James Blain: 0:24

Hello everybody and welcome back to the Ground Transportation Podcast. I am one of your co-hosts, James Blaine from PAX Training, joined by my wonderful co-host Ken Lucci, from driving transactions we have.

Ken Lucci: 0:35

I kinda like the term lovely and talented to

James Blain: 0:38

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: 0:46

short and grumpy is really what people are no noticing me for

James Blain: 0:49

No, no. Well, but, but I'll tell you what, we have a heck of a topic, speaking of grumpy, because this is something that comes up a lot and there's a lot of question on, there's a lot of debate on. I feel like people are kind of shy around this topic and it's pricing and I think one of the big things that we are hearing right now is businesses slowing down. You know, I, maybe it's time to drop prices. I also think, and I, and I don't know your thoughts on this, but I'd love to get them. I. I also think there's almost like an uneasiness of people are concerned whether or not things are gonna hold up, and I think that might be kinda leading to that fear and that desire to maybe want to try and drop a price.

Ken Lucci: 1:31

You know, it's interesting that you say that. I've seen a couple of co a few comments on Facebook and we make it, uh, when we talk to our clients on a monthly basis, we do a, a monthly financial review with the clients. We're, we're asking them straight out, tell us how we, we know how the month was'cause we're doing a review. But give us your sentiments. What are your thought process? How, how does the spring market look for you? I, I can tell you the number one, the number one problem with not. Pricing right, is you don't know your cost structure, so you, you don't know how low is too low, right? Um, in general, the biggest issue I see in this industry is not pricing properly, not knowing your profits and profits solve problems. That's, that's one of the things we see all the time. So. Regarding price. You know, there, there's, there's price is one thing, and then the value you deliver is something else. But let's dissect price. If you don't know what should go into your pricing, you are in trouble because. You, there is a line that you can't cross, and when you cross the line on pricing, it's a slippery slope and the, the, the end destination is you don't make a profit and you go out of business. Period. End of story.

James Blain: 2:48

So expand on that for us, because I think, you know, and, and we've talked about this before, we won't say where they pull it out of, but we 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 feel like this is what I could get

Ken Lucci: 3:02

Oh, oh. The worst thing is, well, my competition is this.

James Blain: 3:05

Yeah. Yeah. Their, their pricing based, they're picking a number based on a random number that another person picked. When you say, what goes into pricing, expand on this, what, what do you mean by that?

Ken Lucci: 3:17

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 have the little bird that we put in the, in the little box, right when we're done. In our case, it's the cost of the vehicle. It's the cost of the insurance. It's the cost of repair and maintenance. It's the cost of the chauffeur. It's basically your direct cost, everything to turn the key. Okay? Here's the only reason why we're. As successful as we are and we've like backed up with work at this point is because the mathematics in this industry are not that difficult. So if the first thing we look at with a company that's in trouble, whether they're losing revenue or whether they're not profitable, is we look at what the gross profit margin is.

James Blain: 4:00

Okay?

Ken Lucci: 4:00

If they don't know what their gross margin is on each type of service they provide, they cannot pull the levers. Of their pricing,

James Blain: 4:11

How common is that? Do most companies know

Ken Lucci: 4:13

Now only listen here,

James Blain: 4:15

Loaded question,

Ken Lucci: 4:16

a hundred percent of companies do what's called tax accounting, which is create the financial statements so that you can pay your taxes. And not just our industry, but as far as small business businesses, other under 10 million, less than 10% of them do what's called financial reporting. Financial management reporting, and that's a monthly financial statement that gives you more than a profit or a loss. So, so not knowing your cost is a huge chunk of your financial statements, not knowing what it costs you to turn the key to do the trip. Okay, so, uh, I, I'm gonna break it down. So what goes into a price, your direct cost structure. Of what it takes to literally have the vehicle on the road, turn the key and do the trip. That's your direct cost. And then the rest is your overhead. That's an expense, all of your expenses to run the business. And then you, you gotta have your a net profit margin. So your direct costs, your total cost, subtracted from your price, gives you your gross margin, and then knowing your overhead, knowing what your markup needs to be. So in, in, in reference to low price. The number one reason why people are hesitant about their pricing is they're not really deploying any pricing strategies. Okay? So let's talk about

James Blain: 5:34

Yeah. What, what do you mean by strategy? I mean, I thought pricing was pricing, right? I mean, most, most companies. They're thinking, Hey, I'm gonna put a number out there, and they're thinking, I'll discount for affiliates and I'll have, you know, I'll have my number that I wanna get, and if I have to, I'll drop here and do this to get the work. Right. That's how I think the vast majority think

Ken Lucci: 5:51

And, you know, pre pandemic, uh, there was, there's been a, there was a renaissance after the pandemic to me of everybody jacked up. Their prices almost too high. Right? And no offense to anybody who thinks they're rocket scientists, but my Jack Russell Terrier could have made money in 21 and 22. Okay? In fact, he made a lot of money in 21, 22. But as the market came back and said, okay, guys, meaning the market, the customers came back and said, wait a minute, you guys have gone crazy. Right? 23 is where people really had to look at, at, uh, adjusting their pricing structure.

