April 23, 2025 • 50 mins
Learn more about the Driving Financial Success Program:
https://drivingtransactions.com/programs-courses/driving-financial-success/
In this episode of the Ground Transportation Podcast, James and Ken discuss the importance of understanding and accurately structuring pricing in the ground transportation industry. They explore the critical nature of knowing one's cost structure. This way, operators can avoid pricing too low and risking unprofitability. Listen to this episode to learn how you can properly manage your finances and establish a pricing strategy that leads to profitable growth. In this conversation, you’ll hear:
• Common pitfalls, like not knowing costs and relying too heavily on competitor pricing
• How to analyze your costs to inform your pricing strategy
• How to view pricing through the lens of profitability
• Why it’s important to keep your accounting and financial statements organized
• Practical advice for operators on how to push prices up without losing customers
• The relevance of dynamic pricing strategies for transportation business owners
At Driving Transactions, Ken Lucci and his team offer financial analysis, KPI reviews, for specific purposes like improving profitability, enhancing the value of the enterprise business planning and buying and selling companies. So if you have any of those needs, please give us a call or check us out at www.drivingtransactions.com.
Pax Training is your all in one solution designed to elevate your team's skills, boost passenger satisfaction, and keep your business ahead of the curve. Learn more at www.paxtraining.com/gtp
Connect with Kenneth Lucci, Principle Analyst at Driving Transactions:
https://www.drivingtransactions.com/
Connect with James Blain, President at PAX Training:
https://paxtraining.com/
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
James Blain (00:24):
Hello everybody and welcome back to the Ground
Transportation Podcast.
I am one of your co-hosts, JamesBlaine from PAX Training, joined
by my wonderful co-host KenLucci, from driving transactions
we have.
Ken Lucci (00:35):
I kinda like the term lovely and talented to
James Blain (00:38):
Lovely, and I, I stand corrected the lovely,
talented, incredible handsome,um, we'll, we'll just, we'll
keep the flattery going.
Um,
Ken Lucci (00:46):
short and grumpy is really what people are no
noticing me for
James Blain (00:49):
No, no.
Well, but, but I'll tell youwhat, we have a heck of a topic,
speaking of grumpy, because thisis something that comes up a lot
and there's a lot of questionon, there's a lot of debate on.
I feel like people are kind ofshy around this topic and it's
pricing and I think one of thebig things that we are hearing
right now is businesses slowingdown.
(01:10):
You know, I, maybe it's time todrop prices.
I also think, and I, and I don'tknow your thoughts on this, but
I'd love to get them.
I.
I also think there's almost likean uneasiness of people are
concerned whether or not thingsare gonna hold up, and I think
that might be kinda leading tothat fear and that desire to
maybe want to try and drop aprice.
Ken Lucci (01:31):
You know, it's interesting that you say that.
I've seen a couple of co a fewcomments on Facebook and we make
it, uh, when we talk to ourclients on a monthly basis, we
do a, a monthly financial reviewwith the clients.
We're, we're asking themstraight out, tell us how we, we
know how the month was'causewe're doing a review.
But give us your sentiments.
What are your thought process?
How, how does the spring marketlook for you?
(01:51):
I, I can tell you the numberone, the number one problem with
not.
Pricing right, is you don't knowyour cost structure, so you, you
don't know how low is too low,right?
Um, in general, the biggestissue I see in this industry is
not pricing properly, notknowing your profits and profits
(02:15):
solve problems.
That's, that's one of the thingswe see all the time.
So.
Regarding price.
You know, there, there's,there's price is one thing, and
then the value you deliver issomething else.
But let's dissect price.
If you don't know what should gointo your pricing, you are in
trouble because.
You, there is a line that youcan't cross, and when you cross
(02:38):
the line on pricing, it's aslippery slope and the, the, the
end destination is you don'tmake a profit and you go out of
business.
Period.
End of story.
James Blain (02:48):
So expand on that for us, because I think, you
know, and, and we've talkedabout this before, we won't say
where they pull it out of, butwe feel like a lot of operators
are just pulling out numbers,right?
And so they're saying, well, I,I feel like this is what the
market could bear, or, I feellike this is what I could get
Ken Lucci (03:02):
Oh, oh.
The worst thing is, well, mycompetition is this.
James Blain (03:05):
Yeah.
Yeah.
Their, their pricing based,they're picking a number based
on a random number that anotherperson picked.
When you say, what goes intopricing, expand on this, what,
what do you mean by that?
Ken Lucci (03:17):
Well, it's, you know, if we were building bird houses,
right, we would have the wood,we'd have the paint, we'd have
the nails, and then we'd havethe little bird that we put in
the, in the little box, rightwhen we're done.
In our case, it's the cost ofthe vehicle.
It's the cost of the insurance.
It's the cost of repair andmaintenance.
It's the cost of the chauffeur.
It's basically your direct cost,everything to turn the key.
(03:37):
Okay?
Here's the only reason whywe're.
As successful as we are andwe've like backed up with work
at this point is because themathematics in this industry are
not that difficult.
So if the first thing we look atwith a company that's in
trouble, whether they're losingrevenue or whether they're not
profitable, is we look at whatthe gross profit margin is.
James Blain (04:00):
Okay?
Ken Lucci (04:00):
If they don't know what their gross margin is on
each type of service theyprovide, they cannot pull the
levers.
Of their pricing,
James Blain (04:11):
How common is that?
Do most companies know
Ken Lucci (04:13):
Now only listen here,
James Blain (04:15):
Loaded question,
Ken Lucci (04:16):
a hundred percent of companies do what's called tax
accounting, which is create thefinancial statements so that you
can pay your taxes.
And not just our industry, butas far as small business
businesses, other under 10million, less than 10% of them
do what's called financialreporting.
Financial management reporting,and that's a monthly financial
statement that gives you morethan a profit or a loss.
(04:38):
So, so not knowing your cost isa huge chunk of your financial
statements, not knowing what itcosts you to turn the key to do
the trip.
Okay, so, uh, I, I'm gonna breakit down.
So what goes into a price, yourdirect cost structure.
Of what it takes to literallyhave the vehicle on the road,
(04:58):
turn the key and do the trip.
That's your direct cost.
And then the rest is youroverhead.
That's an expense, all of yourexpenses to run the business.
And then you, you gotta haveyour a net profit margin.
So your direct costs, your totalcost, subtracted from your
price, gives you your grossmargin, and then knowing your
overhead, knowing what yourmarkup needs to be.
(05:20):
So in, in, in reference to lowprice.
The number one reason why peopleare hesitant about their pricing
is they're not really deployingany pricing strategies.
Okay?
So let's talk about
James Blain (05:34):
Yeah.
What, what do you mean bystrategy?
I mean, I thought pricing waspricing, right?
I mean, most, most companies.
They're thinking, Hey, I'm gonnaput a number out there, and
they're thinking, I'll discountfor affiliates and I'll have,
you know, I'll have my numberthat I wanna get, and if I have
to, I'll drop here and do thisto get the work.
Right.
That's how I think the vastmajority think
Ken Lucci (05:51):
And, you know, pre pandemic, uh, there was, there's
been a, there was a renaissanceafter the pandemic to me of
everybody jacked up.
Their prices almost too high.
Right?
And no offense to anybody whothinks they're rocket
scientists, but my Jack RussellTerrier could have made money in
21 and 22.
Okay?
In fact, he made a lot of moneyin 21, 22.
But as the market came back andsaid, okay, guys, meaning the
(06:15):
market, the customers came backand said, wait a minute, you
guys have gone crazy.
Right?
23 is where people really had tolook at, at, uh, adjusting their
pricing structure.
James Blain (06:25):
Hitting that limit.
Ken Lucci (06:26):
So what do I mean by pricing strategies?
Okay.
Cost based strat, cost basedpricing is the primary
foundation that every, everybodyteaches.
This is what it cost me.
To build the product or put theproduct on, uh, put the product
out to market, right?
This is what my overhead is,this is what my, my net profit I
(06:47):
want, so I need to mark it up toa certain point.
So fundamentals, the biggestissue I see is people not
knowing their cost structure.
They don't know how much itcosts them to turn the key in to
do the job, so it all comes backto.
What do, what do you, how isyour financial statement set up?
(07:07):
And I know this is getting wayoff track, but how is your
financial statement set up?
Do you know all of your cost ofgoods and what's your profit
equation?
So in our mind, the profitequation, it's, it's, it's
pretty straightforward.
It's either 60% of the job goesto direct cost, leaving you with
a 40% gross margin, or for themore competitive like airport
(07:30):
trips, sedan and SUVs.
65% and you have 35% left over.
Right?
So the first thing I want to doas far as pricing, anything I do
is I need to know my coststructure.
What does it cost me to rollthat piece of equipment?
Okay?
And how many times am I gonnaroll it?
Then the other thing that goesinto a pricing strategy is the
(07:54):
demand for the product and thedemand for the service, and how
many of them out there arethere, and that, that gives me
kind of an idea of how elastic Ican be on my prices.
James Blain (08:05):
Well, and that, that sounds like it teases a
little bit dynamic pricing whenyou've got the ability to, to
ask for more and, and adjust andexpand or contract those
margins.
Ken Lucci (08:15):
Sure.
So the beautiful part of thebeautiful part of somebody who
knows their financial metricsand they, they're managing the
financial costs of theirbusiness.
They know that for every ahundred dollars they generate,
they're gonna be spending 25% ofthat on direct cost to the
chauffeur they're gonna bespending.
X percent.
(08:36):
Usually it's eight to 10% on thefleet vehicle.
They're gonna be spending fiveto 7% on insurance.
If you know your cost structure,you can build up from there,
right?
So if your cost structure, a lotof it is, how much do I wanna
make on this job after that?
So after that, you need to know,well wait a minute.
I need to know what my overheadis, and then I need to say to
(08:57):
myself, okay.
You know, what's an acceptableprofit margin?
What will the market bear?
So we are big from a pricingstructure.
From a pricing perspective, weare big on the first foundation
of, of setting prices is tomanage all your costs, know your
(09:17):
costs, know exactly what itcosts you to turn the key and do
the work.
And then.
You can seriously look atspecific strategies to to, to
move the levers ofprofitability.
Well, what do I mean?
What do I mean by that?
Well, you know, I make theargument that if you are one of
four Sprinter vans or fiveSprinter vans, or 20 in a
(09:40):
market, okay?
And yours is the newest, nooffense, you should be priced
higher than your competition,and you
James Blain (09:47):
you're providing value.
Ken Lucci (09:49):
Right, exactly.
Right.
Right.
So, so the foundational levers,the foundation of, of pricing is
knowing all your costs, and thenit is based on your specific
market, based on the specificpurpose, based on the specific
service you're gonna provide iswhat is your, what is your
acceptable gross profit margin.
And I'm gonna tell you, airairport transfers.
(10:12):
Your gross profit margin.
In other words, what do you haveleft over after you pay for the
vehicle?
Pay for the driver, pay for thefleet insurance, pay for the
repairs and maintenance.
It's always gonna be between 30and 35%.
James Blain (10:23):
Well, and you've, you've hit something that should
be a signpost, right?
This is kind of a wake up momentif we've made it this far into
this episode and you don't knowyour numbers because.
How many times on this podcastor how many times have you and I
talked, Ken, where we've said,you know, people were doing
trips they shouldn't even bedoing, they're losing money on
(10:44):
it, right?
That margin was so thin, therisk was there of hey you.
You literally would've beenbetter not sending the vehicle
because they didn't understandthose numbers,
Ken Lucci (10:55):
They don't, and there's no getting around it.
What somebody says, I price,because the affiliate, meaning
the network, the, the networksays this is what they're gonna
pay me.
