In an industry where profit margins for most operators are often thin, controlling costs should be a priority in keeping as much of what you earn as possible.
“I’d venture to say that if you were to get 100 limo operators in a room — from the new guy with one vehicle to the operator who runs a nice company for the past 30 years — I’d bet only 10% would know their true cost for their base airport runs, and sadly, fewer than that would know how to find out,” said Steve Qua, owner of Company Car and Limousine in Cleveland, Ohio. Qua spoke at a panel discussion, “Cost Cutting Ideas to Increase Your Bottom Line,” held Nov. 9, 2015 at the annual LCT-NLA East Show in Atlantic City.
Qua, along with fellow panelists Matt Assolin, vice president of Nikko’s Worldwide Chauffeured Services in Houston and Austin, Texas, and Michael Callahan, president/CEO of Able Limousine in Hopkinton, Mass., shared a wide array of proven cost-cutting tips and strategies operators of all fleet sizes can use without sacrificing service quality.
The panel offered practical cost-saving advice on a variety of operations expenses, including financial management, insurance, fuel, technology, vehicles/maintenance, and vendor management.
Financial Management
“I think a lot of operators, especially those without CFOs or financial staff, really don’t know if their flat rate from point A to point B is profitable, not profitable, or break even, if they are not considering all of the fixed and ancillary costs associated with that ride,” Qua said.
With 20 years industry experience, Qua explained that “some people don’t really understand what it takes to rebuild income you spent somewhere else in the wrong way. They don’t understand the relationship between the dollars going out the door and the effort necessary to rebuild that income.
Qua uses a simple rule to help maximize his spending in relation to his known fixed/variable costs and profit margin. “If your margin is 10%, for every $100 of spend you do not need, you need to sell $1,000 of service to recoup the lost revenue.”
Whether it’s spending $1,000 for unexpected maintenance, or additional advertising, or whatever, you’ll need to generate an additional $10,000 more in income because of that $1,000 you had to spend in order to maintain that 10% profit margin,” he said.
Added Michael Callahan, “Operators need to look at their yearly profit and loss statement and compare line item by line item over the previous year and look for ways to cut costs.”
“We know the day we open the door each month we have to generate X amount of dollars in gross profit to pay for all overhead and semi-fixed expenses,” Qua said.
Insurance
Operators nationwide have seen significant insurance spikes recently, with some going out of business because they could not secure vehicle insurance. The panelists agreed that operators need to take control of reducing their insurance costs.
“The insurance market is hardening up and the industry is seeing some ridiculous rate increases,” Assolin said. “You need to shop your agent, broker, carrier — all of them. If you don’t have 10 proposals on your desk, you’re not getting the best deal. And make sure the insurance company doesn’t send you a renewal the day it’s about to expire. If they want my business, I need it 10 days before expiration or they’re not getting my business.”
Reinforcing the point, Callahan said operators should seek bids from multiple agents who can go to different providers to secure the best policy. He added it’s important to make sure your vehicles are insured for their actual cash value, as they depreciate over time. “You shouldn’t be paying the insurance price for a $40,000 new vehicle when two years later the vehicle has 140,000 miles on it and is only worth about $15,000.”
In the event of an accident, it can be more cost-effective to repair the vehicle out of pocket than filing a claim, Callahan said. It’s all about loss runs to insurance companies, so you have to minimize your losses and know when to file a claim. Insurance companies go back three years and look at your claims. That will affect your rate increases, so out-of-pocket spend this year may pay off three years from now. Another way to save money is to increase your deductible, he added.
Assolin noted that operators can help reduce their insurance costs (or at least hefty hikes) by monitoring chauffeurs to make sure they don’t have too many accidents, speeding tickets or other negative factors that can affect rates. Having random drug testing in place can alleviate potential problems while installing drive cams — all risk management measures to save on insurance. “If you manage your risk, you can control your costs,” he said.
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Fuel
With fuel being one of the top spends, the panel agreed that anything operators can do to save money goes right to the bottom line. Qua said fuel cards offer rebates and cash back that can save money. Even if you get as little as a 1% discount on $100,000 of annual gas spend, that’s $1,000 in your pocket,” Assolin added.
The panel also advised against operators installing their own fuel tank in an effort to say money. “Fuel is a hot topic for everyone,” Qua said. “There are a series of liabilities with installing your own tank that may not be worth the savings, such as fuel leaks and pilferage from the tank which could wipe out any savings.”
Assolin added, “Owning your tank is a huge liability issue to justify the extra costs, such as permits, OSHA certifications and some municipalities require you build a cement wall around the tank. That’s a lot of investment, and if your chauffeur is on the road and needs fuel and isn’t close to the office, there’s no savings.”
The panelists agreed that installing GPS devices on vehicles controls fuel costs by monitoring fuel consumption, speeding, excessive idling, and other fuel-wasting measures. “If you don’t have a GPS in 2016, you are way behind the curve and missing out on fuel cost savings,” Assolin said. “I’ve had GPS for 10 years and it’s a way to save money by catching chronic speeders, chronic idlers, and chauffeurs who go off route. In addition, miles equal dollars in terms of maintenance costs. You save miles, you save dollars.”
Technology
The panel concurred that technology investments can help reduce staffing and operational costs, but cautioned to first maximize every component of every application before you buy additional software.
“Operators need to understand what your software does before you go out and purchase something that you think you need because maybe that component you need is already built into your existing application but you never used it,” Assolin advised.
Callahan agreed, adding that technology can help minimize office, saving money. “I read that it costs about seven to eight dollars to book and manage every reservation, so if you can use technology to book a reservation and push clients to your portal, you reduce labor costs.”
Squeeze Vendors
Just as clients squeeze operators for discounts and lower prices, operators should do the same to their suppliers to reduce operating costs.
“We use a Cadillac dealer for maintenance and get a discount for parts and the hourly service rate, but if another dealer offers me a better deal, I would move my business or ask the present dealer to match the offer,” Assolin said. “Make vendors responsible to you. At the end of the day, people squeeze us for discounts, so if you have volume business to give to a vendor, they need to meet my needs.”
Keywords
finance fuel costs how to industry education insurance rates LCT-NLA Show East Matt Assolin Mike Callahan operating expenses operator finance profits revenue growth revenues Stephen Qua
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