James Blain: 6:25

Hitting that limit.

Ken Lucci: 6:26

So what do I mean by pricing strategies? Okay. Cost based strat, cost based pricing is the primary foundation that every, everybody teaches. This is what it cost me. To build the product or put the product on, uh, put the product out to market, right? This is what my overhead is, this is what my, my net profit I want, so I need to mark it up to a certain point. So fundamentals, the biggest issue I see is people not knowing their cost structure. They don't know how much it costs them to turn the key in to do the job, so it all comes back to. What do, what do you, how is your financial statement set up? And I know this is getting way off track, but how is your financial statement set up? Do you know all of your cost of goods and what's your profit equation? So in our mind, the profit equation, it's, it's, it's pretty straightforward. It's either 60% of the job goes to direct cost, leaving you with a 40% gross margin, or for the more competitive like airport trips, sedan and SUVs. 65% and you have 35% left over. Right? So the first thing I want to do as far as pricing, anything I do is I need to know my cost structure. What does it cost me to roll that piece of equipment? Okay? And how many times am I gonna roll it? Then the other thing that goes into a pricing strategy is the demand for the product and the demand for the service, and how many of them out there are there, and that, that gives me kind of an idea of how elastic I can be on my prices.

James Blain: 8:05

Well, and that, that sounds like it teases a little bit dynamic pricing when you've got the ability to, to ask for more and, and adjust and expand or contract those margins.

Ken Lucci: 8:15

Sure. So the beautiful part of the beautiful part of somebody who knows their financial metrics and they, they're managing the financial costs of their business. They know that for every a hundred dollars they generate, they're gonna be spending 25% of that on direct cost to the chauffeur they're gonna be spending. X percent. Usually it's eight to 10% on the fleet vehicle. They're gonna be spending five to 7% on insurance. If you know your cost structure, you can build up from there, right? So if your cost structure, a lot of 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 overhead is, and then I need to say to myself, okay. You know, what's an acceptable profit margin? What will the market bear? So we are big from a pricing structure. From a pricing perspective, we are big on the first foundation of, of setting prices is to manage all your costs, know your costs, know exactly what it costs you to turn the key and do the work. And then. You can seriously look at specific strategies to to, to move the levers of profitability. Well, what do I mean? What do I mean by that? Well, you know, I make the argument that if you are one of four Sprinter vans or five Sprinter vans, or 20 in a market, okay? And yours is the newest, no offense, you should be priced higher than your competition, and you

James Blain: 9:47

you're providing value.

Ken Lucci: 9:49

Right, exactly. Right. Right. So, so the foundational levers, the foundation of, of pricing is knowing all your costs, and then it is based on your specific market, based on the specific purpose, based on the specific service you're gonna provide is what is your, what is your acceptable gross profit margin. And I'm gonna tell you, air airport transfers. Your gross profit margin. In other words, what do you have left over after you pay for the vehicle? Pay for the driver, pay for the fleet insurance, pay for the repairs and maintenance. It's always gonna be between 30 and 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 moment if we've made it this far into this episode and you don't know your numbers because. How many times on this podcast or how many times have you and I talked, Ken, where we've said, you know, people were doing trips they shouldn't even be doing, they're losing money on it, right? That margin was so thin, the risk was there of hey you. You literally would've been better not sending the vehicle because they didn't understand those 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 network says 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 what my competition is charging. Wrong answer, I can tell you without any hesitation. They don't know their numbers either. 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 more revenue. All I need to do is look at my revenue reports, right? This year versus last year. That's the measure. I mean, I talk to very successful companies that still do the same thing. I'm like, you know what? I'm glad you're 15% up, but I just want you to watch the fact that you're overtime, your driver 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've talked about this before and I think I, I'd really like you to kind of bring it in again today is your revenue number is not as important as how much profit you're actually making.