Wrong answer.
James Blain (11:05):
Yeah,
Ken Lucci (11:06):
Wrong answer.
James Blain (11:07):
they're defining your numbers.
Ken Lucci (11:08):
right.
I'm pricing because this is whatmy competition is charging.
Wrong answer, I can tell youwithout any hesitation.
They don't know their numberseither.
Now, I, I mean, it's the, the,the lack of financial acumen and
the thought process that.
All I need to do is do morerevenue.
All I need to do is look at myrevenue reports, right?
(11:30):
This year versus last year.
That's the measure.
I mean, I talk to verysuccessful companies that still
do the same thing.
I'm like, you know what?
I'm glad you're 15% up, but Ijust want you to watch the fact
that you're overtime, yourdriver overtime is so high, it's
killing your gross margins,
James Blain (11:47):
Well, and you're, you're bringing up something
important in that.
The revenue number, and you'vetalked about this before and I
think I, I'd really like you tokind of bring it in again today
is your revenue number is not asimportant as how much profit
you're actually making.
Ken Lucci (12:04):
Right.
What you make is not asimportant as what you keep, and
if you don't know what you keep.
Okay.
And it's pretty straightforward.
I mean, we have worksheets inour program that we go through
with our operators, alright?
And we're very methodical aboutit.
First of all, we're gonna putthe operator into our financial
(12:24):
reporting format, which is acost of goods format.
Once we're in that format, I cantell you the fir, I can tell you
what's wrong with your business.
Okay?
Example.
got a pretty guy, thinks he'sreal successful.
He thinks he's real smart.
It's a$4 million operator.
He's in the motor coach space.
Okay?
We put him through our program,we put, we put his financials
(12:45):
into our cost of goods formatand I said to him, you are
spending on repair andmaintenance, 18% of your total
income.
Your price, your prices are waytoo high or your equipment is
way too old, or a combination ofthose two things.
Okay?
Something's wrong.
You are paying your drivers 39%.
(13:06):
By the way.
It should be between 25 and 27.
Or maybe New York, 27 to 31, youare paying your drivers 39% of
total income, right?
Your gross profit margin is inthe twenties when it should be
in the thirties.
Your pricing is at least 10 to15% too low.
Okay.
Then the argument I get is,well, my competition is that
(13:28):
low.
I'm like, then you have, firstof all, there is no strategy
whatsoever to being low price.
You have several choices.
I'm gonna be a low price leader,right?
And I'm gonna command themarket, and then I'm gonna go
out of business.
I'm gonna match my competition.
There's no science there.
Or number three, I'm gonna knowmy cost structure.
I'm going to know all of mymetrics and I'm gonna pull the
(13:52):
profit lever levers of mybusiness.
Well, what do I mean by that?
So we are lucky in an industrythat we can provide service in a
variety of vehicles and, and acouple things.
Not all customers should say,pay the same price.
Right?
And I can guarantee you not allvehicles should generate the
same amount of revenue or grossprofit margins,
James Blain (14:14):
Well that's, that's right there with knowing your
business.
You've gotta know the types ofwork you're doing, the types of
vehicles you're doing, howyou're using them.
And it, I mean, it all goes backto right, you can get an Android
or you can get an iPhone.
They do the same thing.
But why is the iPhone pricedhigher or why are people willing
to pay it?
Ken Lucci (14:31):
Right.
And what do I want as far aswhat are the, what are the
features?
What are the benefits of theiPhone that I want as a
consumer, right?
That go way above just the phonecall.
So.
The best, the most successfulcustomer customers we have.
The most successful, mostprofitable operators I know are
know their cost structure oftheir, of their total business.
(14:54):
They know as a percentage ofincome what they are paying for
everything.
Okay.
And that is, What am I payingfor my insurance as a percentage
of income?
What am I paying my chauffeursas a percentage of income?
So they know their coststructure and then they work
their pricing based on a markup.
What, what markup is gonna payall those costs and then.
(15:17):
Pay my overhead expenses, andthen what am I gonna have left
over?
You know, I make the case and,and, and I, I, I will, I will
defy anybody to have the datathat we have to prove this is
wrong.
Right?
First of all, they don't havethe data when we have 270
companies and counting, right?
The most profitable companies inthis business are priced at the
(15:41):
middle to high level of themarket, if not the highest in
the market.
James Blain (15:45):
repeat that again.
'cause this is extremely,extremely important.
Ken Lucci (15:50):
most profitable companies that we do business
with are priced at the medium tohigh or the highest in their
market on all services.
James Blain (15:59):
But Ken, wouldn't they do more trips if they were
lower price and wouldn't themore trips make more revenue and
they could make more money?
Ken Lucci (16:06):
No, not all revenue is good revenue, and nobody
wants to buy a company that has,that has the lowest price per
trip of anybody in themarketplace.
You know, when we sellcompanies, every buyer and we've
trained the buyers to and thesellers, I want your top 50 city
pairs, right?
Your top.
two and top front locations anda typical buyer operator's gonna
(16:30):
look at that and they're gonnasay, holy shit, this guy is 25%
lower than my pricing.
If I buy this guy, I'm gonnahave to bring his prices.
So far up, so far up that I'mabsolutely, and, and I, and
I'll, you know, get.
Quite a, a few of the clientsthat have been on the podcast,
we helped Mike Rose from mylimo, buy a company, right?
And the first thing that we didwhen we, we did what's called
(16:51):
buyer due diligence for Mike,right?
Where he found the operator andhe said, Ken, I want some help
with
James Blain (16:57):
Yeah.
Evaluation of the operator,
Ken Lucci (16:59):
the way, Mike Rose, one of the smartest operators in
the country, calls me and wait aminute, calls me and says, I
need your help with something.
You gotta love a guy.
You gotta love a guy thatrealizes I don't know what I
don't know.
I, and I want you to walk methrough this.
Right?
And then he calls his brotherTim to make sure I'm actually
telling the right stuff.
So we look at this company andlike, you know something, you're
(17:21):
gonna be in good shape here.
Lemme tell you why your.
Revenue per trip is within fiveto 7% of their revenue per trip.
Yeah, you're gonna have to makea few changes in these zip
codes, but look at this, right?
So, so being the most profitablecompanies we do business with
are priced on the medium to highor the highest price of their
(17:43):
market.
Okay?
How did they get there?
Now they are absolutely not thelowest price in any category of
service that they do, period.
And.
Okay, so the, the beauty ofbeing that way and the beauty of
having loyal clients that repeatclients, okay, that pay those
(18:04):
prices is now you can predictwith pretty much decent
certainty what your profits aregonna be moving forward.
Okay, so, so let's talk aboutthe companies that are the least
profitable.
They are absolutely always thecustomer companies that have a
high degree.
60 50, 60, 70% of their work isaffiliate work.
(18:27):
There's nothing wrong with that.
If you know your costs and youare working with the right
networks that appreciate thefact that you have to make a
profit.
And you can defend yourself.
You can defend yourself bysaying, listen, you know what
you wanna, what you want me tocharge is, is, is way below
what, what my gross margins are.
Okay.
James Blain (18:47):
and address the fear there, Ken.
'cause I think a lot of peopleare scared that if they push
back on the network, the networkmight pull out and say, you know
what?
Forget you.
I'm gonna get someone new.
I mean, what does that line looklike?
Ken Lucci (18:58):
out, I'm gonna tell you flat out, and this was
really driven home to me byTammy Rudder and Dawson Rudder
from Commonwealth on the podcastcall that we had.
Okay.
And the beautiful part of thosetwo people is they don't talk
one way on the record andanother way off
James Blain (19:14):
off the
Ken Lucci (19:15):
Okay.
The value that they, that is theone of the best boutique
networks in the industry.
Okay.
We, and we deal with all ofthem.
All of them post pandemic.
The ones that are the mostsuccessful treat their
affiliates like partners.
So they may have to be, they mayhave to, uh, uh, and their A
(19:37):
network may have to say to theiraffiliate, listen, I need you to
be here on sedans and SUVs.
But by the way.
Vans, minis and motors, youknow, love.
You do what you need to do.
We're just gonna mark it up,right?
So the key is to know the cost,know the ingredients in order to
figure out what you need tocharge for the finished product.
(19:57):
And the only way you do that isliterally by managing ev the
nickels and dimes of the costevery single month.
We had somebody the other daygreatest, one of the greatest
guys in the world.
I'm gonna call him out.
Doug Schwartz.
Right.
Dougie, Dougie and I have a callyesterday, um, coming back from,
from Massachusetts, if I always,how's business?
(20:18):
What's going on?
And he says to me, know,business is pretty good.
We're a little concerned incertain areas, but you know
what, I've, I've made it a habitbecause I'm, I'm a little
concerned about what's going on.
I'm going through every singleinvoice every single month and
questioning why do we need this?
How can we do better on that?
How can we cut down over time onour chauffeurs?
(20:38):
You know, guys, you know his twosons, you know, how can we do
this?
And he's literally dissecting ata granular level and I said,
Dougie, you got it down pat.
You know when at the end of adollar transaction or a hundred
dollars transaction, all you gotleft over is 10 bucks.
You gotta manage the quarters,nickels and dimes.
James Blain (20:59):
Well, and let's tie that back to a previous episode.
'cause one of the other thingswe talked about is you've gotta
invest and have the money in toinvest in things like safety and
things like telematics andthings like cameras.
Talk to us for a second aboutthe difference between trying to
control cost and manage cost andgetting to that point where
(21:19):
you're taking money away fromthings to where you're basically
robbing Peter to pay Paul.
Right.
I pull it outta my safetyprogram.
I'm gonna have a big accidentlater as an owner, how do you
manage that to where you'rebeing smart with your money, but
you're not cutting the cornersthat you can't afford to cut?
Ken Lucci (21:36):
Well, for, you know, first and foremost, profit
solves all problems, right?
So it, there's the, the, the,the, the commonalities of
profitable companies is theyinvest in their systems, they
invest in their processes, andthey understand the difference
between a cost and an expense.
Or an, or something.
That's an investment, right?
(21:57):
Like people say to me, whoa,whoa, whoa, whoa.
You charge what for a profitanalysis?
I said, yeah, and at the end ofit, if you're not happy and I
don't show you ways to at leastfive x what your investment was,
I'll give you your money back.
Okay?
So, so the, the, it's no secretthat the most profitable
companies.
(22:17):
Know their costs, and yes, theydo cut corners, okay?
But they're not cutting cornersout of weakness, which is, holy
shit, I don't have any money forpayroll this week.
Right?
They are cutting costs to be themost competitive they can to
assure customer loyalty.
You know, the, the guys thatthat really get me are the ones
that pay three, four, 5,000 amonth in PPC ads.
(22:41):
And then they beat the crap outof the guy that does PPC because
I've spent three, four, 5,000,but I'm not making any money.
Right.
Okay.
Well first of all, you'reprobably not even following up
on leads.
And second of all, you have tounderstand that that first, the
lead creation, the guy did hisjob, he created the lead.
(23:02):
Okay, but if, but if you aregoing after the lowest cost,
which is the guy that is justsearching for airport in every
city that he goes, and he'snever gonna use you again.
And your, your idea of strategyis to be the lowest cost
provider.
You, you, you're not gonna beprofitable.
You're not gonna make money.
James Blain (23:21):
Well, and we see that kind of stuff in this
industry all the time.
In my world, that takes the, theform of, Hey, I got a safety
audit with my insurance company.
I need to get you put in asquick as humanly possible.
And then the second, the safetyaudit's over, okay, we're, we're
gonna cancel everything.
You know?
