a company’s individual situation before making any recommendations because every company is unique to the owner. This is true across the board from the one car operators to the huge nationwide networks. Every single one is different from the next, even when compared to a company that may seem similar.There is however a common thread I see; a mistake that every company makes. This mistake is one that I made myself. This is a mistake that just about every big name in the business has made at one time or another. This mistake, I believe, comes from a well known folk saying, “build it and they will come.” It seems that most operators get this backwards building the fleet first and then expecting the customers. I say this because the most common problem I see is that the company has too many vehicles for their sales volume. To use the correct term, they have poor Fleet Utilization. The more prudent approach is to build the customer base first and add vehicles as you have the revenue to make them profitable at the time you take delivery.
Before we can fix anything we must first determine where we are, most people call this benchmarking. Benchmarking your current Fleet Utilization is a pretty easy thing to do. Divide the amount of gross revenue for a given period by the number of vehicles you had during that period. For example, if you took in $65,000 in gross revenue for the month of April and you had 17 cars on the road, your fleet utilization was about $3800 per car for the month or $46000 for the year. This is where most operators are when they come to me, give or take a few hundred bucks on a monthly basis. Every company has peaks and valleys in sales volume so it is important to look at the annual picture as time and tracking progress. For now though, our benchmark is $3800 for a month.
For a sedan your fixed cash expenses of owning the car are going to be about $1600 or so depending on your situation. For a stretch it will be more like $2800. Now factor in operating costs of about 43% and cost of sales of about 10% (percentages are from a perfect world) and you have about $200 at the end of the month for your pocket with a sedan or a loss for a stretch. In a mixed fleet situation you probably broke even, or close to it. In any situation at this utilization level you probably have significant and stressful cash flow problems.
So what’s the goal? It does depend greatly on the size of the company and other variables. For a company doing about $65,000 per month in a suburban area Fleet Utilization should be around $8000 per car per month, in the city more like $10,500 per car per month. What happens when we reach the goal? For a mixed fleet in suburbia our profit goes to 20% and we have money to pay the bills when they come in. Ideal Fleet utilization is a beautiful thing. Once you achieve it, optimum profitability becomes a matter of addressing specific expenses to bring them into line if they haven’t already fallen into place.
Before I get to the “how to” portion of the article I want to share some advantages of tracking Fleet Utilization on a monthly basis. Like any important part of your business, Fleet Utilization must be managed. In fact, Fleet Utilization is among the most powerful management tools in the box. When you are tracking it on a monthly basis after a year or so you will begin to see the peaks and valleys of your sales volume clearly. If you are using a reservation management software, it’s pretty easy to go back to find this information. Different markets will have different volume trends. Once you’ve defined your volume trends, you can use this information to assist you in making a more productive buying decision. For instance, if your utilization is up to par through the end of May every year, and you see it drop off for June July and August, you would consider selling off a few vehicles in the beginning of June every year and waiting until the beginning of September to replace them.
To take it a step further, if you are computerized, you can break down performance by individual vehicle. Most reservation systems have a revenue by vehicle report that will tell you actual dollars earned by each vehicle in a given date range. Once you know the fleet average, it is very easy to spot a low performer when the average is compared to the revenue by vehicle report. If there is a variance of greater than 25% or 30% below the fleet average, the low performer goes bye-bye. Likewise, if there is a specific vehicle or vehicle type that is consistently out performing the others, you would want to consider more like that.
How do we fix fleet utilization? There are two ways, more sales or less fleet. Actually accomplishing this is where the tricky part comes in. I have heard every reason in the book as to why it is impossible to have less cars. I have also heard all the reasons why a company can’t gain new sales if they don’t have extra cars. In the past I have been the one making the excuses. The first time I checked utilization, around 1994, I had 17 cars cranking out about $2500 per month. I was adamant that there was no possible way this could be improved. Three years later, I still had 17 cars but I also had over a million more in annual sales with utilization at about $8500 per car per month.
Once again it all comes down to Kindergarten politics: Play nice in the sand-box or play alone. In adult terms it all comes down to Goodwill. Oops, here I go again. It’s that goodwill thing again. Everybody working together for the greater good, hand in hand with peace and love like the flower children of the 1960’s (but without all the drugs). I think we all know that will never happen in this highly competitive business. However, we can establish boundaries and work productively together.