Ken Lucci: 12:43

Right. What you make is not as important as what you keep, and if you don't know what you keep. Okay. And it's pretty straightforward. I mean, we have worksheets in our program that we go through with our operators, alright? And we're very methodical about it. First of all, we're gonna put the operator into our financial reporting format, which is a cost of goods format. Once we're in that format, I can tell you the fir, I can tell you what's wrong with your business. Okay? Example. got a pretty guy, thinks he's real 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 into our cost of goods format and I said to him, you are spending on repair and maintenance, 18% of your total income. Your price, your prices are way too high or your equipment is way too old, or a combination of those two things. Okay? Something's wrong. You are paying your drivers 39%. By the way. It should be between 25 and 27. Or maybe New York, 27 to 31, you are paying your drivers 39% of total income, right? Your gross profit margin is in the twenties when it should be in the thirties. Your pricing is at least 10 to 15% too low. Okay. Then the argument I get is, well, my competition is that low. I'm like, then you have, first of 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 the market, 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 know my cost structure. I'm going to know all of my metrics and I'm gonna pull the profit lever levers of my business. Well, what do I mean by that? So we are lucky in an industry that we can provide service in a variety of vehicles and, and a couple things. Not all customers should say, pay the same price. Right? And I can guarantee you not all vehicles should generate the same amount of revenue or gross profit margins,

James Blain: 14:54

Well that's, that's right there with knowing your business. You've gotta know the types of work you're doing, the types of vehicles you're doing, how you're using them. And it, I mean, it all goes back to right, you can get an Android or you can get an iPhone. They do the same thing. But why is the iPhone priced higher or why are people willing to pay it?

Ken Lucci: 15:11

Right. And what do I want as far as what are the, what are the features? What are the benefits of the iPhone that I want as a consumer, right? That go way above just the phone call. So. The best, the most successful customer customers we have. The most successful, most profitable operators I know are know their cost structure of their, of their total business. They know as a percentage of income what they are paying for everything. Okay. And that is, What am I paying for my insurance as a percentage of income? What am I paying my chauffeurs as a percentage of income? So they know their cost structure and then they work their pricing based on a markup. What, what markup is gonna pay all those costs and then. Pay my overhead expenses, and then 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 data that we have to prove this is wrong. Right? First of all, they don't have the data when we have 270 companies and counting, right? The most profitable companies in this business are priced at the middle to high level of the market, if not the highest in the market.

James Blain: 16:25

repeat that again.'cause this is extremely, extremely important.

Ken Lucci: 16:29

most profitable companies that we do business with are priced at the medium to high or the highest in their market on all services.

James Blain: 16:38

But Ken, wouldn't they do more trips if they were lower price and wouldn't the more trips make more revenue and they could make more money?

Ken Lucci: 16:45

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 the marketplace. You know, when we sell companies, every buyer and we've trained the buyers to and the sellers, I want your top 50 city pairs, right? Your top. two and top front locations and a typical buyer operator's gonna look at that and they're gonna say, holy shit, this guy is 25% lower than my pricing. If I buy this guy, I'm gonna have to bring his prices. So far up, so far up that I'm absolutely, and, and I, and I'll, you know, get. Quite a, a few of the clients that have been on the podcast, we helped Mike Rose from my limo, buy a company, right? And the first thing that we did when we, we did what's called buyer due diligence for Mike, right? Where he found the operator and he said, Ken, I want some help with

James Blain: 17:36

Yeah. Evaluation of the operator,

Ken Lucci: 17:38

the way, Mike Rose, one of the smartest operators in the country, calls me and wait a minute, calls me and says, I need your help with something. You gotta love a guy. You gotta love a guy that realizes I don't know what I don't know. I, and I want you to walk me through this. Right? And then he calls his brother Tim to make sure I'm actually telling the right stuff. So we look at this company and like, you know something, you're gonna be in good shape here. Lemme tell you why your. Revenue per trip is within five to 7% of their revenue per trip. Yeah, you're gonna have to make a few changes in these zip codes, but look at this, right? So, so being the most profitable companies we do business with are priced on the medium to high or the highest price of their market. Okay? How did they get there? Now they are absolutely not the lowest price in any category of service that they do, period. And. Okay, so the, the beauty of being that way and the beauty of having loyal clients that repeat clients, okay, that pay those prices is now you can predict with pretty much decent certainty what your profits are gonna be moving forward. Okay, so, so let's talk about the companies that are the least profitable. They are absolutely always the customer companies that have a high degree. 60 50, 60, 70% of their work is affiliate work. There's nothing wrong with that. If you know your costs and you are working with the right networks that appreciate the fact that you have to make a profit. And you can defend yourself. You can defend yourself by saying, listen, you know what you wanna, what you want me to charge is, is, is way below what, what my gross margins are. Okay.