I mean, that's, that's kind ofthe, the crux of that is knowing
what, what are you gaining?
Ken Lucci (23:40):
Uh, uh, uh, you know what?
I need to get my financials inthe order because I need to sell
my company this year.
I, no, shit.
That's what happens all thetime.
I
James Blain (23:49):
Why?
Why didn't she get it togetherbefore?
Now is not the
Ken Lucci (23:52):
This is a true story.
This is a guy calls me, uh, aguy calls me.
I'm not gonna say where he wasfrom, but a guy calls me three
years ago and he's like, youknow, I, that was profitability
issues and I'm not as profitableas I'd like to.
What can you do?
And I, and, and I gave him ourpricing.
That's a lot.
I says, excuse me, let me tellyou.
I, we give you a guarantee.
(24:12):
Okay?
We're gonna go through and we'regonna do a three year review of
your financial review of yourbusiness.
We're gonna do a KPI review toshow you where you're at.
Now, we're gonna compare you to270 companies.
We're gonna be able to pull acompany, whether it's from your
market or a market with the sameGDP, the same size market, and
we're gonna compare the two sideby side.
(24:33):
We're also gonna look at allyour metrics and we know what
you should be paying yourchauffeurs.
We know that your fleetinsurance should be five per
five to 7% of total income.
Right?
Okay.
Guy didn't do business with me.
It's okay.
No problem.
I even said, just buy my course.
Just buy the course.
Right.
DIY do it yourself.
Didn't do it.
Guy calls me last in, in thebeginning of March and he says,
(24:56):
uh, I, I, I'm gonna be outtabusiness by the end of the
month.
Can you sell my company becausemy insurance just went up 45%
get this, and I don't have themoney for the down payment.
I already have a second mortgageon, I, I already have a second
mortgage on my house.
This is a, this is a, a as Godis my judge.
And this guy's been in business20, 25 years.
(25:16):
Okay?
And I can show you there's a,the, the thought process that
all revenue is good, revenue isabsolutely a misnomer, right?
If you, you've got the, theability, if you know your
finances and you know your coststructure to pull the levers of
your business proactively.
(25:38):
What do I mean by that?
What do I mean by that?
If you know that in order to geta large corporate account,
you've gotta be price yourpencil sharpened.
Okay?
The most, you possibly have tobe pencil sharpened on the
airport sedan ride or theairport SUV ride.
And if you know what your coststructure is, and I just did
(26:00):
this with a client the otherday.
I said to him, listen.
Here are your costs.
This is what a 25% gross marginlooks like.
This is what?
A 30% margin, 35.
You price it accordingly, right?
I'm gonna tell you right now, ifyou price it at 25% margin, you
better be able, you better getmuch more business in larger
(26:23):
vehicles from that corporateclient, or this is gonna get old
real fast.
James Blain (26:27):
Yep.
Ken Lucci (26:28):
Okay, because you're using, in this case, you're
using a sprinter van that youcould deploy a third of the time
and make much more profit.
But, but, but if he didn't gothrough the cost exercise with
us, he wouldn't have known it.
James Blain (26:43):
And, and now you're getting into something that's
really interesting and you getinto kind of areas that I love
and talk about of opportunitycost.
Right.
I, I've been a small businessguy my whole life.
Opportunity cost for me wasalways really hard to figure out
because guess what?
Like you just said, if you aretaking that, if you're, oh, I
want to keep it rolling, youmight be missing the opportunity
(27:04):
to use it for something elsethat might be higher margin and
might actually run the vehicleless.
Ken Lucci (27:11):
you know, I have great, great client.
I, I love them to death.
They're, uh, they're in the midMidwest and they, there's winter
time where his he'll lookoutside, I'll call him or he'll
call me and he is like, Ken, I'mlooking at seven motor coaches
out there and it's killing me.
I'm gonna put'em out at, at athird less.
Whoa, whoa, whoa, whoa.
Number one, here's the problemwith that.
Number one, that same client inhigh season's gonna come back to
(27:34):
you and say, wait a minute, inFebruary.
I was paying 160 bucks an hourand you're trying to charge me 2
35.
No, we, we, I, and I've said tohim, we've been through this, we
have pricing strategies thatstart with knowing our cost
structure.
Knowing that we can't keep thelights on below this much gross
(27:56):
profit margin, right?
So, and I'm gonna tell you rightnow, do what you wanna do,
right?
Do what you want to do.
But all you have to do, yourdriver in that motor coach has
to swipe side.
Swipe a a pylon, and you've got$10,000 to replace that door.
Now you're gonna say, now you'regonna literally say to me it was
worth it to roll that piece ofequipment.
(28:18):
You may think that we're in acommodity business, and the
closest thing to a commoditybusiness we're in is the airport
business.
Okay?
And I'm gonna tell you flat out,as a driver, as an operator,
flat out, if you have to be thelowest price to and from the
airport for your clients, youare absolutely selling to the
wrong client.
James Blain (28:39):
Oh, you're at the wrong part of the market.
Look, if,
Ken Lucci (28:42):
You're at the wrong part of the market.
James Blain (28:44):
Yeah, if you're one of our customers, if you're
working with companies like Pax,if you're working with companies
like yours, Ken, if you're doingthese types of things and your
goal is to be the lowest costoperator, it's not gonna work
because everything that you andI tend to focus on, Ken, we're
focused on you wanna be the topof the market.
You wanna be providing thevalue.
You don't wanna be thatcommodity.
Ken Lucci (29:05):
top of the market is not Rev.
It's not volume of revenue.
I have a great friend in thisindustry, and I call him a
revenue whore to.
You're a revenue whore.
And I said, and the problem withbeing a revenue whore is that's
when the, you could do that backin the day when your margins
were always higher because therewas not Uber and Lyft and there
(29:26):
was not people, there were notaggregators on the motor coach
side.
Not all revenue is good revenue.
So if I'm a one or two caroperator and I have these guys
call me all the time and I sayto them, it's, it's very, very
simple.
Yes, buy, buy our course.
If you can't afford to have usdo a three year review, buy the
course.
(29:47):
I make the argument that youwill kind come outta that course
knowing if you set up your P&Lthe right way.
You are gonna know the levers tomove your business.
You are gonna know the abilityto, the levers to move your
business.
Now, where is it really criticalto know your cost when you go?
If I'm a one car operator, I'mabsolutely not gonna be the
(30:07):
lowest price in my market.
I'm absolutely going to digwhere the gold is.
My client base are gonna belawyers, they're gonna be
doctors, they're gonna be thehighest, the wealthiest people
in any market I can find, oh,there's not wealthy people in my
market.
I don't know how to find them.
Go to any hospital and get thedoctor's physician directory.
James Blain (30:25):
Now let's, let's wind back up.
'cause that's how many cars thatyou're operating, right?
You said specifically if you'rea one car operator.
Right.
That's, that's one thing I wannapoint out here.
'cause one of the things that Ihear all the time when I talk to
guys getting in, oh, I don'thave any business.
I gotta be super cheap.
I gotta build a book ofbusiness.
You know, I can't, I, I can'tafford to have my car sit.
(30:47):
I got bills to pay.
You know, I, I think it's reallyimportant to point out, I.
That's one car operator.
Right.
We're talking to you.
If you're just getting started,
Ken Lucci (30:57):
Oh, you don't know stress until you've got 20
vehicles sitting in the yard andyou can't make payroll.
I've lived that life,
James Blain (31:03):
well, and, and let's, let's
Ken Lucci (31:04):
but I think it's, wait a minute.
I think it's, I think what youjust said, if you're a one or
two car operator, that's theonly time you have the
opportunity to, to decide yourfate.
How you want to build yourbrand.
Okay.
Okay.
Businesses that sell on lowprice cannot create a brand.
Uh, somebody said to me, well,Southwest Airlines, yeah.
(31:26):
Well, let, let's, let's stopthere for a second.
James Blain (31:28):
Bye-bye.
Checked bags.
Bye-bye.
Open seating.
Bye-bye, Southwest.
Ken Lucci (31:32):
let's stop there for one second because you're
talking about a, a, you'retalking about, uh, apples and,
and, and cucumbers.
Okay.
James Blain (31:40):
Yeah.
Ken Lucci (31:42):
Those guys have actuaries on their payroll.
They know exactly what it takesto break even on that airplane.
And they know, and by the way,they're working with margins
that are disgustingly low.
Okay?
But if your entire strategy isto call around, and I had a guy
tell me this the other day,well, you know, every year I
(32:02):
call around to my competitors.
I said, what, uh, po Whatpossible data does that give you
other.
If, if I right.
Whoa,
James Blain (32:11):
do you care if they'll pay your prices?
Why do you even care?
I.
Ken Lucci (32:14):
oh, this is his strategy.
I call, I call all five of my,uh, my competitors that I
consider my competitors, andthen I cut my, and then I cut my
price by 5%.
James Blain (32:24):
Okay.
Ken Lucci (32:25):
I'm like, and, and by the way, this, this is the same
kind of guy that calls me at theend of his career and says, I
want you to sell my business formillions of dollars.
And he's never made a profit andhe's paid himself.
Basically what you can make as aWalmart greeter.
I.
So you, you know, the, at ingeneral.
In general, if you don't want toget granular with your cost
(32:46):
structure, okay, you really havetwo options.
You can guess low or guess high,right?
And if you guess high, and I'mnot an advocate for this as in
business, but if you guess high,you better have a value
proposition that you canarticulate to your customer
group.
James Blain (33:06):
Yep.
Ken Lucci (33:06):
So sniper shot.
Perfect that they don't care howmuch you cost.
And I argue that, that we can dothat on certain types of
business, like.
The board of directors meetings,you know, when somebody, is
putting together a board ofdirectors meeting, how do, how,
how, how important do you thinkprice is to them?
(33:27):
First of all, they're going tothe best steakhouse in the co,
the best steakhouse, or they'rebringing in the best caterers,
right?
They don't want anything left tochance.
The answer is they're not pricesensitive.
So if you have to, if a guy thatlives in the wealthiest zip code
has to have his mother broughtfrom the airport and he's busy
(33:48):
working, how important is priceto him?
The answer is he is not.
James Blain (33:52):
Unless it's your mother-in-law.
No,
Ken Lucci (33:54):
Mother-in-law let you, you Yeah.
Put put her in an Uber X.
James Blain (33:58):
yeah, there you go.
Ken Lucci (33:59):
No, I mean, seriously, if your daughter is
traveling the first time, she'straveling away from home.
So in general, from a pricingperspective, the first thing
that you need to know is youneed to know the cost to know
what you're working with.
You need to know how much itcosts to turn that key and do
the job.
Now it's tough in the beginning.
'cause you say, Jesus, I don'tknow how many times that car is
(34:21):
gonna go out this week.
I don't know.
Okay.
when we work with people, wesay, okay, let's just start with
knowing our fixed cost everysingle month of that vehicle.
Right?
Know your fixed cost of thatvehicle.
James Blain (34:34):
where do you even start though, Ken?
Like where do you like trying toput that together?
Trying to, to do it by, I mean,if you're one car, it's one car,
but what, what, I mean,obviously your course is gonna
break it down, but can you atleast give us kinda what, what's
that starting point?
How do I start that process?
How do I figure that out?
Ken Lucci (34:51):
to me the fixed cost of what it takes to turn the key
and to open my business in themorning.
I don't care if you're a a, a aone car operator or a 50 car
operator, you should know whatis my overhead, what do I have
to pay to keep the lights on?
And now you have the fixed costof the equipment to do the work.
What is the fixed cost of theinsurance policy for the
(35:14):
vehicle?
What's my payment for thevehicle?
How much am I paying mychauffeur by the hour?
