Dear Mr. Terrance,
What is your opinion on the practice of charging more for short-distance rides that are pre-arranged for a specific time (reservations)?
As the owner of a small fleet (3 vehicles), availability is sometimes an issue when it gets busy. While most of my calls for short-distance rides (i.e. less than two miles give or take) are for immediate pickup, I sometimes have customers who want to pre-arrange a short-distance ride (i.e. less than 2 miles) for a specific time. The regular fare on these short rides is usually $3.60 or $4.20, and it is often a nuisance to have to hold such a small reservation at the expense of other callers, yet I don’t want to say No, you can’t have a cab at that time, please call when you are ready.
I have recently started to experiment with the policy of a minimum $6.00 fare for reservations. That is, I don’t turn down smaller reservations, but I do bump them up to $6.00. No one has questioned it yet, but I am wrestling with whether or not this is the right thing to do for my business.
What is your experience on this subject? Am I thinking about this the right way?
upstate New York, USA
Byron, you are doing THE RIGHT THING
Your responsibility as a business owner is to increase profit. That’s what business is about.
It’s not about giving rides or charging whatever someone thinks is appropriate. It is about profit, that’s why it’s called a business.
If someone reading this wants to give free rides or charge a minimum amount – be my guest, just don’t call it a taxi business. I have nothing against charities, helping those in need, etc. What I am against is mixing priorities/agendas. Business is about profit. If you don’t want to focus on profit, don’t call it a business.
How do we increase profits? We increase profits by identifying and servicing the needs and charging for it. That’s what you’ve done by identifying the customers who want to pre-arrange short rides.
A lot of guys get into our business because they suddenly decide that it’s a nice business to be in. That’s a wrong approach to taxi business. The right reason to get into business is to serve a need that’s not being served or serve it better than it’s being currently served in the marketplace.
You’ve identified a need. We are in business, so we need to make money. From profit perspective it doesn’t make sense to pre-arrange fares at regular price, so you’ve raised the price. That’s the right thing to do.
A lot of taxi business owners have a ton of hang ups when it comes to pricing. They think that low pricing is the only way to complete. They think that all customers choose taxis bases on price. They think this way because they don’t know better.
Research shows that only for 10% of people price is #1 criterion when it comes to purchasing goods and services (including taxis). Why do so many people turn into cheapskates when it comes to taxis? Because the taxi business owner is clueless when it comes to marketing. He doesn’t know how to promote and advertise the taxi service correctly. All he knows is lowering the price. He fails to communicate how his taxi company is different for the competition. I talk in detail about this in my articles Taxi Business Tips: Know Who Your Customers Are and How To Make A Taxi Business Profitable
If shirt A is the same as shirt B, I’d be an idiot to pay more for the shirt B, right? If A and B are the same, it doesn’t matter to me whether I buy A or B. The only criterion I’ll be basing my decision on is price. However, if shirt A is made of cotton and shirt B is made of silk, if shirt A has single stitching and shirt B has double-stitching, then price is no longer the only criterion.
There are hundreds of way to differentiate a taxi service from competition. Finding the right way is one of many things I help my clients with. You can have better cars, your drivers and dispatchers can be specially trained, you can offer some kind of guarantee, have amenities in cars, promise to arrive on time/be honest about arrival time, etc, etc, etc.
Once you start doing these things and communicating them to your customers, price stops being #1 criterion to choose a taxi.
There’s one drawback, though. Once you start raising prices, there usually are a lot of people unhappy about it. It may not be your customers. It may be your competitors, friends, family, etc. You need to understand that it’s all in their heads.
You can’t satisfy everybody. If Bill Gates were to give all his money to homeless people, there’d be a bunch of folks really unhappy about it: animal activists, gay rights people, those who think that all the money should go to Africa, etc. Same here. Whatever you do, there will be someone telling you should have done something else. Therefore, the only thing you can do is act according to your goals and do whatever you believe is right.
And the last thing I am going to say on the subject: it’s bad that no customers are complaining about the price. You know you’ve got it right when around 20% of customers are complaining. The fact that no one is complaining means that you can make it even higher than $6. Probably $7 or $8. Or you could create a membership program and make pre-arranging short rides only available and free to program participants and charge, say $20/month per household to participate in the program. This would do 2 things:
1. It will make your taxi business predictable. On the first on the month you’ll have cash coming in even before you do any rides.
2. It will lock the customers with you. No program member will ever call your competition. Having paid the membership fee they would feel compelled to use only your taxi service.
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