James Blain: 19:26

and address the fear there, Ken.'cause I think a lot of people are scared that if they push back on the network, the network might pull out and say, you know what? Forget you. I'm gonna get someone new. I mean, what does that line look like?

Ken Lucci: 19:38

out, I'm gonna tell you flat out, and this was really driven home to me by Tammy Rudder and Dawson Rudder from Commonwealth on the podcast call that we had. Okay. And the beautiful part of those two people is they don't talk one way on the record and another way off

James Blain: 19:54

off the

Ken Lucci: 19:54

Okay. The value that they, that is the one of the best boutique networks in the industry. Okay. We, and we deal with all of them. All of them post pandemic. The ones that are the most successful treat their affiliates like partners. So they may have to be, they may have to, uh, uh, and their A network may have to say to their affiliate, listen, I need you to be here on sedans and SUVs. But by the way. Vans, minis and motors, you know, 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 to charge for the finished product. And the only way you do that is literally by managing ev the nickels and dimes of the cost every single month. We had somebody the other day greatest, one of the greatest guys in the world. I'm gonna call him out. Doug Schwartz. Right. Dougie, Dougie and I have a call yesterday, um, coming back from, from Massachusetts, if I always, how's business? What's going on? And he says to me, know, business is pretty good. We're a little concerned in certain areas, but you know what, I've, I've made it a habit because I'm, I'm a little concerned about what's going on. I'm going through every single invoice every single month and questioning why do we need this? How can we do better on that? How can we cut down over time on our chauffeurs? You know, guys, you know his two sons, you know, how can we do this? And he's literally dissecting at a granular level and I said, Dougie, you got it down pat. You know when at the end of a dollar transaction or a hundred dollars transaction, all you got left over is 10 bucks. You gotta manage the quarters, nickels and dimes.

James Blain: 21:39

Well, and let's tie that back to a previous episode.'cause one of the other things we talked about is you've gotta invest and have the money in to invest in things like safety and things like telematics and things like cameras. Talk to us for a second about the difference between trying to control cost and manage cost and getting to that point where you're taking money away from things to where you're basically robbing Peter to pay Paul. Right. I pull it outta my safety program. I'm gonna have a big accident later as an owner, how do you manage that to where you're being smart with your money, but you're not cutting the corners that you can't afford to cut?

Ken Lucci: 22:15

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 they invest in their systems, they invest in their processes, and they understand the difference between a cost and an expense. Or an, or something. That's an investment, right? Like people say to me, whoa, whoa, whoa, whoa. You charge what for a profit analysis? I said, yeah, and at the end of it, if you're not happy and I don't show you ways to at least five x what your investment was, I'll give you your money back. Okay? So, so the, the, it's no secret that the most profitable companies. Know their costs, and yes, they do cut corners, okay? But they're not cutting corners out of weakness, which is, holy shit, I don't have any money for payroll this week. Right? They are cutting costs to be the most competitive they can to assure customer loyalty. You know, the, the guys that that really get me are the ones that pay three, four, 5,000 a month in PPC ads. And then they beat the crap out of 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're probably not even following up on leads. And second of all, you have to understand that that first, the lead creation, the guy did his job, he created the lead. Okay, but if, but if you are going after the lowest cost, which is the guy that is just searching for airport in every city that he goes, and he's never gonna use you again. And your, your idea of strategy is to be the lowest cost provider. You, you, you're not gonna be profitable. You're not gonna make money.

James Blain: 24:00

Well, and we see that kind of stuff in this industry all the time. In my world, that takes the, the form of, Hey, I got a safety audit with my insurance company. I need to get you put in as quick as humanly possible. And then the second, the safety audit's over, okay, we're, we're gonna cancel everything. You know? I mean, that's, that's kind of the, the crux of that is knowing what, what are you gaining?

Ken Lucci: 24:20

Uh, uh, uh, you know what? I need to get my financials in the order because I need to sell my company this year. I, no, shit. That's what happens all the time. I