And we.
You know, we do.
We have a worksheet that doesall these things, right?
How much is an oil change?
But the funny thing in the iswhen we take people through our
process.
some of the guys have been inthe business for 20 years.
They're like, Jesus Christ, thisthing costs me$180 to stay.
(35:34):
This costs$180 to sit for theday.
That's the fixed cost.
I'm like, yeah.
So the answer to the question,when people say to me on
Facebook, uh, I'm noticingappreciably that my business,
you know, things have sloweddown.
Okay.
if you've made money last yearand you're confident in your
pricing structure and you knowthat you're on the middle to
(35:54):
high side of the market, theanswer to solving that problem
is proactively go out andpromote your business.
The worst thing that you can dois drop your prices because let
ask you a question.
Have your costs, have your costslowered since last year?
The answers
James Blain (36:09):
No, they're gonna keep going up.
Everything's gonna keep
Ken Lucci (36:12):
So if you accept the premise that 85% of small
businesses fail because they, ofpoor financial management, 85%,
the only thing you're fightingby not getting granular in your
financial reporting, all right,is to me it's fear of change.
(36:32):
It's the fear of saying, Hmm,you know what?
I don't know this stuff.
Look, I, I have an operatorwho's a$20 million operator,
extraordinarily profitable.
Okay.
One of the best names in theindustry, he does motor coach
work for entertainment.
He does, you name it, he's thein command of his market.
Okay?
And he said, Ken, I, I need youto teach me my financials.
(36:54):
I said to him, Jesus Christ,you're already one of the most
profitable guys in the business.
He said, yeah, but I want to bemore profitable because I'm
gonna sell this thing in threeyears.
James Blain (37:01):
Well, but that's that winning mentality.
You've always gotta besharpening your edge.
Ken Lucci (37:06):
Right.
No.
No, exactly.
And I don't wanna say he's doneit by accident'cause he's not.
He made the conscious decisionthat he's going to turn over his
sedans every 36 months.
Right?
And he's going to own and onlyhave a certain amount of debt on
his fleet.
So he flat out said, I by designam the highest in the market.
(37:30):
I have the best weddingplanners.
I have literally the bestfuneral homes.
I literally have, uh, the bestentertainment chasing me for
work, and I get the bestcontracts because they know I'm
gonna be the highest price.
James Blain (37:44):
Well, and I think, I think the thing that you take
away from that is you can makemoney at both ends of it.
Because of the nature of thespace that we live in.
Unless your plan is to gocompete with Uber and Lyft and
have an app and not have driverson staff and not do things the
way we
Ken Lucci (38:01):
Well not have reservationists and dispatches
sitting 24 hours a
James Blain (38:04):
exactly.
We have to be at the the middleto the top.
So let me ask you a difficultquestion, because a lot of times
there's that pressure whenbusiness is low, like you said,
to drop the price.
You brought up an incredibleexample when you talked about,
you know, those buses sittingand is it worth sending'em out?
I, I have always heard in thisindustry, always push your
prices up.
Never bring'em down.
(38:25):
Always push your prices up.
Never bring'em
Ken Lucci (38:27):
Well, you can't go back and listen once you've
dropped your pants.
It's impossible.
Yeah.
There's a guy that, there's aguy that called me from Chicago
that wants to, wants my help,wanted me to help his business.
Right?
And he's like, I don't care.
He, he is, got the worst reviewsin Chicago.
No names mentioned here.
Worst reviews in Chicago like.
The worst I've ever seen in mylife.
I mean, just nastiness, youknow, the driver was rude.
(38:50):
The reservationist hung up thephone after she swore.
I mean, worst in the world.
James Blain (38:54):
like incredible.
They're in business.
Ken Lucci (38:56):
I took one look at his financial statements.
I said, you know what?
We're not the right fit for you.
Because he basically said to me,I want to improve my profits,
but I don't, I don't really careabout the reviews, and this is a
guy that all he wanted to tellme was how his business has
grown by 20% every single year.
I'm like, dude, that is onlygonna happen to a certain point
because all you're doing isfighting you.
(39:17):
You're the lowest price in themarket, and you're attracting
the shittiest clients, andyou're attracting the shittiest
drivers and you're attracting.
The worst reviews known tomankind.
It's a perpetual, it's a
James Blain (39:29):
Yeah, exactly.
Ken Lucci (39:30):
It's a
James Blain (39:30):
hit on it earlier.
He's, he's constantly findingnew customers and constantly
turning through drivers, andinstead of building a business,
he's basically built a paddlewheel where drivers and
customers come in one way and goout the
Ken Lucci (39:45):
I looked at his, I looked at his financials and you
know, guy pays himself, okay,not great.
And I said, you know, yourmargins are way, way too low.
And you know.
There's no secret as to why you,you know, you, you're really on
a perpetual wheel here, right?
You have a lot of one-timeclients, but you really don't
(40:05):
have a lot of stickiness to youror loyal clients, and it, it's.
like a self perpetuatingprophecy.
So if, if I'm giving advice toany operator on price, it's
number one, know your coststructure.
And when you're small, it's kindof easy.
You just look at all your billsand you look at your overhead,
your basic business overhead,and then you look at all of the
(40:25):
cost.
It takes to deliver even thefirst trip, right?
Remember the analogy about thebird?
Uh, the bird house.
We have our wood, we have ournails, we have our paint.
In our case, we, we know what wepay our drivers by the hour.
We know what it's cost for thatfleet insurance.
See?
And.
To me, once you get granular,once you go over the hurdle of
(40:48):
knowing all your financialmetrics, it becomes, it's a
piece of cake once the system isin place.
Once you know your costs.
Once you know your, youroverhead, the only variable is
how much revenue.
So let me answer specificallythe question on when things are
slow.
Let, let me, let me give, let methrow out specials.
(41:10):
Let me do this.
No, my answer is double down onyour, on your promotions, double
down on your marketing, and lookat your first, your top 20
clients.
Reengage with those clients andmake sure they know everything
you do.
Okay?
That's the first thing I woulddo if I saw a business was slow.
I would find out why.
Every time we look at that witha client on a monthly basis, we
(41:33):
figure out that, wait a minute,look at this revenue
concentration.
You've got one client that'sdropped 35%.
Why?
That's the first
James Blain (41:41):
Why did they pull the business?
Ken Lucci (41:43):
and it may be they've permanently made a shift.
Now, the other piece of thatpuzzle is when you have
customers that are growing, whyare they growing?
Chances are if you have one lawfirm and they're losing you,
they're using you 25% more.
Or you have this contract, youhave a shuttle contract, and
they've been with you for threeyears, do you think that they're
(42:05):
the only shuttle contract outthere?
So to me.
To me, re resist the urge tolower your prices.
And if you know your coststructure and you're, and you're
not gouging your customers,right, you know what you need to
make for a gross profit.
Try to pull the levers of thebusiness in another direction.
The easiest way to me is turnthat one transfer into a, a
(42:29):
round trip.
Turn that round trip intosomething that's out of town.
I'll, I'll leave you with, withthis.
I've never found a company.
Never found a company that wason the medium to high, right?
Not the middle.
I'm talking medium, high on thetop, the top two thirds of
pricing.
If I picked up the phone and Icalled 10 people for an airport
(42:52):
transfer, the companies that arethe most profitable are the ones
that are in the, that I'm quotedthe top two thirds to the
highest right?
The most effective and efficientcus companies I talk to always
ask me the same question.
Mr.
Lucci, how often do you travel?
Right, because they're the onesthat know their business and
(43:12):
say, you know what, I have threetiers of pricing.
You travel a lot.
If we open an account with you,this is what we can do.
Right.
So, you know, I know I'm going alittle bit around the world on
pricing, but it's, it's, it's,it, it may complex, but at some
point it becomes a recipe.
And once you know the recipe,it's rinse and repeat.
(43:34):
Okay.
If you get in your mindset, andwe try to do it with operators,
okay.
We did this on, on this specificvehicle type and this specific
service type.
We did this with a great guy,uh, just went into motor
coaches, um,$10 millionoperator, never owned a motor
coach.
And he is like, Ken, I I, I, weneed to get into Motor Coach.
Okay?
First thing we're gonna do iswe're going to, we're gonna look
(43:56):
at the cost of that.
$600,000 asset.
And we're gonna, we're gonnaestablish what your break even
is, why we're gonna look at,we're gonna look at your fixed
costs.
We're gonna look at the variablecosts.
We figured out, uh, what an oilchange costs every 20,000 miles.
I think on a motor coach.
On that motor coach, they saidevery 20,000 we figured out what
the, uh, what the tires weregonna cost, and we literally
(44:19):
built the pro forma.
He said, Jesus, I feel like aone car operator.
I'm like, you are.
'cause in the motor code space
James Blain (44:26):
you're now a one bus operator.
Ken Lucci (44:28):
just built the pro forma.
Guess what?
The guy he calls me and he islike, we're wildly exceeding bus
number one.
We just ordered bus number two.
James Blain (44:36):
Well, and I think something that you're hitting on
that's really important here isthat this, and, and we've been
almost an hour on this, sohopefully people have gotten
this message.
This is not something where.
We're gonna, you're gonna learnthree French words and suddenly
you say these three magic Frenchwords and you change the pricing
and you change the company.
This is a piece of the largerpuzzle of the financial health
(45:02):
of your company.
I.
Of how you take care of yourcompany.
And it's not enough to say, I'mgonna change my pricing, I'm
gonna change my profits.
It's, you have to be running afinancially healthy company and
you have to be making smartdecisions financially.
And then you are using thatfinancial information to help
(45:22):
you define what your pricinglooks like and help you be that
piece in that puzzle so that youhave everything in place, is
Ken Lucci (45:29):
All listen, you can solve any problem in business if
you're making a profit.
But if you're not making aprofit, it becomes a, a, a self
perpetuating prophecy.
Right.
It's a, it's literally, it'sliterally becomes a race to the
bottom.
And it's the reason why 85% ofsmall businesses fail.
It's not because they didn'thave a good product.
(45:50):
It's not because they didn'thave the best vehicle out there
in the restaurant business.
I say it's not because, youknow, the meal didn't get on the
table the right way.
It's literally because theydidn't manage their financials.
And that's the shame.
That's the shame of it.
James Blain (46:03):
Well, and you've talked about this before and I
think as a business ownermyself, having been an
entrepreneur my whole life, Ithink it, it'd be a great thing
for you to be able to, to giveus now as the business owner, I.
Where, where do you fit in?
What percentage of revenue orhow do you know how much to
take?
What does that look like interms of as the owner, you
(46:24):
should be getting paid this andthat is or isn't separate from
the profit?
How does that look?
Ken Lucci (46:29):
I mean, it depends on the maturity of the business,
but I always, I always say to anowner of a company, if you are
not making more than you wouldbe on the open market based on
your skillset, then.
It's too risky.
You, you really shouldn't own abusiness, right?
That's what it comes down to.
(46:50):
I mean, it's, they're all overthe board.
I can tell you that ownersshould be taking W2 income as
well as distributions.
Uh, that's a completelydifferent subject.
Um, but listen, if you guyswanna know about pricing, uh,
book a 30 minute with me.
It costs nothing for 30 minutessessions.
Look at our website.
Look at the co the, the, thefinancial course that we have.
(47:11):
I don't think you can beat itbecause you get a money back
guarantee with it, right?
Um, if, if, if it's too big foryou.
Um, then because you're a one ortwo car operator, we have a new
product coming out that'sbasically a pricing worksheet
that we can take you through,uh, with a group of other
operators is kind of a workshop,but, um, I think we've beaten
(47:32):
this to death.
