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Bus and Motor Coach Library

Raise Your Rates Now!

Author – Brian Niddery (2001)

Every member of the public knows that fuel costs have skyrocketed.  Almost daily there are news items that talk about fuel prices, the hardships suffered by the trucking industry, the surcharges being imposed on airline travelers, and so forth.

As a fleet operator you now have a unique opportunity to set substantially higher rates, yet experience relatively little actual resistance from your customers.  Few have any idea of what it costs to fuel a bus or motorcoach.  They quite believe that it is very expensive, especially when it is pointed out to them that fuel tank capacities of motorcoaches can range up to 180 and even 240 gallons.
In reality your fuel costs have probably increased from about seven or eight percent of gross expenses to perhaps ten or twelve percent.  People have the perceived notion that fuel prices have driven your costs far beyond those figures.      

So why disappoint them?

How much of an increase should you be looking at? For starters you need to calculate the percentage increase in fuel costs over the last year, and add to this an approximate 3% overall inflationary cost increase, and don't forget to estimate the cost of possible increases in staff payroll and benefits.  These figures should provide an approximate net total cost increase.

However, according to industry estimates the majority of fleet operators are currently experiencing minimal profit margins, often in the 0-5% range.  Most business analysts recommend that a more reasonable profit margin should be in the 15% range. 

Now is the perfect opportunity to review your rates to ensure that you are covering both your total cost increases and in addition, you are receiving a fair and reasonable return on your investment.  As a hard-working individual you owe it to yourself and your family!  

Following are a few good rules to follow whenever you are setting new rates:

 - Be firm on your rates!  Once you are confident that you have thoroughly reviewed your costs and that you have built in a fair profit margin, you need to have the courage to stand by your rates.  In the business world, this is what separates the men from the boys!

 - Keep in mind that every customer will complain about an increase in price, no matter how insignificant or how justified these increases may be.  This is a normal reaction.  Some may argue against your price increase or threaten to take their business elsewhere, but most will accept your new price structure.  Be firm on price with each and every customer!

 - It is important to let your competitors know about your rate increases - but again be prepared to stand by your new rates in order to gain the confidence and respect of your fellow competitors.  Chances are good that they will welcome your initiative, and most often you will find that they will gladly review their rates accordingly.  Sometimes it takes a month or two for them to catch on, but they'll invariably come around! 

Very important - it is against the law for competitors as a group to set common prices. Each company must independently review and set individual rates.

 - Having set higher rates, you may experience a temporary lull in charter bookings, or in the case of scheduled line services, reduced ridership for a short period of time - perhaps up to a month or two.  However, most customers will return to the fold.  Those few customers who do not, or otherwise refuse to accept your new price structure, are probably worth losing as a customer.

 - It is good practice about once a year to prune away those customers that you don't make money on.  Go through your sales records and pick off a half dozen of your worst and poorest paying customers, and hit'em with a full rate increase!  If they accept the rate increases- hooray!  If they don't, you will be surprised at how much your operating costs will be reduced.

            In the case of charter and tour operations, an excellent measure of the successful results of your new rate structure, is a comparison between your business volume and your rate increase! For example, if you increase your rates by 10%, and your business volume (translated it means your fleet mileage) falls by 10%, you're going to see a very healthy increase in your year-end profit picture!  Why?  You earn both a higher return per revenue mile, and at the same time you reduce your costs by putting less mileage on your equipment.  You win both ways!