James Blain: 24:28

Why? Why didn't she get it together before? Now is not the

Ken Lucci: 24:31

This is a true story. This is a guy calls me, uh, a guy calls me. I'm not gonna say where he was from, but a guy calls me three years ago and he's like, you know, I, that was profitability issues and I'm not as profitable as I'd like to. What can you do? And I, and, and I gave him our pricing. That's a lot. I says, excuse me, let me tell you. I, we give you a guarantee. Okay? We're gonna go through and we're gonna do a three year review of your financial review of your business. We're gonna do a KPI review to show you where you're at. Now, we're gonna compare you to 270 companies. We're gonna be able to pull a company, whether it's from your market or a market with the same GDP, the same size market, and we're gonna compare the two side by side. We're also gonna look at all your metrics and we know what you should be paying your chauffeurs. We know that your fleet insurance 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 the beginning of March and he says, uh, I, I, I'm gonna be outta business by the end of the month. Can you sell my company because my insurance just went up 45% get this, and I don't have the money for the down payment. I already have a second mortgage on, I, I already have a second mortgage on my house. This is a, this is a, a as God is my judge. And this guy's been in business 20, 25 years. Okay? And I can show you there's a, the, the thought process that all revenue is good, revenue is absolutely a misnomer, right? If you, you've got the, the ability, if you know your finances and you know your cost structure to pull the levers of your business proactively. What do I mean by that? What do I mean by that? If you know that in order to get a large corporate account, you've gotta be price your pencil sharpened. Okay? The most, you possibly have to be pencil sharpened on the airport sedan ride or the airport SUV ride. And if you know what your cost structure is, and I just did this with a client the other day. I said to him, listen. Here are your costs. This is what a 25% gross margin looks like. This is what? A 30% margin, 35. You price it accordingly, right? I'm gonna tell you right now, if you price it at 25% margin, you better be able, you better get much more business in larger vehicles from that corporate client, or this is gonna get old real fast.

James Blain: 27:07

Yep.

Ken Lucci: 27:07

Okay, because you're using, in this case, you're using a sprinter van that you could deploy a third of the time and make much more profit. But, but, but if he didn't go through the cost exercise with us, he wouldn't have known it.

James Blain: 27:23

And, and now you're getting into something that's really interesting and you get into kind of areas that I love and talk about of opportunity cost. Right. I, I've been a small business guy my whole life. Opportunity cost for me was always really hard to figure out because guess what? Like you just said, if you are taking that, if you're, oh, I want to keep it rolling, you might be missing the opportunity to use it for something else that might be higher margin and might actually run the vehicle less.

Ken Lucci: 27:50

you know, I have great, great client. I, I love them to death. They're, uh, they're in the mid Midwest and they, there's winter time where his he'll look outside, I'll call him or he'll call me and he is like, Ken, I'm looking at seven motor coaches out there and it's killing me. I'm gonna put'em out at, at a third less. Whoa, whoa, whoa, whoa. Number one, here's the problem with that. Number one, that same client in high season's gonna come back to you and say, wait a minute, in February. I was paying 160 bucks an hour and you're trying to charge me 2 35. No, we, we, I, and I've said to him, we've been through this, we have pricing strategies that start with knowing our cost structure. Knowing that we can't keep the lights on below this much gross profit margin, right? So, and I'm gonna tell you right now, do what you wanna do, right? Do what you want to do. But all you have to do, your driver 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're gonna literally say to me it was worth it to roll that piece of equipment. You may think that we're in a commodity business, and the closest thing to a commodity business 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 the lowest price to and from the airport for your clients, you are absolutely selling to the wrong client.

James Blain: 29:18

Oh, you're at the wrong part of the market. Look, if,

Ken Lucci: 29:21

You're at the wrong part of the market.

James Blain: 29:23

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 doing these types of things and your goal is to be the lowest cost operator, it's not gonna work because everything that you and I tend to focus on, Ken, we're focused on you wanna be the top of the market. You wanna be providing the value. You don't wanna be that commodity.

Ken Lucci: 29:45

top of the market is not Rev. It's not volume of revenue. I have a great friend in this industry, and I call him a revenue whore to. You're a revenue whore. And I said, and the problem with being a revenue whore is that's when the, you could do that back in the day when your margins were always higher because there was not Uber and Lyft and there was not people, there were not aggregators on the motor coach side. Not all revenue is good revenue. So if I'm a one or two car operator and I have these guys call me all the time and I say to them, it's, it's very, very simple. Yes, buy, buy our course. If you can't afford to have us do a three year review, buy the course. I make the argument that you will kind come outta that course knowing if you set up your P&L the right way. You are gonna know the levers to move your business. You are gonna know the ability to, the levers to move your business. Now, where is it really critical to know your cost when you go? If I'm a one car operator, I'm absolutely not gonna be the lowest price in my market. I'm absolutely going to dig where the gold is. My client base are gonna be lawyers, they're gonna be doctors, they're gonna be the highest, 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 the doctor's physician directory.