Um, thanks for, uh, anotherexciting episode and, uh, we'll
catch you next time.
James Blain (47:39):
Thank you everybody for listening if you wanna learn
more driving transactions.
Ken is an absolute financialexpert and I'm lucky enough to
have him as a co-host, so wewill see you again on the next
episode.
Ken Lucci (47:49):
I appreciate you saying that.
Alright guys.
Thank you for listening to theground transportation podcast.
If you enjoyed this episode,please remember to subscribe to
the show on apple, Spotify,YouTube, or wherever you get
your podcasts.
For more information about PAXtraining and to contact James,
go to PAX training.com.
And for more information aboutdriving transactions and to
(48:12):
contact Ken, Go to drivingtransactions.com.
We'll see you next time on theground transportation podcast.
Hello everybody and welcome back to the Ground
Transportation Podcast.
I am one of your co-hosts, JamesBlaine from PAX Training, joined
by my wonderful co-host KenLucci, from driving transactions
we have.
Ken Lucci (00:35):
I kinda like the term lovely and talented to
James Blain (00:38):
Lovely, and I, I stand corrected the lovely,
talented, incredible handsome,um, we'll, we'll just, we'll
keep the flattery going.
Um,
Ken Lucci (00:46):
short and grumpy is really what people are no
noticing me for
James Blain (00:49):
No, no.
Well, but, but I'll tell youwhat, we have a heck of a topic,
speaking of grumpy, because thisis something that comes up a lot
and there's a lot of questionon, there's a lot of debate on.
I feel like people are kind ofshy around this topic and it's
pricing and I think one of thebig things that we are hearing
right now is businesses slowingdown.
(01:10):
You know, I, maybe it's time todrop prices.
I also think, and I, and I don'tknow your thoughts on this, but
I'd love to get them.
I.
I also think there's almost likean uneasiness of people are
concerned whether or not thingsare gonna hold up, and I think
that might be kinda leading tothat fear and that desire to
maybe want to try and drop aprice.
Ken Lucci (01:31):
You know, it's interesting that you say that.
I've seen a couple of co a fewcomments on Facebook and we make
it, uh, when we talk to ourclients on a monthly basis, we
do a, a monthly financial reviewwith the clients.
We're, we're asking themstraight out, tell us how we, we
know how the month was'causewe're doing a review.
But give us your sentiments.
What are your thought process?
How, how does the spring marketlook for you?
(01:51):
I, I can tell you the numberone, the number one problem with
not.
Pricing right, is you don't knowyour cost structure, so you, you
don't know how low is too low,right?
Um, in general, the biggestissue I see in this industry is
not pricing properly, notknowing your profits and profits
(02:15):
solve problems.
That's, that's one of the thingswe see all the time.
So.
Regarding price.
You know, there, there's,there's price is one thing, and
then the value you deliver issomething else.
But let's dissect price.
If you don't know what should gointo your pricing, you are in
trouble because.
You, there is a line that youcan't cross, and when you cross
(02:38):
the line on pricing, it's aslippery slope and the, the, the
end destination is you don'tmake a profit and you go out of
business.
Period.
End of story.
James Blain (02:48):
So expand on that for us, because I think, you
know, and, and we've talkedabout this before, we won't say
where they pull it out of, butwe feel like a lot of operators
are just pulling out numbers,right?
And so they're saying, well, I,I feel like this is what the
market could bear, or, I feellike this is what I could get
Ken Lucci (03:02):
Oh, oh.
The worst thing is, well, mycompetition is this.
James Blain (03:05):
Yeah.
Yeah.
Their, their pricing based,they're picking a number based
on a random number that anotherperson picked.
When you say, what goes intopricing, expand on this, what,
what do you mean by that?
Ken Lucci (03:17):
Well, it's, you know, if we were building bird houses,
right, we would have the wood,we'd have the paint, we'd have
the nails, and then we'd havethe little bird that we put in
the, in the little box, rightwhen we're done.
In our case, it's the cost ofthe vehicle.
It's the cost of the insurance.
It's the cost of repair andmaintenance.
It's the cost of the chauffeur.
It's basically your direct cost,everything to turn the key.
(03:37):
Okay?
Here's the only reason whywe're.
As successful as we are andwe've like backed up with work
at this point is because themathematics in this industry are
not that difficult.
So if the first thing we look atwith a company that's in
trouble, whether they're losingrevenue or whether they're not
profitable, is we look at whatthe gross profit margin is.
James Blain (04:00):
Okay?
Ken Lucci (04:00):
If they don't know what their gross margin is on
each type of service theyprovide, they cannot pull the
levers.
Of their pricing,
James Blain (04:11):
How common is that?
Do most companies know
Ken Lucci (04:13):
Now only listen here,
James Blain (04:15):
Loaded question,
Ken Lucci (04:16):
a hundred percent of companies do what's called tax
accounting, which is create thefinancial statements so that you
can pay your taxes.
And not just our industry, butas far as small business
businesses, other under 10million, less than 10% of them
do what's called financialreporting.
Financial management reporting,and that's a monthly financial
statement that gives you morethan a profit or a loss.
(04:38):
So, so not knowing your cost isa huge chunk of your financial
statements, not knowing what itcosts you to turn the key to do
the trip.
Okay, so, uh, I, I'm gonna breakit down.
So what goes into a price, yourdirect cost structure.
Of what it takes to literallyhave the vehicle on the road,
(04:58):
turn the key and do the trip.
That's your direct cost.
And then the rest is youroverhead.
That's an expense, all of yourexpenses to run the business.
And then you, you gotta haveyour a net profit margin.
So your direct costs, your totalcost, subtracted from your
price, gives you your grossmargin, and then knowing your
overhead, knowing what yourmarkup needs to be.
(05:20):
So in, in, in reference to lowprice.
The number one reason why peopleare hesitant about their pricing
is they're not really deployingany pricing strategies.
Okay?
So let's talk about
James Blain (05:34):
Yeah.
What, what do you mean bystrategy?
I mean, I thought pricing waspricing, right?
I mean, most, most companies.
They're thinking, Hey, I'm gonnaput a number out there, and
they're thinking, I'll discountfor affiliates and I'll have,
you know, I'll have my numberthat I wanna get, and if I have
to, I'll drop here and do thisto get the work.
Right.
That's how I think the vastmajority think
Ken Lucci (05:51):
And, you know, pre pandemic, uh, there was, there's
been a, there was a renaissanceafter the pandemic to me of
everybody jacked up.
Their prices almost too high.
Right?
And no offense to anybody whothinks they're rocket
scientists, but my Jack RussellTerrier could have made money in
21 and 22.
Okay?
In fact, he made a lot of moneyin 21, 22.
But as the market came back andsaid, okay, guys, meaning the
(06:15):
market, the customers came backand said, wait a minute, you
guys have gone crazy.
Right?
23 is where people really had tolook at, at, uh, adjusting their
pricing structure.
James Blain (06:25):
Hitting that limit.
Ken Lucci (06:26):
So what do I mean by pricing strategies?
Okay.
Cost based strat, cost basedpricing is the primary
foundation that every, everybodyteaches.
This is what it cost me.
To build the product or put theproduct on, uh, put the product
out to market, right?
This is what my overhead is,this is what my, my net profit I
(06:47):
want, so I need to mark it up toa certain point.
So fundamentals, the biggestissue I see is people not
knowing their cost structure.
They don't know how much itcosts them to turn the key in to
do the job, so it all comes backto.
What do, what do you, how isyour financial statement set up?
(07:07):
And I know this is getting wayoff track, but how is your
financial statement set up?
Do you know all of your cost ofgoods and what's your profit
equation?
So in our mind, the profitequation, it's, it's, it's
pretty straightforward.
It's either 60% of the job goesto direct cost, leaving you with
a 40% gross margin, or for themore competitive like airport
(07:30):
trips, sedan and SUVs.
65% and you have 35% left over.
Right?
So the first thing I want to doas far as pricing, anything I do
is I need to know my coststructure.
What does it cost me to rollthat piece of equipment?
Okay?
And how many times am I gonnaroll it?
Then the other thing that goesinto a pricing strategy is the
(07:54):
demand for the product and thedemand for the service, and how
many of them out there arethere, and that, that gives me
kind of an idea of how elastic Ican be on my prices.
James Blain (08:05):
Well, and that, that sounds like it teases a
little bit dynamic pricing whenyou've got the ability to, to
ask for more and, and adjust andexpand or contract those
margins.
Ken Lucci (08:15):
Sure.
So the beautiful part of thebeautiful part of somebody who
knows their financial metricsand they, they're managing the
financial costs of theirbusiness.
They know that for every ahundred dollars they generate,
they're gonna be spending 25% ofthat on direct cost to the
chauffeur they're gonna bespending.
X percent.
(08:36):
Usually it's eight to 10% on thefleet vehicle.
They're gonna be spending fiveto 7% on insurance.
If you know your cost structure,you can build up from there,
right?
So if your cost structure, a lotof it is, how much do I wanna
make on this job after that?
So after that, you need to know,well wait a minute.
I need to know what my overheadis, and then I need to say to
(08:57):
myself, okay.
You know, what's an acceptableprofit margin?
What will the market bear?
So we are big from a pricingstructure.
From a pricing perspective, weare big on the first foundation
of, of setting prices is tomanage all your costs, know your
(09:17):
costs, know exactly what itcosts you to turn the key and do
the work.
And then.
You can seriously look atspecific strategies to to, to
move the levers ofprofitability.
Well, what do I mean?
What do I mean by that?
Well, you know, I make theargument that if you are one of
four Sprinter vans or fiveSprinter vans, or 20 in a
(09:40):
market, okay?
And yours is the newest, nooffense, you should be priced
higher than your competition,and you
James Blain (09:47):
you're providing value.
Ken Lucci (09:49):
Right, exactly.
Right.
Right.
So, so the foundational levers,the foundation of, of pricing is
knowing all your costs, and thenit is based on your specific
market, based on the specificpurpose, based on the specific
service you're gonna provide iswhat is your, what is your
acceptable gross profit margin.
And I'm gonna tell you, airairport transfers.
(10:12):
Your gross profit margin.
In other words, what do you haveleft over after you pay for the
vehicle?
Pay for the driver, pay for thefleet insurance, pay for the
repairs and maintenance.
It's always gonna be between 30and 35%.
James Blain (10:23):
Well, and you've, you've hit something that should
be a signpost, right?
This is kind of a wake up momentif we've made it this far into
this episode and you don't knowyour numbers because.
How many times on this podcastor how many times have you and I
talked, Ken, where we've said,you know, people were doing
trips they shouldn't even bedoing, they're losing money on
(10:44):
it, right?
That margin was so thin, therisk was there of hey you.
You literally would've beenbetter not sending the vehicle
because they didn't understandthose numbers,
Ken Lucci (10:55):
They don't, and there's no getting around it.
What somebody says, I price,because the affiliate, meaning
the network, the, the networksays this is what they're gonna
pay me.
Wrong answer.
James Blain (11:05):
Yeah,
Ken Lucci (11:06):
Wrong answer.
James Blain (11:07):
they're defining your numbers.
Ken Lucci (11:08):
right.
I'm pricing because this is whatmy competition is charging.
Wrong answer, I can tell youwithout any hesitation.
They don't know their numberseither.
Now, I, I mean, it's the, the,the lack of financial acumen and
the thought process that.
All I need to do is do morerevenue.
All I need to do is look at myrevenue reports, right?
(11:30):
This year versus last year.
That's the measure.
I mean, I talk to verysuccessful companies that still
do the same thing.
I'm like, you know what?
