We spent time thinking about our foundation – what is behind what we do? Why are we running this business and how do we want to get there?
Now we can start getting into some of the practical stuff. What can we do with our business? How can we make good decisions?
I hope you have a better picture of what your business is and what you want it to be. Now we’ll start talking about how to get there. This is the practical stuff, the operations of your business.
Making business decisions
Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.
I don’t want to tell you how to do things.
Even when I offer examples of what I do, I hope I make it clear that it is an example. It may work for you, it may not.
Everyone’s situation is different. Our locations, philosophies, approaches are different. That’s as it should be. To tell everyone how to do things in that environment would be foolish.
What I want to do here is help you make your own business decisions. That’s what this next section is about – giving you tools to make your own decisions, and weigh those decisions against how your business performs.
To start off this section, we’re going to ask the question: How do you know how you’re doing?
If a delivery was a great delivery, what made it great? If it was awful, what made it awful?
There are a lot of factors that can determine how we feel about a delivery. Maybe there was a great song you listened to on the way that boosted your spirits. The customer had the most awesome dog (that always does the trick for me). The tip was incredible. Or maybe the restaurant was slow or they were rude. The instructions from the customer were confusing.
All of that centers on how you feel.
But how did it go as far as meeting your goal?
How do you measure it?
Introducing Profit Per Hour
Here’s what I found: Profit per hour is the best way for me to measure things.
It works for me because it helps me compare a simple delivery to my progress for the whole month. It lets me see if a delivery met my goal or did it put me where I’ve got a lot of catching up to do? It allows me to compare the three hours I did today to the 12 hours I put in on Saturday.
Here’s how I measure it
Figure out my profit
We’ve talked about this some already. It’s the money that’s left over.
In particular – how much is left over from a delivery, from a day, week or month after my car expenses are figured in?
The most effective way I’ve found to do this is to measure the car expense on a per mile basis. I don’t add up what I spent on gas or whatever, because the car costs a lot more than that to operate. Every mile is wearing out parts which will need replaced. Every mile is taking pennies off the value of your car, and those pennies add up fast.
So, here’s what I look at for figuring out profit:
Profit is all the money my business received (including tips and bonuses/incentives) minus the cost of operating my car.
The cost of operating my car is figured out by multiplying the miles I drove times the cost per mile of my car.
Here’s an example:
I made $130 yesterday and drove 55 miles.
If my car cost 30 cents a mile to operate, that means my expenses were $16.50 (55 miles times $0.30).
My profit is $113.50 ($130 minus the $16.50).
Or here’s a way to look at it for an individual delivery: I made $11 on a delivery and drove 4 miles. My profit is $9.80 (It cost $1.20 to drive my car at 30 cents a minute, $11 minus $1.20 is $9.80)
Figure out my profit per hour
Divide your profit by how many hours you worked.
$113.50 divided by four hours is $28.38 profit per hour.
$9.80 divided by a half hour is $19.60 profit per hour.
So say that $9.80 delivery took 33 minutes. How do you calculate that? There’s two ways:
33 minutes is 0.55 hours (33 divided by 60). Divide $9.80 by 0.55 and you get $17.82
Or you can do what I called the Earned Run Average approach – if you’re a baseball fan who knows how to calculate ERA you might know what I’m doing here: Profit times 60, and divide that by minutes. 9.8 times 60 is 588. Divide that by 33 minutes and you get $17.82
That’s a lot of math, but what I do is keep a spreadsheet where I just enter how much I made, how many miles I drove, and how long it took. It calculates that all out for me.
I’m looking into how to set up a calculator on the site so that you can just plug the numbers in and it will calculate it for you.
Okay, but what about that car cost?
I’m going to tell you right now to go with 30 cents a mile. That’s an amount that is going to be within 5 cents a mile of most of the cars that people use for delivery.
You might be thinking that’s really high. Especially if you have a fuel efficient car that hasn’t needed repairs.
If you’ve ever heard me talk about your car being a credit card on wheels, here’s what I mean by that. Most of the cost of using your car comes later. We don’t think of the costs because they don’t come out of our pocket immediately. Other than gas and routine maintenance, that’s it.
However, every mile you drive brings you a mile closer to the big ticket repairs and replacements (tires, timing belt, brakes, etc). Every mile you drive also means a few pennies, maybe a few nickels, less that your car is worth when you sell it or trade it later.
Those miles are creating costs, but we don’t have to pay them until we replace that item or until we sell or trade our car in. Since it’s building up a debt that you pay later, that’s why I use the credit card on wheels term.
Profit per hour for the class.
Based on the information everyone gave at the beginning of the class, as a group we’re averaging $14.08 profit per hour for the week leading up to the class:
$6,676.49 earned in 355.1 hours driving 5,589.8 miles.
Based on 30 cents a mile, expenses were $1,676.94. That left $4,999.55 in profit. Over 355.1 hours, that’s $14.08
By the way – earnings before expense were $18.80 per hour. That’s $4.72 per hour that the miles driven are costing us.
When you start seeing things in a way that you can measure, you start seeing progress. Is it getting better? Is it getting worse?
Why’s this important? Because then you can start seeing the things that lead to it getting better or getting worse. And when you see those things, you know what you can work on.