James Blain: 32:10

Now let's, let's wind back up.'cause that's how many cars that you're operating, right? You said specifically if you're a one car operator. Right. That's, that's one thing I wanna point out here.'cause one of the things that I hear all the time when I talk to guys getting in, oh, I don't have any business. I gotta be super cheap. I gotta build a book of business. You know, I can't, I, I can't afford to have my car sit. I got bills to pay. You know, I, I think it's really important to point out, I. That's one car operator. Right. We're talking to you. If you're just getting started,

Ken Lucci: 32:42

Oh, you don't know stress until you've got 20 vehicles sitting in the yard and you can't make payroll. I've lived that life,

James Blain: 32:48

well, and, and let's, let's

Ken Lucci: 32:49

but I think it's, wait a minute. I think it's, I think what you just said, if you're a one or two car operator, that's the only time you have the opportunity to, to decide your fate. How you want to build your brand. Okay. Okay. Businesses that sell on low price cannot create a brand. Uh, somebody said to me, well, Southwest Airlines, yeah. Well, let, let's, let's stop there for a second.

James Blain: 33:13

Bye-bye. Checked bags. Bye-bye. Open seating. Bye-bye, Southwest.

Ken Lucci: 33:17

let's stop there for one second because you're talking about a, a, you're talking about, uh, apples and, and, and cucumbers. Okay.

James Blain: 33:25

Yeah.

Ken Lucci: 33:27

Those guys have actuaries on their payroll. They know exactly what it takes to 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 is to call around, and I had a guy tell me this the other day, well, you know, every year I call around to my competitors. I said, what, uh, po What possible data does that give you other. If, if I right. Whoa,

James Blain: 33:56

do you care if they'll pay your prices? Why do you even care? I.

Ken Lucci: 33:59

oh, this is his strategy. I call, I call all five of my, uh, my competitors that I consider my competitors, and then I cut my, and then I cut my price by 5%.

James Blain: 34:09

Okay.

Ken Lucci: 34:10

I'm like, and, and by the way, this, this is the same kind of guy that calls me at the end of his career and says, I want you to sell my business for millions of dollars. And he's never made a profit and he's paid himself. Basically what you can make as a Walmart greeter. I. So you, you know, the, at in general. In general, if you don't want to get granular with your cost structure, okay, you really have two options. You can guess low or guess high, right? And if you guess high, and I'm not an advocate for this as in business, but if you guess high, you better have a value proposition that you can articulate to your customer group.

James Blain: 34:51

Yep.

Ken Lucci: 34:51

So sniper shot. Perfect that they don't care how much you cost. And I argue that, that we can do that on certain types of business, like. The board of directors meetings, you know, when somebody, is putting together a board of directors meeting, how do, how, how, how important do you think price is to them? First of all, they're going to the best steakhouse in the co, the best steakhouse, or they're bringing in the best caterers, right? They don't want anything left to chance. The answer is they're not price sensitive. So if you have to, if a guy that lives in the wealthiest zip code has to have his mother brought from the airport and he's busy working, how important is price to him? The answer is he is not.

James Blain: 35:37

Unless it's your mother-in-law. No,

Ken Lucci: 35:39

Mother-in-law let you, you Yeah. Put put her in an Uber X.

James Blain: 35:43

yeah, there you go.

Ken Lucci: 35:44

No, I mean, seriously, if your daughter is traveling the first time, she's traveling away from home. So in general, from a pricing perspective, the first thing that you need to know is you need to know the cost to know what you're working with. You need to know how much it costs to turn that key and do the job. Now it's tough in the beginning.'cause you say, Jesus, I don't know how many times that car is gonna go out this week. I don't know. Okay. when we work with people, we say, okay, let's just start with knowing our fixed cost every single month of that vehicle. Right? Know your fixed cost of that vehicle.

James Blain: 36:19

where do you even start though, Ken? Like where do you like trying to put 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 at least give us kinda what, what's that starting point? How do I start that process? How do I figure that out?

Ken Lucci: 36:36

to me the fixed cost of what it takes to turn the key and to open my business in the morning. I don't care if you're a a, a a one car operator or a 50 car operator, you should know what is my overhead, what do I have to pay to keep the lights on? And now you have the fixed cost of the equipment to do the work. What is the fixed cost of the insurance policy for the vehicle? What's my payment for the vehicle? How much am I paying my chauffeur by the hour? And we. You know, we do. We have a worksheet that does all these things, right? How much is an oil change? But the funny thing in the is when we take people through our process. some of the guys have been in the business for 20 years. They're like, Jesus Christ, this thing costs me$180 to stay. This costs$180 to sit for the day. 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 noticing appreciably that my business, you know, things have slowed down. Okay. if you've made money last year and you're confident in your pricing structure and you know that you're on the middle to high side of the market, the answer to solving that problem is proactively go out and promote your business. The worst thing that you can do is drop your prices because let ask you a question. Have your costs, have your costs lowered since last year? The answers

