Vehicle Choice & Business Profitability

Tuesday 3rd December 2019

A quick guide for driving instructors

Regardless of how successful you are in generating clients and building up tuition hours, the cost of financing and running the vehicle you teach in is likely to have a major impact on the profitability of your business and, in turn, your actual income.

Assuming you don’t already own your car outright, the monthly cost associated with buying or leasing stands out as a major expense, it can also be quite misleading. For example, if you choose a car which is inexpensive to finance but has a poor MPG, the true cost of ownership could exceed that of an alternative vehicle where those two key factors are reversed. And of course, the more lessons you teach, the more money you will ‘lose’ compared to a more fuel-efficient vehicle.

Many instructors drive between 20,000 and 30,000 miles a year. This means that a difference of just 3p per mile could equate to an extra £1,800 to £2,700 over the course of three years. At the higher end, that’s well over 100 hours of addition tuition (based on an average charge rate of £24 per hour).

The same is true if you choose a vehicle which has relatively high service, maintenance and repair (SMR) costs. In fact, fuel and SMR combined can account for around 40% of the Whole Life Cost (WLC) of a vehicle. With higher than average mileages, instructor cars often need more frequent servicing, tyres and brake pad replacement, which could increase this figure even more.

Electric vehicles are a great example of the acquisition versus running cost equation. Currently amongst the most expensive to buy, their use of very cheap ‘fuel’ and simpler drivetrains that need less servicing and repair makes them significantly cheaper to run than their petrol or diesel counterparts.

Naturally, you still need to choose a vehicle that you enjoy using as your mobile workplace and also one your students want to be tutored in. That said, Whole Life Costs can make a major difference to the profitability of your business and should therefore form a key part of the decision-making process.

 

What exactly are Whole Life Costs?

The term Whole Life Cost refers to the amount paid to finance the use or purchase of a vehicle and all the associated running costs incurred whilst the car is in your possession. If you buy your instructor vehicle, new or used, this includes the purchase price, dual-control conversion costs, finance costs, fuel, SMR, tyres, insurance, VED, breakdown cover and depreciation.

Putting all this together tells you how much each car really to costs to run and therefore shows the degree to which the right (or wrong) vehicle choice could impact your bottom-line profit.

 

How do I calculate Whole Life Costs?

It can be a little daunting, but manufacturers now offer helpful online WLC calculators that compare different makes and models of car. If you’re thinking of opting for a used car, the Money Advice Service also offers an online running costs calculator for used cars under five years old.

In terms of MPG, it’s worth checking the official figures as published by the Department of Transport. In the case of instructor vehicles, any calculations should be based on the ‘urban’ figure, since this is likely to be the most relevant and will be lower than the combined figure.

WhatCar? have an online ‘true’ MPG calculator that compares cars for fuel costs (annual and per mile), giving what they claim to be a ‘real world’ figure that also takes into account your driving style, congestion, and how much is urban or motorway. Nextgreencar.com have something similar, but they also include VED and the London Congestion Charge.

Whole Life Costs and vehicle leasing

Leasing removes a lot of the uncertainty around whole life costs because many of the hard to predict variables, such as tyres, servicing, maintenance and repair, are all included within monthly rental price for the duration of the contract.  

Depreciation is another obvious concern for car buyers, especially where high mileage vehicles which have been converted for specialist use are concerned. In fact, underestimating levels of deprecation could make a significant difference to the true whole life cost of your vehicle. Whereas, by choosing to lease your dual-controlled car, this is a risk taken on by the leasing company and is factored into your fixed monthly costs.

As long as you have selected an appropriate mileage, and the vehicle is only subjected to what the British Vehicle Leasing and Rental Association determine as fair wear and tear, there are no additional costs to pay.

Bearing in mind that vehicles leased from Hitachi Capital Vehicle Solutions also include the cost of dual-control conversion in the monthly rental, you will only need to add fuel costs and insurance to the total cost of the lease to get the WLC figure. As a result, it becomes easy to compare different makes and model to make a choice that’s right for you and your business.

Factoring in a whole life cost calculation to the vehicle decision making process could make a real difference to your business profitability, so if you would like to talk it through with a member of our specialist Driving Instructor team, just get in touch.