I'm glad you're 15% up, but Ijust want you to watch the fact
that you're overtime, yourdriver overtime is so high, it's
killing your gross margins,
James Blain (11:47):
Well, and you're, you're bringing up something
important in that.
The revenue number, and you'vetalked about this before and I
think I, I'd really like you tokind of bring it in again today
is your revenue number is not asimportant as how much profit
you're actually making.
Ken Lucci (12:04):
Right.
What you make is not asimportant as what you keep, and
if you don't know what you keep.
Okay.
And it's pretty straightforward.
I mean, we have worksheets inour program that we go through
with our operators, alright?
And we're very methodical aboutit.
First of all, we're gonna putthe operator into our financial
(12:24):
reporting format, which is acost of goods format.
Once we're in that format, I cantell you the fir, I can tell you
what's wrong with your business.
Okay?
Example.
got a pretty guy, thinks he'sreal successful.
He thinks he's real smart.
It's a$4 million operator.
He's in the motor coach space.
Okay?
We put him through our program,we put, we put his financials
(12:45):
into our cost of goods formatand I said to him, you are
spending on repair andmaintenance, 18% of your total
income.
Your price, your prices are waytoo high or your equipment is
way too old, or a combination ofthose two things.
Okay?
Something's wrong.
You are paying your drivers 39%.
(13:06):
By the way.
It should be between 25 and 27.
Or maybe New York, 27 to 31, youare paying your drivers 39% of
total income, right?
Your gross profit margin is inthe twenties when it should be
in the thirties.
Your pricing is at least 10 to15% too low.
Okay.
Then the argument I get is,well, my competition is that
(13:28):
low.
I'm like, then you have, firstof all, there is no strategy
whatsoever to being low price.
You have several choices.
I'm gonna be a low price leader,right?
And I'm gonna command themarket, and then I'm gonna go
out of business.
I'm gonna match my competition.
There's no science there.
Or number three, I'm gonna knowmy cost structure.
I'm going to know all of mymetrics and I'm gonna pull the
(13:52):
profit lever levers of mybusiness.
Well, what do I mean by that?
So we are lucky in an industrythat we can provide service in a
variety of vehicles and, and acouple things.
Not all customers should say,pay the same price.
Right?
And I can guarantee you not allvehicles should generate the
same amount of revenue or grossprofit margins,
James Blain (14:14):
Well that's, that's right there with knowing your
business.
You've gotta know the types ofwork you're doing, the types of
vehicles you're doing, howyou're using them.
And it, I mean, it all goes backto right, you can get an Android
or you can get an iPhone.
They do the same thing.
But why is the iPhone pricedhigher or why are people willing
to pay it?
Ken Lucci (14:31):
Right.
And what do I want as far aswhat are the, what are the
features?
What are the benefits of theiPhone that I want as a
consumer, right?
That go way above just the phonecall.
So.
The best, the most successfulcustomer customers we have.
The most successful, mostprofitable operators I know are
know their cost structure oftheir, of their total business.
(14:54):
They know as a percentage ofincome what they are paying for
everything.
Okay.
And that is, What am I payingfor my insurance as a percentage
of income?
What am I paying my chauffeursas a percentage of income?
So they know their coststructure and then they work
their pricing based on a markup.
What, what markup is gonna payall those costs and then.
(15:17):
Pay my overhead expenses, andthen what am I gonna have left
over?
You know, I make the case and,and, and I, I, I will, I will
defy anybody to have the datathat we have to prove this is
wrong.
Right?
First of all, they don't havethe data when we have 270
companies and counting, right?
The most profitable companies inthis business are priced at the
(15:41):
middle to high level of themarket, if not the highest in
the market.
James Blain (15:45):
repeat that again.
'cause this is extremely,extremely important.
Ken Lucci (15:50):
most profitable companies that we do business
with are priced at the medium tohigh or the highest in their
market on all services.
James Blain (15:59):
But Ken, wouldn't they do more trips if they were
lower price and wouldn't themore trips make more revenue and
they could make more money?
Ken Lucci (16:06):
No, not all revenue is good revenue, and nobody
wants to buy a company that has,that has the lowest price per
trip of anybody in themarketplace.
You know, when we sellcompanies, every buyer and we've
trained the buyers to and thesellers, I want your top 50 city
pairs, right?
Your top.
two and top front locations anda typical buyer operator's gonna
(16:30):
look at that and they're gonnasay, holy shit, this guy is 25%
lower than my pricing.
If I buy this guy, I'm gonnahave to bring his prices.
So far up, so far up that I'mabsolutely, and, and I, and
I'll, you know, get.
Quite a, a few of the clientsthat have been on the podcast,
we helped Mike Rose from mylimo, buy a company, right?
And the first thing that we didwhen we, we did what's called
(16:51):
buyer due diligence for Mike,right?
Where he found the operator andhe said, Ken, I want some help
with
James Blain (16:57):
Yeah.
Evaluation of the operator,
Ken Lucci (16:59):
the way, Mike Rose, one of the smartest operators in
the country, calls me and wait aminute, calls me and says, I
need your help with something.
You gotta love a guy.
You gotta love a guy thatrealizes I don't know what I
don't know.
I, and I want you to walk methrough this.
Right?
And then he calls his brotherTim to make sure I'm actually
telling the right stuff.
So we look at this company andlike, you know something, you're
(17:21):
gonna be in good shape here.
Lemme tell you why your.
Revenue per trip is within fiveto 7% of their revenue per trip.
Yeah, you're gonna have to makea few changes in these zip
codes, but look at this, right?
So, so being the most profitablecompanies we do business with
are priced on the medium to highor the highest price of their
(17:43):
market.
Okay?
How did they get there?
Now they are absolutely not thelowest price in any category of
service that they do, period.
And.
Okay, so the, the beauty ofbeing that way and the beauty of
having loyal clients that repeatclients, okay, that pay those
(18:04):
prices is now you can predictwith pretty much decent
certainty what your profits aregonna be moving forward.
Okay, so, so let's talk aboutthe companies that are the least
profitable.
They are absolutely always thecustomer companies that have a
high degree.
60 50, 60, 70% of their work isaffiliate work.
(18:27):
There's nothing wrong with that.
If you know your costs and youare working with the right
networks that appreciate thefact that you have to make a
profit.
And you can defend yourself.
You can defend yourself bysaying, listen, you know what
you wanna, what you want me tocharge is, is, is way below
what, what my gross margins are.
Okay.
James Blain (18:47):
and address the fear there, Ken.
'cause I think a lot of peopleare scared that if they push
back on the network, the networkmight pull out and say, you know
what?
Forget you.
I'm gonna get someone new.
I mean, what does that line looklike?
Ken Lucci (18:58):
out, I'm gonna tell you flat out, and this was
really driven home to me byTammy Rudder and Dawson Rudder
from Commonwealth on the podcastcall that we had.
Okay.
And the beautiful part of thosetwo people is they don't talk
one way on the record andanother way off
James Blain (19:14):
off the
Ken Lucci (19:15):
Okay.
The value that they, that is theone of the best boutique
networks in the industry.
Okay.
We, and we deal with all ofthem.
All of them post pandemic.
The ones that are the mostsuccessful treat their
affiliates like partners.
So they may have to be, they mayhave to, uh, uh, and their A
(19:37):
network may have to say to theiraffiliate, listen, I need you to
be here on sedans and SUVs.
But by the way.
Vans, minis and motors, youknow, love.
You do what you need to do.
We're just gonna mark it up,right?
So the key is to know the cost,know the ingredients in order to
figure out what you need tocharge for the finished product.
(19:57):
And the only way you do that isliterally by managing ev the
nickels and dimes of the costevery single month.
We had somebody the other daygreatest, one of the greatest
guys in the world.
I'm gonna call him out.
Doug Schwartz.
Right.
Dougie, Dougie and I have a callyesterday, um, coming back from,
from Massachusetts, if I always,how's business?
(20:18):
What's going on?
And he says to me, know,business is pretty good.
We're a little concerned incertain areas, but you know
what, I've, I've made it a habitbecause I'm, I'm a little
concerned about what's going on.
I'm going through every singleinvoice every single month and
questioning why do we need this?
How can we do better on that?
How can we cut down over time onour chauffeurs?
(20:38):
You know, guys, you know his twosons, you know, how can we do
this?
And he's literally dissecting ata granular level and I said,
Dougie, you got it down pat.
You know when at the end of adollar transaction or a hundred
dollars transaction, all you gotleft over is 10 bucks.
You gotta manage the quarters,nickels and dimes.
James Blain (20:59):
Well, and let's tie that back to a previous episode.
'cause one of the other thingswe talked about is you've gotta
invest and have the money in toinvest in things like safety and
things like telematics andthings like cameras.
Talk to us for a second aboutthe difference between trying to
control cost and manage cost andgetting to that point where
(21:19):
you're taking money away fromthings to where you're basically
robbing Peter to pay Paul.
Right.
I pull it outta my safetyprogram.
I'm gonna have a big accidentlater as an owner, how do you
manage that to where you'rebeing smart with your money, but
you're not cutting the cornersthat you can't afford to cut?
Ken Lucci (21:36):
Well, for, you know, first and foremost, profit
solves all problems, right?
So it, there's the, the, the,the, the commonalities of
profitable companies is theyinvest in their systems, they
invest in their processes, andthey understand the difference
between a cost and an expense.
Or an, or something.
That's an investment, right?
(21:57):
Like people say to me, whoa,whoa, whoa, whoa.
You charge what for a profitanalysis?
I said, yeah, and at the end ofit, if you're not happy and I
don't show you ways to at leastfive x what your investment was,
I'll give you your money back.
Okay?
So, so the, the, it's no secretthat the most profitable
companies.
(22:17):
Know their costs, and yes, theydo cut corners, okay?
But they're not cutting cornersout of weakness, which is, holy
shit, I don't have any money forpayroll this week.
Right?
They are cutting costs to be themost competitive they can to
assure customer loyalty.
You know, the, the guys thatthat really get me are the ones
that pay three, four, 5,000 amonth in PPC ads.
(22:41):
And then they beat the crap outof the guy that does PPC because
I've spent three, four, 5,000,but I'm not making any money.
Right.
Okay.
Well first of all, you'reprobably not even following up
on leads.
And second of all, you have tounderstand that that first, the
lead creation, the guy did hisjob, he created the lead.
(23:02):
Okay, but if, but if you aregoing after the lowest cost,
which is the guy that is justsearching for airport in every
city that he goes, and he'snever gonna use you again.
And your, your idea of strategyis to be the lowest cost
provider.
You, you, you're not gonna beprofitable.
You're not gonna make money.
James Blain (23:21):
Well, and we see that kind of stuff in this
industry all the time.
In my world, that takes the, theform of, Hey, I got a safety
audit with my insurance company.
I need to get you put in asquick as humanly possible.
And then the second, the safetyaudit's over, okay, we're, we're
gonna cancel everything.
You know?
I mean, that's, that's kind ofthe, the crux of that is knowing
what, what are you gaining?
Ken Lucci (23:40):
Uh, uh, uh, you know what?
I need to get my financials inthe order because I need to sell
my company this year.
I, no, shit.
That's what happens all thetime.
I
James Blain (23:49):
Why?
Why didn't she get it togetherbefore?
Now is not the
Ken Lucci (23:52):
This is a true story.
This is a guy calls me, uh, aguy calls me.
I'm not gonna say where he wasfrom, but a guy calls me three
years ago and he's like, youknow, I, that was profitability
issues and I'm not as profitableas I'd like to.
What can you do?
And I, and, and I gave him ourpricing.
That's a lot.
I says, excuse me, let me tellyou.
I, we give you a guarantee.