James Blain: 37:54

No, they're gonna keep going up. Everything's gonna keep

Ken Lucci: 37:57

So if you accept the premise that 85% of small businesses fail because they, of poor financial management, 85%, the only thing you're fighting by not getting granular in your financial reporting, all right, is to me it's fear of change. It's the fear of saying, Hmm, you know what? I don't know this stuff. Look, I, I have an operator who's a$20 million operator, extraordinarily profitable. Okay. One of the best names in the industry, he does motor coach work for entertainment. He does, you name it, he's the in command of his market. Okay? And he said, Ken, I, I need you to teach me my financials. 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 be more profitable because I'm gonna sell this thing in three years.

James Blain: 38:46

Well, but that's that winning mentality. You've always gotta be sharpening your edge.

Ken Lucci: 38:51

Right. No. No, exactly. And I don't wanna say he's done it by accident'cause he's not. He made the conscious decision that he's going to turn over his sedans every 36 months. Right? And he's going to own and only have a certain amount of debt on his fleet. So he flat out said, I by design am the highest in the market. I have the best wedding planners. I have literally the best funeral homes. I literally have, uh, the best entertainment chasing me for work, and I get the best contracts because they know I'm gonna be the highest price.

James Blain: 39:29

Well, and I think, I think the thing that you take away from that is you can make money at both ends of it. Because of the nature of the space that we live in. Unless your plan is to go compete with Uber and Lyft and have an app and not have drivers on staff and not do things the way we

Ken Lucci: 39:46

Well not have reservationists and dispatches sitting 24 hours a

James Blain: 39:49

exactly. We have to be at the the middle to the top. So let me ask you a difficult question, because a lot of times there's that pressure when business is low, like you said, to drop the price. You brought up an incredible example when you talked about, you know, those buses sitting and is it worth sending'em out? I, I have always heard in this industry, always push your prices up. Never bring'em down. Always push your prices up. Never bring'em

Ken Lucci: 40:12

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 a guy 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 reviews in Chicago. No names mentioned here. Worst reviews in Chicago like. The worst I've ever seen in my life. I mean, just nastiness, you know, the driver was rude. The reservationist hung up the phone after she swore. I mean, worst in the world.

James Blain: 40:39

like incredible. They're in business.

Ken Lucci: 40:41

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 care about the reviews, and this is a guy that all he wanted to tell me was how his business has grown by 20% every single year. I'm like, dude, that is only gonna happen to a certain point because all you're doing is fighting you. You're the lowest price in the market, and you're attracting the shittiest clients, and you're attracting the shittiest drivers and you're attracting. The worst reviews known to mankind. It's a perpetual, it's a

James Blain: 41:14

Yeah, exactly.

Ken Lucci: 41:15

It's a

James Blain: 41:15

hit on it earlier. He's, he's constantly finding new customers and constantly turning through drivers, and instead of building a business, he's basically built a paddle wheel where drivers and customers come in one way and go out the

Ken Lucci: 41:30

I looked at his, I looked at his financials and you know, guy pays himself, okay, not great. And I said, you know, your margins 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-time clients, but you really don't have a lot of stickiness to your or loyal clients, and it, it's. like a self perpetuating prophecy. So if, if I'm giving advice to any operator on price, it's number one, know your cost structure. And when you're small, it's kind of easy. You just look at all your bills and you look at your overhead, your basic business overhead, and then you look at all of the cost. It takes to deliver even the first trip, right? Remember the analogy about the bird? Uh, the bird house. We have our wood, we have our nails, we have our paint. In our case, we, we know what we pay our drivers by the hour. We know what it's cost for that fleet insurance. See? And. To me, once you get granular, once you go over the hurdle of knowing all your financial metrics, it becomes, it's a piece of cake once the system is in place. Once you know your costs. Once you know your, your overhead, the only variable is how much revenue. So let me answer specifically the question on when things are slow. Let, let me, let me give, let me throw out specials. Let me do this. No, my answer is double down on your, on your promotions, double down on your marketing, and look at your first, your top 20 clients. Reengage with those clients and make sure they know everything you do. Okay? That's the first thing I would do if I saw a business was slow. I would find out why. Every time we look at that with a client on a monthly basis, we figure out that, wait a minute, look at this revenue concentration. You've got one client that's dropped 35%. Why? That's the first

James Blain: 43:26

Why did they pull the business?

