The third article in the profitability series covers calculating your cost per call, and how this knowledge empowers your success.
Why Cost per Call or Cost per Mile matters
By understanding your cost per call and cost per mile, you can quickly do the math before you accept a towing job that may not be profitable. Most jobs that do not meet your profitability goals should be rejected, exceptions would be jobs for employees, friends, family etc. Calls from Motor Clubs especially need to be analyzed since they have a low profit margin to begin with. Every jobs counts when it comes to your profitability and success.
Have you calculated your expenses?
In our last article we talked about categorizing your expenses; into static and dynamic expenses. If you have already done this then congratulations! The lion’s share of the analytics I want to talk about today have already been accomplished. Obviously our dynamic expenses can be a difficult thing to nail down, so do the best you can to figure out what those dynamic expenses were over the past year, or make a “best guess” and get it written down.
Things to consider other than expenses
When it comes to calculating cost per call, or cost per mile, there are some things that must be considered. For example, if you are doing a mix of heavy recoveries, and light recoveries, you may want to calculate those separately to give you a more targeted analysis. You can even do these calculations by the truck, since one truck can be more expensive to operate than another.
If your towing software or accounting software doesn’t allow you to easily retrieve information for expenses in the form of easily understandable reports I would recommend that you give me a call for a demonstration of our PTOM towing software. If the software you are using is working well for you, and you can generate the reports to give you the information that you are after, I am sure you can still find a good excuse to give me a call to give me feedback on my articles!
Static Cost per Call
Anyhow, on to the pithy stuff! So we have figured out what our Static expenses are, let’s take a look at what our static cost per call is. We can easily figure that out by simply dividing our static expenses by the number of tickets completed for the year that we captured those static expenses, so if X = Our total annual static expenses, and Y = the number of tickets completed that year, then X / Y = Our Static Cost per call. It’s important that we have our static cost per call figure as a separate figure from our Dynamic cost per call figure.
Dynamic Cost per Call
For our Dynamic Cost per call, we can break things down on a more specific level, or we can look at an overall level. For an overall figure it is a simple calculation of your Dynamic Cost per call, Divided by the number of tickets you have completed, similar to what we did above for our Static expenses figures. However this really doesn’t give us an accurate picture of what our operations actually look like if we are running an operation that does a mix of Heavy recoveries, and motor club tows.
Getting more detailed
You have a few options here, when it comes to separating the dynamic expenses, you can separate them by the type of truck, or you can separate them by the type of calls. For example, if I have 3 heavy trucks, and 2 light duty rollbacks, obviously the dynamic expenses for those trucks aren’t the same. If you want more accurate analytics you should separate the Dynamic expenses that relate specifically to those trucks, and calculate them as separate categories. So now instead of having 2 categories of expenses we now have created 4.
- Heavy Static expenses
- Heavy Dynamic expenses
- Light Static expenses
- Light Dynamic expenses
What about general expenses?
There are some expenses that don’t specifically relate to any of these categories, such as the lease expenses for your impound lot; these expenses need to be totaled separately, and divided evenly among the categories you have created. In this example, I will divide the cost of my lease by 2, and add the dividend to my Heavy Static expenses, and Light static expenses category.
Once I have created a table of all of my Heavy Static and Heavy Dynamic expenses I can divide this figure by the number of Heavy Recovery Tickets, that I completed that year, and I will see an average cost per call for my Heavy trucks. I will want to do the same for my light tows.
The motivation for calculating these figures separately should be apparent; your average cost per call between heavy and light should be dramatically different, and combining the two figures creates a recipe for failure on both sides of the equation. You will end up overbidding on your light tows, and underbidding on your heavy tows, because you have a skewed expense figure for each category. The purpose of these calculations is to better understand what these calls cost us, and what we should be charging our customers so that we don’t lose money, while giving them a competitive price.
Stay tuned for our next article, where I will talk about the types of mileage, and breaking down our cost per mile.