(24:12):
Okay?
We're gonna go through and we'regonna do a three year review of
your financial review of yourbusiness.
We're gonna do a KPI review toshow you where you're at.
Now, we're gonna compare you to270 companies.
We're gonna be able to pull acompany, whether it's from your
market or a market with the sameGDP, the same size market, and
we're gonna compare the two sideby side.
(24:33):
We're also gonna look at allyour metrics and we know what
you should be paying yourchauffeurs.
We know that your fleetinsurance should be five per
five to 7% of total income.
Right?
Okay.
Guy didn't do business with me.
It's okay.
No problem.
I even said, just buy my course.
Just buy the course.
Right.
DIY do it yourself.
Didn't do it.
Guy calls me last in, in thebeginning of March and he says,
(24:56):
uh, I, I, I'm gonna be outtabusiness by the end of the
month.
Can you sell my company becausemy insurance just went up 45%
get this, and I don't have themoney for the down payment.
I already have a second mortgageon, I, I already have a second
mortgage on my house.
This is a, this is a, a as Godis my judge.
And this guy's been in business20, 25 years.
(25:16):
Okay?
And I can show you there's a,the, the thought process that
all revenue is good, revenue isabsolutely a misnomer, right?
If you, you've got the, theability, if you know your
finances and you know your coststructure to pull the levers of
your business proactively.
(25:38):
What do I mean by that?
What do I mean by that?
If you know that in order to geta large corporate account,
you've gotta be price yourpencil sharpened.
Okay?
The most, you possibly have tobe pencil sharpened on the
airport sedan ride or theairport SUV ride.
And if you know what your coststructure is, and I just did
(26:00):
this with a client the otherday.
I said to him, listen.
Here are your costs.
This is what a 25% gross marginlooks like.
This is what?
A 30% margin, 35.
You price it accordingly, right?
I'm gonna tell you right now, ifyou price it at 25% margin, you
better be able, you better getmuch more business in larger
(26:23):
vehicles from that corporateclient, or this is gonna get old
real fast.
James Blain (26:27):
Yep.
Ken Lucci (26:28):
Okay, because you're using, in this case, you're
using a sprinter van that youcould deploy a third of the time
and make much more profit.
But, but, but if he didn't gothrough the cost exercise with
us, he wouldn't have known it.
James Blain (26:43):
And, and now you're getting into something that's
really interesting and you getinto kind of areas that I love
and talk about of opportunitycost.
Right.
I, I've been a small businessguy my whole life.
Opportunity cost for me wasalways really hard to figure out
because guess what?
Like you just said, if you aretaking that, if you're, oh, I
want to keep it rolling, youmight be missing the opportunity
(27:04):
to use it for something elsethat might be higher margin and
might actually run the vehicleless.
Ken Lucci (27:11):
you know, I have great, great client.
I, I love them to death.
They're, uh, they're in the midMidwest and they, there's winter
time where his he'll lookoutside, I'll call him or he'll
call me and he is like, Ken, I'mlooking at seven motor coaches
out there and it's killing me.
I'm gonna put'em out at, at athird less.
Whoa, whoa, whoa, whoa.
Number one, here's the problemwith that.
Number one, that same client inhigh season's gonna come back to
(27:34):
you and say, wait a minute, inFebruary.
I was paying 160 bucks an hourand you're trying to charge me 2
35.
No, we, we, I, and I've said tohim, we've been through this, we
have pricing strategies thatstart with knowing our cost
structure.
Knowing that we can't keep thelights on below this much gross
(27:56):
profit margin, right?
So, and I'm gonna tell you rightnow, do what you wanna do,
right?
Do what you want to do.
But all you have to do, yourdriver in that motor coach has
to swipe side.
Swipe a a pylon, and you've got$10,000 to replace that door.
Now you're gonna say, now you'regonna literally say to me it was
worth it to roll that piece ofequipment.
(28:18):
You may think that we're in acommodity business, and the
closest thing to a commoditybusiness we're in is the airport
business.
Okay?
And I'm gonna tell you flat out,as a driver, as an operator,
flat out, if you have to be thelowest price to and from the
airport for your clients, youare absolutely selling to the
wrong client.
James Blain (28:39):
Oh, you're at the wrong part of the market.
Look, if,
Ken Lucci (28:42):
You're at the wrong part of the market.
James Blain (28:44):
Yeah, if you're one of our customers, if you're
working with companies like Pax,if you're working with companies
like yours, Ken, if you're doingthese types of things and your
goal is to be the lowest costoperator, it's not gonna work
because everything that you andI tend to focus on, Ken, we're
focused on you wanna be the topof the market.
You wanna be providing thevalue.
You don't wanna be thatcommodity.
Ken Lucci (29:05):
top of the market is not Rev.
It's not volume of revenue.
I have a great friend in thisindustry, and I call him a
revenue whore to.
You're a revenue whore.
And I said, and the problem withbeing a revenue whore is that's
when the, you could do that backin the day when your margins
were always higher because therewas not Uber and Lyft and there
(29:26):
was not people, there were notaggregators on the motor coach
side.
Not all revenue is good revenue.
So if I'm a one or two caroperator and I have these guys
call me all the time and I sayto them, it's, it's very, very
simple.
Yes, buy, buy our course.
If you can't afford to have usdo a three year review, buy the
course.
(29:47):
I make the argument that youwill kind come outta that course
knowing if you set up your P&Lthe right way.
You are gonna know the levers tomove your business.
You are gonna know the abilityto, the levers to move your
business.
Now, where is it really criticalto know your cost when you go?
If I'm a one car operator, I'mabsolutely not gonna be the
(30:07):
lowest price in my market.
I'm absolutely going to digwhere the gold is.
My client base are gonna belawyers, they're gonna be
doctors, they're gonna be thehighest, the wealthiest people
in any market I can find, oh,there's not wealthy people in my
market.
I don't know how to find them.
Go to any hospital and get thedoctor's physician directory.
James Blain (30:25):
Now let's, let's wind back up.
'cause that's how many cars thatyou're operating, right?
You said specifically if you'rea one car operator.
Right.
That's, that's one thing I wannapoint out here.
'cause one of the things that Ihear all the time when I talk to
guys getting in, oh, I don'thave any business.
I gotta be super cheap.
I gotta build a book ofbusiness.
You know, I can't, I, I can'tafford to have my car sit.
(30:47):
I got bills to pay.
You know, I, I think it's reallyimportant to point out, I.
That's one car operator.
Right.
We're talking to you.
If you're just getting started,
Ken Lucci (30:57):
Oh, you don't know stress until you've got 20
vehicles sitting in the yard andyou can't make payroll.
I've lived that life,
James Blain (31:03):
well, and, and let's, let's
Ken Lucci (31:04):
but I think it's, wait a minute.
I think it's, I think what youjust said, if you're a one or
two car operator, that's theonly time you have the
opportunity to, to decide yourfate.
How you want to build yourbrand.
Okay.
Okay.
Businesses that sell on lowprice cannot create a brand.
Uh, somebody said to me, well,Southwest Airlines, yeah.
(31:26):
Well, let, let's, let's stopthere for a second.
James Blain (31:28):
Bye-bye.
Checked bags.
Bye-bye.
Open seating.
Bye-bye, Southwest.
Ken Lucci (31:32):
let's stop there for one second because you're
talking about a, a, you'retalking about, uh, apples and,
and, and cucumbers.
Okay.
James Blain (31:40):
Yeah.
Ken Lucci (31:42):
Those guys have actuaries on their payroll.
They know exactly what it takesto break even on that airplane.
And they know, and by the way,they're working with margins
that are disgustingly low.
Okay?
But if your entire strategy isto call around, and I had a guy
tell me this the other day,well, you know, every year I
(32:02):
call around to my competitors.
I said, what, uh, po Whatpossible data does that give you
other.
If, if I right.
Whoa,
James Blain (32:11):
do you care if they'll pay your prices?
Why do you even care?
I.
Ken Lucci (32:14):
oh, this is his strategy.
I call, I call all five of my,uh, my competitors that I
consider my competitors, andthen I cut my, and then I cut my
price by 5%.
James Blain (32:24):
Okay.
Ken Lucci (32:25):
I'm like, and, and by the way, this, this is the same
kind of guy that calls me at theend of his career and says, I
want you to sell my business formillions of dollars.
And he's never made a profit andhe's paid himself.
Basically what you can make as aWalmart greeter.
I.
So you, you know, the, at ingeneral.
In general, if you don't want toget granular with your cost
(32:46):
structure, okay, you really havetwo options.
You can guess low or guess high,right?
And if you guess high, and I'mnot an advocate for this as in
business, but if you guess high,you better have a value
proposition that you canarticulate to your customer
group.
James Blain (33:06):
Yep.
Ken Lucci (33:06):
So sniper shot.
Perfect that they don't care howmuch you cost.
And I argue that, that we can dothat on certain types of
business, like.
The board of directors meetings,you know, when somebody, is
putting together a board ofdirectors meeting, how do, how,
how, how important do you thinkprice is to them?
(33:27):
First of all, they're going tothe best steakhouse in the co,
the best steakhouse, or they'rebringing in the best caterers,
right?
They don't want anything left tochance.
The answer is they're not pricesensitive.
So if you have to, if a guy thatlives in the wealthiest zip code
has to have his mother broughtfrom the airport and he's busy
(33:48):
working, how important is priceto him?
The answer is he is not.
James Blain (33:52):
Unless it's your mother-in-law.
No,
Ken Lucci (33:54):
Mother-in-law let you, you Yeah.
Put put her in an Uber X.
James Blain (33:58):
yeah, there you go.
Ken Lucci (33:59):
No, I mean, seriously, if your daughter is
traveling the first time, she'straveling away from home.
So in general, from a pricingperspective, the first thing
that you need to know is youneed to know the cost to know
what you're working with.
You need to know how much itcosts to turn that key and do
the job.
Now it's tough in the beginning.
'cause you say, Jesus, I don'tknow how many times that car is
(34:21):
gonna go out this week.
I don't know.
Okay.
when we work with people, wesay, okay, let's just start with
knowing our fixed cost everysingle month of that vehicle.
Right?
Know your fixed cost of thatvehicle.
James Blain (34:34):
where do you even start though, Ken?
Like where do you like trying toput that together?
Trying to, to do it by, I mean,if you're one car, it's one car,
but what, what, I mean,obviously your course is gonna
break it down, but can you atleast give us kinda what, what's
that starting point?
How do I start that process?
How do I figure that out?
Ken Lucci (34:51):
to me the fixed cost of what it takes to turn the key
and to open my business in themorning.
I don't care if you're a a, a aone car operator or a 50 car
operator, you should know whatis my overhead, what do I have
to pay to keep the lights on?
And now you have the fixed costof the equipment to do the work.
What is the fixed cost of theinsurance policy for the
(35:14):
vehicle?
What's my payment for thevehicle?
How much am I paying mychauffeur by the hour?
And we.
You know, we do.
We have a worksheet that doesall these things, right?
How much is an oil change?
But the funny thing in the iswhen we take people through our
process.
some of the guys have been inthe business for 20 years.
They're like, Jesus Christ, thisthing costs me$180 to stay.
(35:34):
This costs$180 to sit for theday.
That's the fixed cost.
I'm like, yeah.
So the answer to the question,when people say to me on
Facebook, uh, I'm noticingappreciably that my business,
you know, things have sloweddown.
Okay.
if you've made money last yearand you're confident in your
pricing structure and you knowthat you're on the middle to
(35:54):
high side of the market, theanswer to solving that problem
is proactively go out andpromote your business.
The worst thing that you can dois drop your prices because let
ask you a question.
