This story came through yesterday. I nearly missed it, because it isn’t obviously related to driving or driving instruction – until you think about what it is saying.
It says that retail figures released by the Office for National Statistics confirm that discounting is the only factor driving sales at the moment, and consumers are reluctant to spend. It warns of another difficult year.
It doesn’t take a genius to work out that business overheads are covered by income from 
sales, with the difference being business profit. It’s fairly obvious that if income from sales falls then so does profit – and it’s even more obvious that if the profit is negative, you’re going to go out of business very quickly.
Well, I say it’s obvious… but it’s clearly not as obvious as it should be to many driving instructors out there.
Even in my neck of the woods, where the typical hourly rate is £23 or £24 an hour, the number of cars you see with stupid prices plastered all over them is unbelievable. The British Retail Consortium in that link is certainly not wrong.
How do these instructors think they are ever going to be able to charge a sensible price again without losing work? After all, all these special offers are designed to fill empty diaries “until it picks up”. It’s debatable whether they actually do that in any case, but the more work you get the greater your overheads (fuel) become, and if you charge stupid prices you quickly run into trouble with your profits. Let’s look at an example.
Imagine an instructor charging £22 an hour, but with very little work – say, 10 hours a week. His car costs him £100, and the fuel for those 10 hours about £70. His income is £220, and his expenditure £170. His profit (wages) is therefore £50.
If that same instructor does a silly offer of “10 lessons for £99” and drops his price to £16 (like one I’ve seen recently), then if his diary suddenly rockets to 40 hours a week (which is highly unlikely) his profit will be somewhere in the region of £250.
If his diary only goes up to 20 hours – which is MUCH more likely – his profit will be in the region of £30. So by cutting his prices he is doing twice as much work for 40% less profit!
Even at 30 hours of work – the most many instructors can expect even under the best circumstances – his profit will only rise to around £160 for a tripling of the workload to a level where most people would simply conk out with exhaustion – particularly if they are new ADIs!
Of course, with such low profits you’ll inevitably want to cut your costs, and the one that drives profit most of all is the cost of fuel – which has already risen by 40% in the last three years, with the possibility of another 15% this year. So your attempts to not drive much on lessons will have pupils queuing up for the exit.
The price-cutters simply can’t see the damage they’re doing to themselves and others.
To make matters worse, they do it in the firm belief that when things pick up they can charge a sensible hourly rate again. But if you snagged your pupils with stupid prices, how are you ever going to expect to keep them if you hike prices by 40% again? It isn’t going to happen.
Price-cutting is simply business suicide.