Ken Lucci: 43:28

and it may be they've permanently made a shift. Now, the other piece of that puzzle is when you have customers that are growing, why are they growing? Chances are if you have one law firm and they're losing you, they're using you 25% more. Or you have this contract, you have a shuttle contract, and they've been with you for three years, do you think that they're the only shuttle contract out there? So to me. To me, re resist the urge to lower your prices. And if you know your cost structure 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 the business in another direction. The easiest way to me is turn that one transfer into a, a round trip. Turn that round trip into something that's out of town. I'll, I'll leave you with, with this. I've never found a company. Never found a company that was on the medium to high, right? Not the middle. I'm talking medium, high on the top, the top two thirds of pricing. If I picked up the phone and I called 10 people for an airport transfer, the companies that are the most profitable are the ones that are in the, that I'm quoted the top two thirds to the highest right? The most effective and efficient cus companies I talk to always ask me the same question. Mr. Lucci, how often do you travel? Right, because they're the ones that know their business and say, you know what, I have three tiers 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 a little 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. Okay. If you get in your mindset, and we try to do it with operators, okay. We did this on, on this specific vehicle type and this specific service type. We did this with a great guy, uh, just went into motor coaches, um,$10 million operator, never owned a motor coach. And he is like, Ken, I I, I, we need to get into Motor Coach. Okay? First thing we're gonna do is we're going to, we're gonna look at the cost of that.$600,000 asset. And we're gonna, we're gonna establish 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 variable costs. We figured out, uh, what an oil change costs every 20,000 miles. I think on a motor coach. On that motor coach, they said every 20,000 we figured out what the, uh, what the tires were gonna cost, and we literally built the pro forma. He said, Jesus, I feel like a one car operator. I'm like, you are.'cause in the motor code space

James Blain: 46:11

you're now a one bus operator.

Ken Lucci: 46:13

just built the pro forma. Guess what? The guy he calls me and he is like, we're wildly exceeding bus number one. We just ordered bus number two.

James Blain: 46:21

Well, and I think something that you're hitting on that's really important here is that this, and, and we've been almost an hour on this, so hopefully people have gotten this message. This is not something where. We're gonna, you're gonna learn three French words and suddenly you say these three magic French words and you change the pricing and you change the company. This is a piece of the larger puzzle of the financial health of your company. I. Of how you take care of your company. And it's not enough to say, I'm gonna change my pricing, I'm gonna change my profits. It's, you have to be running a financially healthy company and you have to be making smart decisions financially. And then you are using that financial information to help you define what your pricing looks like and help you be that piece in that puzzle so that you have everything in place, is

Ken Lucci: 47:14

All listen, you can solve any problem in business if you're making a profit. But if you're not making a profit, it becomes a, a, a self perpetuating prophecy. Right. It's a, it's literally, it's literally becomes a race to the bottom. And it's the reason why 85% of small businesses fail. It's not because they didn't have a good product. It's not because they didn't have the best vehicle out there in the restaurant business. I say it's not because, you know, the meal didn't get on the table the right way. It's literally because they didn't manage their financials. And that's the shame. That's the shame of it.

James Blain: 47:48

Well, and you've talked about this before and I think as a business owner myself, having been an entrepreneur my whole life, I think it, it'd be a great thing for you to be able to, to give us now as the business owner, I. Where, where do you fit in? What percentage of revenue or how do you know how much to take? What does that look like in terms of as the owner, you should be getting paid this and that is or isn't separate from the profit? How does that look?

Ken Lucci: 48:14

I mean, it depends on the maturity of the business, but I always, I always say to an owner of a company, if you are not making more than you would be on the open market based on your skillset, then. It's too risky. You, you really shouldn't own a business, right? That's what it comes down to. I mean, it's, they're all over the board. I can tell you that owners should be taking W2 income as well as distributions. Uh, that's a completely different subject. Um, but listen, if you guys wanna know about pricing, uh, book a 30 minute with me. It costs nothing for 30 minutes sessions. Look at our website. Look at the co the, the, the financial course that we have. I don't think you can beat it because you get a money back guarantee with it, right? Um, if, if, if it's too big for you. Um, then because you're a one or two car operator, we have a new product coming out that's basically 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 this to death. Um, thanks for, uh, another exciting episode and, uh, we'll catch you next time.

James Blain: 49:24

Thank you everybody for listening if you wanna learn more driving transactions. Ken is an absolute financial expert and I'm lucky enough to have him as a co-host, so we will see you again on the next episode.

Ken Lucci: 49:34

I appreciate you saying that. Alright guys.

49:38

Thank you for listening to the ground 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 PAX training and to contact James, go to PAX training.com. And for more information about driving transactions and to contact Ken, Go to driving transactions.com. We'll see you next time on the ground transportation podcast.