Have your costs, have your costslowered since last year?
The answers
James Blain (36:09):
No, they're gonna keep going up.
Everything's gonna keep
Ken Lucci (36:12):
So if you accept the premise that 85% of small
businesses fail because they, ofpoor financial management, 85%,
the only thing you're fightingby not getting granular in your
financial reporting, all right,is to me it's fear of change.
(36:32):
It's the fear of saying, Hmm,you know what?
I don't know this stuff.
Look, I, I have an operatorwho's a$20 million operator,
extraordinarily profitable.
Okay.
One of the best names in theindustry, he does motor coach
work for entertainment.
He does, you name it, he's thein command of his market.
Okay?
And he said, Ken, I, I need youto teach me my financials.
(36:54):
I said to him, Jesus Christ,you're already one of the most
profitable guys in the business.
He said, yeah, but I want to bemore profitable because I'm
gonna sell this thing in threeyears.
James Blain (37:01):
Well, but that's that winning mentality.
You've always gotta besharpening your edge.
Ken Lucci (37:06):
Right.
No.
No, exactly.
And I don't wanna say he's doneit by accident'cause he's not.
He made the conscious decisionthat he's going to turn over his
sedans every 36 months.
Right?
And he's going to own and onlyhave a certain amount of debt on
his fleet.
So he flat out said, I by designam the highest in the market.
(37:30):
I have the best weddingplanners.
I have literally the bestfuneral homes.
I literally have, uh, the bestentertainment chasing me for
work, and I get the bestcontracts because they know I'm
gonna be the highest price.
James Blain (37:44):
Well, and I think, I think the thing that you take
away from that is you can makemoney at both ends of it.
Because of the nature of thespace that we live in.
Unless your plan is to gocompete with Uber and Lyft and
have an app and not have driverson staff and not do things the
way we
Ken Lucci (38:01):
Well not have reservationists and dispatches
sitting 24 hours a
James Blain (38:04):
exactly.
We have to be at the the middleto the top.
So let me ask you a difficultquestion, because a lot of times
there's that pressure whenbusiness is low, like you said,
to drop the price.
You brought up an incredibleexample when you talked about,
you know, those buses sittingand is it worth sending'em out?
I, I have always heard in thisindustry, always push your
prices up.
Never bring'em down.
(38:25):
Always push your prices up.
Never bring'em
Ken Lucci (38:27):
Well, you can't go back and listen once you've
dropped your pants.
It's impossible.
Yeah.
There's a guy that, there's aguy that called me from Chicago
that wants to, wants my help,wanted me to help his business.
Right?
And he's like, I don't care.
He, he is, got the worst reviewsin Chicago.
No names mentioned here.
Worst reviews in Chicago like.
The worst I've ever seen in mylife.
I mean, just nastiness, youknow, the driver was rude.
(38:50):
The reservationist hung up thephone after she swore.
I mean, worst in the world.
James Blain (38:54):
like incredible.
They're in business.
Ken Lucci (38:56):
I took one look at his financial statements.
I said, you know what?
We're not the right fit for you.
Because he basically said to me,I want to improve my profits,
but I don't, I don't really careabout the reviews, and this is a
guy that all he wanted to tellme was how his business has
grown by 20% every single year.
I'm like, dude, that is onlygonna happen to a certain point
because all you're doing isfighting you.
(39:17):
You're the lowest price in themarket, and you're attracting
the shittiest clients, andyou're attracting the shittiest
drivers and you're attracting.
The worst reviews known tomankind.
It's a perpetual, it's a
James Blain (39:29):
Yeah, exactly.
Ken Lucci (39:30):
It's a
James Blain (39:30):
hit on it earlier.
He's, he's constantly findingnew customers and constantly
turning through drivers, andinstead of building a business,
he's basically built a paddlewheel where drivers and
customers come in one way and goout the
Ken Lucci (39:45):
I looked at his, I looked at his financials and you
know, guy pays himself, okay,not great.
And I said, you know, yourmargins are way, way too low.
And you know.
There's no secret as to why you,you know, you, you're really on
a perpetual wheel here, right?
You have a lot of one-timeclients, but you really don't
(40:05):
have a lot of stickiness to youror loyal clients, and it, it's.
like a self perpetuatingprophecy.
So if, if I'm giving advice toany operator on price, it's
number one, know your coststructure.
And when you're small, it's kindof easy.
You just look at all your billsand you look at your overhead,
your basic business overhead,and then you look at all of the
(40:25):
cost.
It takes to deliver even thefirst trip, right?
Remember the analogy about thebird?
Uh, the bird house.
We have our wood, we have ournails, we have our paint.
In our case, we, we know what wepay our drivers by the hour.
We know what it's cost for thatfleet insurance.
See?
And.
To me, once you get granular,once you go over the hurdle of
(40:48):
knowing all your financialmetrics, it becomes, it's a
piece of cake once the system isin place.
Once you know your costs.
Once you know your, youroverhead, the only variable is
how much revenue.
So let me answer specificallythe question on when things are
slow.
Let, let me, let me give, let methrow out specials.
(41:10):
Let me do this.
No, my answer is double down onyour, on your promotions, double
down on your marketing, and lookat your first, your top 20
clients.
Reengage with those clients andmake sure they know everything
you do.
Okay?
That's the first thing I woulddo if I saw a business was slow.
I would find out why.
Every time we look at that witha client on a monthly basis, we
(41:33):
figure out that, wait a minute,look at this revenue
concentration.
You've got one client that'sdropped 35%.
Why?
That's the first
James Blain (41:41):
Why did they pull the business?
Ken Lucci (41:43):
and it may be they've permanently made a shift.
Now, the other piece of thatpuzzle is when you have
customers that are growing, whyare they growing?
Chances are if you have one lawfirm and they're losing you,
they're using you 25% more.
Or you have this contract, youhave a shuttle contract, and
they've been with you for threeyears, do you think that they're
(42:05):
the only shuttle contract outthere?
So to me.
To me, re resist the urge tolower your prices.
And if you know your coststructure and you're, and you're
not gouging your customers,right, you know what you need to
make for a gross profit.
Try to pull the levers of thebusiness in another direction.
The easiest way to me is turnthat one transfer into a, a
(42:29):
round trip.
Turn that round trip intosomething that's out of town.
I'll, I'll leave you with, withthis.
I've never found a company.
Never found a company that wason the medium to high, right?
Not the middle.
I'm talking medium, high on thetop, the top two thirds of
pricing.
If I picked up the phone and Icalled 10 people for an airport
(42:52):
transfer, the companies that arethe most profitable are the ones
that are in the, that I'm quotedthe top two thirds to the
highest right?
The most effective and efficientcus companies I talk to always
ask me the same question.
Mr.
Lucci, how often do you travel?
Right, because they're the onesthat know their business and
(43:12):
say, you know what, I have threetiers of pricing.
You travel a lot.
If we open an account with you,this is what we can do.
Right.
So, you know, I know I'm going alittle bit around the world on
pricing, but it's, it's, it's,it, it may complex, but at some
point it becomes a recipe.
And once you know the recipe,it's rinse and repeat.
(43:34):
Okay.
If you get in your mindset, andwe try to do it with operators,
okay.
We did this on, on this specificvehicle type and this specific
service type.
We did this with a great guy,uh, just went into motor
coaches, um,$10 millionoperator, never owned a motor
coach.
And he is like, Ken, I I, I, weneed to get into Motor Coach.
Okay?
First thing we're gonna do iswe're going to, we're gonna look
(43:56):
at the cost of that.
$600,000 asset.
And we're gonna, we're gonnaestablish what your break even
is, why we're gonna look at,we're gonna look at your fixed
costs.
We're gonna look at the variablecosts.
We figured out, uh, what an oilchange costs every 20,000 miles.
I think on a motor coach.
On that motor coach, they saidevery 20,000 we figured out what
the, uh, what the tires weregonna cost, and we literally
(44:19):
built the pro forma.
He said, Jesus, I feel like aone car operator.
I'm like, you are.
'cause in the motor code space
James Blain (44:26):
you're now a one bus operator.
Ken Lucci (44:28):
just built the pro forma.
Guess what?
The guy he calls me and he islike, we're wildly exceeding bus
number one.
We just ordered bus number two.
James Blain (44:36):
Well, and I think something that you're hitting on
that's really important here isthat this, and, and we've been
almost an hour on this, sohopefully people have gotten
this message.
This is not something where.
We're gonna, you're gonna learnthree French words and suddenly
you say these three magic Frenchwords and you change the pricing
and you change the company.
This is a piece of the largerpuzzle of the financial health
(45:02):
of your company.
I.
Of how you take care of yourcompany.
And it's not enough to say, I'mgonna change my pricing, I'm
gonna change my profits.
It's, you have to be running afinancially healthy company and
you have to be making smartdecisions financially.
And then you are using thatfinancial information to help
(45:22):
you define what your pricinglooks like and help you be that
piece in that puzzle so that youhave everything in place, is
Ken Lucci (45:29):
All listen, you can solve any problem in business if
you're making a profit.
But if you're not making aprofit, it becomes a, a, a self
perpetuating prophecy.
Right.
It's a, it's literally, it'sliterally becomes a race to the
bottom.
And it's the reason why 85% ofsmall businesses fail.
It's not because they didn'thave a good product.
(45:50):
It's not because they didn'thave the best vehicle out there
in the restaurant business.
I say it's not because, youknow, the meal didn't get on the
table the right way.
It's literally because theydidn't manage their financials.
And that's the shame.
That's the shame of it.
James Blain (46:03):
Well, and you've talked about this before and I
think as a business ownermyself, having been an
entrepreneur my whole life, Ithink it, it'd be a great thing
for you to be able to, to giveus now as the business owner, I.
Where, where do you fit in?
What percentage of revenue orhow do you know how much to
take?
What does that look like interms of as the owner, you
(46:24):
should be getting paid this andthat is or isn't separate from
the profit?
How does that look?
Ken Lucci (46:29):
I mean, it depends on the maturity of the business,
but I always, I always say to anowner of a company, if you are
not making more than you wouldbe on the open market based on
your skillset, then.
It's too risky.
You, you really shouldn't own abusiness, right?
That's what it comes down to.
(46:50):
I mean, it's, they're all overthe board.
I can tell you that ownersshould be taking W2 income as
well as distributions.
Uh, that's a completelydifferent subject.
Um, but listen, if you guyswanna know about pricing, uh,
book a 30 minute with me.
It costs nothing for 30 minutessessions.
Look at our website.
Look at the co the, the, thefinancial course that we have.
(47:11):
I don't think you can beat itbecause you get a money back
guarantee with it, right?
Um, if, if, if it's too big foryou.
Um, then because you're a one ortwo car operator, we have a new
product coming out that'sbasically a pricing worksheet
that we can take you through,uh, with a group of other
operators is kind of a workshop,but, um, I think we've beaten
(47:32):
this to death.
Um, thanks for, uh, anotherexciting episode and, uh, we'll
catch you next time.
James Blain (47:39):
Thank you everybody for listening if you wanna learn
more driving transactions.
Ken is an absolute financialexpert and I'm lucky enough to
have him as a co-host, so wewill see you again on the next
episode.
Ken Lucci (47:49):
I appreciate you saying that.
Alright guys.
Thank you for listening to theground transportation podcast.
If you enjoyed this episode,please remember to subscribe to
the show on apple, Spotify,YouTube, or wherever you get
your podcasts.
For more information about PAXtraining and to contact James,
go to PAX training.com.
And for more information aboutdriving transactions and to
(48:12):
contact Ken, Go to drivingtransactions.com.
We'll see you next time on theground transportation podcast.
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