Many operators say that regularly diversifying into new markets is a sure-fire way to ensure continued success in a difficult and competitive business. However, it’s a big move that’s not without risk. We talked to some operators to find out how they were able to successfully expand into other promising markets and boost their bottom lines and got some tips.
1. Cross-utilize resources
In the 1990s, New Britain, Conn.-based DATTCO added a bus sales component and is also in dealership bus sales and parts business, Don DeVivo, president, DATTCO, says.
DATTCO also took on paratransit business about 15 years ago, deciding to diversify into the new market primarily to meet an underserved need in the area. It was also a great way for the operation to spread some of its fixed cost, DeVivo says. One of the best advantages of diversification, he adds, is the ability to spread fixed cost and overhead over a larger revenue base. DeVivo recommends cross-utilizing staff such as dispatchers and phone personnel.
“For example, if I’m paying a dispatcher to dispatch 20 motorcoaches, if that dispatcher can also dispatch 20 paratransit vehicles, ideally the cost to my bus operation is cut in half for that dispatch because you’re paying for half what [you normally] would for those 20 paratransit dispatches,” he says.
It may not be a cost savings since the operator is still paying the same amount to that dispatcher, but the cost is spread over more vehicles. DATTCO is also able to use its vehicles for corporate and parking lot shuttles.
Expanding into paratransit required different training for drivers on ADA and clientele who have special needs, and using different equipment.
2. Know your costs
The most important thing when considering diversifying into a different market, DeVivo says, is to know your costs.
“The best tool you have is your accountant or controller, who can break your costs down and [help] determine the true costs of operations,” he says.
If you know your costs then you’re able to figure out whether diversification can help you by contributing to both your overhead and your bottom line, he adds. “The good part about diversification is it spreads your fixed costs. The bad part is that it puts a strain on your infrastructure, because you’ve got more training and distraction.”
DeVivo advises operators to ensure that their core operation isn’t suffering in the process. “People tend to focus on the new thing,” he warns. “If your staff is focused on the new thing and your service level slips, then you have a problem.”
Jack Wigley, president of Mesa, Ariz.-based All Aboard America! agrees. He emphasizes the importance of operators closely examining every RFP to determine the requirements in providing the service, and ensuring they’re capable of doing everything that’s required. Then, he says, the next step is to create a budget that includes the actual costs to provide that service.
“You can’t just take your charter rate for some piece of service and hours or miles or days and say, ‘That’s my price,’” Wigley says.
For example, All Aboard runs vehicles for construction projects, carrying construction workers from a remote parking lot to the job site. Wigley says All Aboard had to factor in finding and leasing transit buses, how much that would cost, and put that into the budget.
“You have to be willing to do your homework,” he adds. “Sit down and look at the scope of the project, what kinds of vehicles are you going to acquire, how much will you have to pay drivers, do [you] need to expand facilities, get new facilities, what is the cost of the staff that’s going to be required to operate?”
In addition to the service cost, select a realistic margin as well.
“There [have] been bids we’ve submitted [for] and lost, some by 20 or more percent. And if we’re beat by 20 percent, there’s not a 20 percent margin in it,” Wigley says. “In the end, I know that that’s not going to be a great deal. Sometimes people aren’t truly looking at the scope of that specific contract, properly dealing with the budget and what it’s going to cost to operate it. Nobody wants a contract you’re going to lose money on. Make sure you create a budget that’s going to ensure that it’s a profitable venture.”
3. Partner for success
Forming a crucial partnership is really important for an operator considering diversification, especially if it’s in an area that the operator doesn’t already service or have expertise in. All Aboard America did just that when it recently got involved in school transportation for the first time, partnering with Student Transportation Services, which Wigley knew of through owner Jeff Polzien, president, Red Carpet Charters.
“You get a bid opportunity but you have no previous experience in that specific [market],” Wigley says. “I wanted to make sure we had the expertise to do it correctly and [a] reference [for] the RFP. When this opportunity came up I knew that [Polzien’s] staff would have the expertise and the references to get that done.”
When a job goes out to RFP, the company wants to know the operator they’re eventually going to contract with is competent and capable of providing the service, Wigley adds.