The Importance Of Price

The first snowstorm we had in New York in 2009 was couple days before Christmas. And when I say “snowstorm” – I mean it! We had 16 inches of snow! As any other sane person, I didn’t want to drive my rear-wheel drive Lincoln in it. Also, as pretty much everybody else, I had things to take care of and, also as pretty much everybody else, I called for a taxi. Do you think they were busy – you bet! Do you think they were smart about it – you bet they weren’t!

In my article How To Make A Taxi Business Profitable I mention that most taxi service owners see their businesses as “just another taxi company.” Also, most taxi service owners in North America don’t really understand the significance of pricing. Price depends on two factors: supply and demand. That’s economics 101. There’s a reason why airplane tickets, hotels, you name it, cost more during the holiday season, more on weekends versus weekdays, etc. – because the demand is higher than at any other time during the year, and hence the price increase. The same idea can and should be applied in the taxi business. It is already being applied in some of the big cities across the country. For example, New York City. At the moment (the numbers may change in the future), there is a night surcharge of $.50 after 8:00 PM & before 6:00 AM. There also is a peak hour weekday surcharge of $1.00 Monday – Friday after 4:00 PM & before 8:00 PM. This strategy should be used by all taxi companies. What’s your busiest time? Peak hour surcharge. Busy on weekends? Weekend surcharge. Not busy from 1am to 4am on weekdays? Introduce a discount. Is there a snowstorm? Have an “extreme weather conditions” surcharge. I know, I know. You probably some kind of regulations about the taxi fare price in your area. Don’t use it as an excuse, though. Figure out a way to structure a variable pricing.

Such an approach has benefits all around: you’ll make more money, take better care of your drivers and repulse cheap-skate customers, whom you do not want to deal with in the first place, as cheap-skaters are never loyal customers. They are only loyal to the cheapest price and business built on the cheapest price can never be sustainable in the long run.

The rule of thumb here is very simple: if you have times when you can’t handle all the work (demand is higher than the supply) – raise the prices. Introduce a surcharge. When it’s slow (supply is higher than demand) – introduce a discount. Test it. You don’t want to jack up the prices so high that you lose all your customers and at the same time you don’t want to discount to the point where you are making no money and attracting only the cheapest crowd.

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