The rising cost of fuel is going to make a serious impact on your business and its costs and only with careful planning can you avoid being caught out by the hidden cost of business travel.
As a contractor you should be aware of fuel costs to your business and calculate this cost of sale into every job or regular maintenance service.
It might sound pedantic but repetition adds up so it pays to do some basic sums - I have calculated below a purely hypothetical scenario but it is a practice you need to consider.
Let us assume that your van does 18,000 miles in a year (including personal use) and the average miles per gallon is 28 [adjust the figure accordingly]
Because we tend to see prices in litre at the pumps I have converted the yearly consumption from gallons to litres: (18,000m/28mpg x 4.5litres) = 2893.5 litres.
Assuming the cost per litre is running at about .90p [adjust accordingly] it gives us an annual cost of £2604.00
This sounds like a relatively small amount of money in the scheme of running a business but by breaking this down even further we can arrive at what it costs you to deliver an hours work just in fuel costs.
If you are a one man band with no manual assistance then I would calculate your delivery of hours to your business by saying there are 52 weeks in a year (quite simple really) and out of those 52 weeks we assume that you will take a minimum of 2 weeks holiday. The remaining 50 weeks are split into 40 hour working weeks which gives us 2000 hrs of potential saleable hours.
By simple dividing the £2,604 into your available saleable hours it is easy to see that for every hour of your time you sell it costs you £1.30 in fuel charges.
I know from experience that self-employed people will take a stab at setting their hourly rate but that they should be very businesslike about it and work out what it costs them to sell an hours work first and then add on their net profit to see what they need to charge for a whole year.
n.b. I know that self employed maintenance gardeners are going to say that they will work a 12 hour day and not an 8 hour day and that they will be on site a lot of the time so 18,000 miles is not a true snapshot: when calculating your own costs you must make your own assumptions and it pays to take your mileage on the first day of your tax year and again on the last and divide the full fuel cost into the mileage to be accurate.
Take a view on variations based on 2000 hrs labour and .90p a litre @ 6.2mpl.
- 18,000 miles per annum = 1.30 per hour
- 12,000 miles per annum = 0.87p per hour
Just by reducing your mileage by 6,000 miles per year you have reduced the cost of sales in fuel alone by .43p per hour.
But what happens if for example you have an extra 2 weeks holiday? It would cost you an extra 3p per mile to go to work.
One simple rule of thumb is take a view of the total number of hours available for you to sell; you must take a view on weather and day length - in January and February you may only average 7 hours a day for those two months due to weather and short days which needs to be recouped later to keep the averages up.If you need to earn £20k a year (not unreasonable) then just a simple maths exercise tells us that we need to charge £10,00 per hour just to cover your time.
We are now building a cost base that you will have to deal with to be profitable and also be aware of market conditions and forces too.
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