If Joe and Sean have airport companies in the same market there is no reason they can’t work together productively. When Joe has 2 runs booked for 5:00 and 6:00 and Sean has 2 runs booked for 7:00 and 8:00 there is no reason Joe shouldn’t trade Sean the 6:00 for the 7:00. Now both guys have two runs for their one car and utilization increases. The same applies when Joe gets a ten hour as directed trip on top of an airport run or two, he’s got to be able cover the airport runs and get to the hourly.
To make this work there has to be an equal commission structure and an agreement that one will not give out his card to the other’s client. A good rule of thumb is 80% to the company that performs the service and 20% to the company that booked the trip. Commissions should always be based on the booking company’s price. If there is a significant difference in price, this may influence the balance of the commission structure.
Retail focused companies can trade like this also. Maybe Joe needs four limos for a noon wedding and Sean needs four for a 4:30 wedding. Proms require a little planning and a larger geographic area. In my old market area there were four high schools and they did the prom on the same night. Every year there were 900 kids calling for my two stretches for the same night. In the next county to the east the same phenomenon would unfold but for a different date. We traded a lot of prom work and most years had one for each stretch every weekend for the season.
In both types of operations advanced reservations and good marketing come into play. The company who gets the first call and closes it wins more runs and usually has more runs to farm out. Additional wedding cars can be booked months in advance. Extra cars for the airport can be booked earlier in the week. I have seen a number of airport companies book their local affiliate’s cars for the high volume time on Monday morning and Friday night as an As Directed trip. On Wednesday when the dispatcher sees he has a volume surge that will exceed fleet capacity Friday evening between 4:00 pm and 8:00 pm, he books a car or two with the local affiliate for an As Directed. When the time comes, that affiliate’s car is directed to go back and fourth to the airport.
As my company experienced rapid growth through the mid 1990’s I would watch monthly Fleet Utilization numbers grow to over $12,000 before I bought the next vehicle. After the new vehicle was on the road, it would go right back down to the target. This was possible because I had made friends of local competitors and shared goodwill with them. Without them I would have been saying no to clients left and right. We would not have grown nearly as fast without the affiliates. We simply didn’t have the money to sacrifice utilization for growth. At the point in the late 1990’s when we sold the company we were two to three times bigger than all of them, but they were all still in business. Ultimately there was enough work for all of us in the market. Our company did a little better because we employed goodwill.
There was a time when a local affiliate called me at 3:30 AM in a panic because he had a 4:30 AM pick up and he was still at the airport on a delay from the night before. I picked up his client on time. Another time a competitor listed his house for sale and closed about five days after listing. Not only did we cover his runs so he could move but every available man went to help load the rental truck. I must admit he looked a little nervous when I walked into his new home office carrying his database computer. His look went to relief as I gingerly set it down next to the desk.
Later, as I planted a sapling I brought over in a coffee can from the old house, he asked me why I was there. “Tommie”, I said, “it’s about goodwill. When my wife was injured in a car accident 7 months pregnant with my third child I had two toddlers in the house. They came from near and they came from far away. They did the laundry, they brought meals and they took care of the kids while I worked. I never could have done it alone.” “Well I wasn’t there” Tommie said. “It doesn’t matter Tommie, when I see someone in need, I help. I didn’t know most of those people and most of them I haven’t seen since. It’s not about getting credit for my deed, it’s not about getting a return favor; it’s about goodwill. What goes around comes around. You can repay me someday by helping someone in need when you see the opportunity, you can “pay it forward”. That’s how goodwill works.”
The same applies in our business; I don’t care what your economics professor said, he is a teacher, not a businessman. The nature of your intentions goes around and it comes around. If you send it around with malicious intent, it will sting like a bee when it comes back around. The cut-throat affiliates who hand out their card to your client and the uninsured or unlicensed gypsy under-cutters who can’t play by the rules go out of business eventually. The guys that farm out work and pay six months later, pay half or not at all go out of business eventually, no matter how big they are. Good people find good people to work with and share goodwill. This is possible on a local level, a national level and even at the global level. Our business went far beyond our local markets at about the same time the first plane hit the tower in 2001. Most companies using the network model are accounting for 20% of their business outside the local market and making a 30% margin on that segment. Ah yes, the network model. That, my friends in the World of Livery… is a different story for another day.
