Everyone starting up a courier business will have a rough idea in their head of how much it costs to run a van a year, and roughly what that works out at per mile. However, the vast majority of new couriers vastly underestimate this amount. Many new couriers will estimate that this cost is around 30p-45p a mile – the truth is that it is at least DOUBLE that.
So what makes up this price, apart from the obvious fuel etc, what other costs do couriers need to consider when setting their prices.
Fuel; We’ll start with the obvious one. This works out at around 129p per litre, for diesel vehicles with engine capacities over 2000cc. If you have a well maintained van, the 30 mpg should be achievable. Making the cost per mile around 18-20p per mile. However bear in mind that normally your van will be part or fully loaded, and that will give you a lot higher fuel consumption. Additionally, if you are doing lots of short journeys, with lots of stopping and starting, and leaving you engine ticking over as you load and unload, then again, your fuel consumption will be much higher. Those MPG figures that the van companies splash around – remember that that's when you're doing 56mph up the motorway, not when you're sitting in traffic.
Depreciation; Say a new van costs around £20,000, and in 3 years it has a resale value of around £4,000 then that’s £16,000 of depreciation that needs to be included in the costings. Currently, the purchase price of a 4 year old secondhand ex-couriers van is around £4000 (i.e. the part exchange value that you'll get when you sell it or trade it in). So that's a massive £16,000 plus VAT that you have to work into your costings. Many couriers simply forget to take account of this cost, yet it will be one of the biggest costs that they need to recover.
Financing Charges; Very few van drivers or couriers can afford to pay for a new van in cash, and so that means that there is either bank interest, loan interest, or HP/Finance costs to be borne. These will average around £4,500 depending obviously on the deals and rates around at the time. Currently, finance deals for new vans are very thin on the ground, and it's simply a case of taking what you can get, and the interest rates are high. The days of cheap finance for vans have gone.
Tyres, Parts, Servicing; How many miles are you going to do a year? Many new couriers will use their personal car's servicing and parts costs as a benchmark for working out how much their van will cost them a year. However, tyres, servicing, parts, brakes and all the other mechanical costs are simply a factor of mileage. If you think you are going to be doing 80,000 miles a year, well that's going to be 3 or 4 sets of tyres a year, 4 services a year, a new set of brakes every year, a couple of exhausts over the three years. A lot more than your average car. And remember, if you are buying a new van for your courier work, then you'll be lucky, you may get the first 100k miles covered under warranty, but that will only just see you into the second year. If you buy an older secondhand vehicle, they you are going to be incurring van maintenance costs from day 1.
Courier Insurance; Van insurance is not cheap. Van drivers often pay higher premiums due to the “higher risk” they are exposed to by the number of miles that they drive every year. The average car driver drives 12,000 miles per year, a normal courier will be looking at least quadruple that, maybe even upwards of 80,000 miles per year. Couriers companies also need goods in transit insurance, to ensure that the products that they carry for their customers are properly insured against loss or damage.
RFT & Breakdown insurances; A necessary, unavoidable expense for all road users. And if you earn your living by driving, you need to ensure that you have cover to keep your vehicle on the road. Most standard breakdown policies will include a replacement vehicle, but most of the time this will simply be a small class a car. A Ka is great for getting you home in, and a quick trip down to the shops, but there is no way that you are going to be able to finish your deliveries in it. If you have no other facilities for borrowing or hiring a van if yours is off the road then you need to make sure that your breakdown policy covers you with a replacement van, not simply a replacement vehicle, and you need to check the period that the replacement vehicle is provided for. You also need to read the small print, many of the cheap standard policies will only cover vehicles that have done less than 100k miles. Which means that it's simply money down the drain for most couriers, because when their van breaks down and they really need it, the cover simply won't be there. These factors are the difference between the cheap £99 per year breakdown cover and the £300+ a year courier breakdown cover.
If you add up all of these expenses, and work out a cost per mile over an average 80,000 miles per year, it comes in around 83p.
More Courier Costs; But there are two very important costs that aren't included in the list. The first is time. The time of the driver/owner, i.e his wages. And the second is the margin that the company/business requires to contribute towards the businesses fixed costs and overheads (for example telephone, office staff, premises, bank charges etc).
And you may also want to consider costs like food and subsistence costs, over night accommodation (even sleeping in your van costs you £12 a night if you use the service stations), congestion charges, bridge and road tolls, parking charges (car parks & fines), ferry fares, valets and van washing.
Back Loads for Profit; The average van running cost per mile is for your van, full or empty. This is why the courier industry is full of businesses, websites, and other organisations all looking for "back loads". If a courier has taken a job, which is 200 miles, and the customer is paying £1.50 a mile, then the courier has covered his running costs. Now, if the courier can find a "back load", a lower paying job that they can do on the way back, then that back load is basically 100% additional profit, because the first job has already covered the costs.
So when you're preparing your business plan for your courier business, and you've analysed the competition who are charging £1 to £1.50 a mile and you think that there is a good profit in there, then do yourself a favour, get out your pen and paper and work through the costs, all of the costs. Anyone going into the courier business thinking that their costs are going to be 30p-40p a mile will be in for a nasty shock come the end of the month.