Operating a Pedicab Business - How Much to Charge
People often ask how much they should charge when operating a pedicab. The obvious answer is enough to cover your costs and make a reasonable profit, just as you would in any business.
Calculating your Expenses
A pedicab business has basically four expenses: labor, pedicab depreciation expense, pedicab maintenance and repairs costs, and insurance. (If you take your cab to events out of town, you might have other per-diem expenses as well, like travel expenses, food, and lodging.) The labor expense is the amount you need to earn per hour to maintain your standard of living. The depreciation expense, in essence, reimburses you for what you paid for your cab. It is the amount of money you paid for the cab, less the amount you expect to sell it for, allocated over the time you use the cab. For example, suppose you paid $3500 (including freight costs) for a pedicab and plan to use it 3 years then sell it for $2000. The annual, "straight-line" depreciation expense would then be ($3500 - $2000)/ 3 = $500 per year. M&R costs are your expenses to keep your cab in good working condition plus any other miscellaneous business expenses like rent, licenses, etc. Insurance is what you pay in liability insurance per year.
Figuring your Hourly Prices
To calculate how much you need to earn on an hourly basis, you need to convert the latter three costs from an annual basis to an hourly basis then add on your labor costs. Let's say, for instance, the total of your depreciation, insurance, and maintenance and repairs costs are $1200 per year. Let's also postulate that the working season in your area is 20 weeks long, and that you plan to work every Friday and Saturday night each week for 5 hours each night. The total number of hours you're planning to work for the year would be 20 weeks x 2 nights/week x 5 hrs/ night = 200 hours. If your total fixed costs are $1200/year, that means you need to earn $1200 / 200 hrs = $6/hour just to cover your fixed costs. If you need to earn an additional $10/hour to maintain your lifestyle, then you should charge $6 + $10 = $16 per hour.
What about Profit?
None of the above calculations include an amount for profit. If you plan to stay in business long-term, you need to earn a little profit to cover any unforseen expenses as well as to grow or expand. Plus, in the above example, you've invested $3500 upfront to start your business. If you hadn't started a pedicab business, you could have invested that money elsewhere and earned interest on your investment.
A reasonable level of profit might be, say, 20% on your initial investment. (You would have earned far less that that if you had just left the money in the bank, but your investment would also have been far less at risk.) If you paid $3500 to start your business, an annual 20% return would be $3500 x 20% = $700. Allocated over 200 hours, this would be an additional $700 / 200 hrs = $3.50/hour, bringing the total amount you need to earn to $16/hr + $3.50/hr = $19.50 per hour.
Working for Tips
When I'm out trolling for passengers in my pedicab, I don't have any fixed rates. Instead, I work only for tips, and let the customer set the rates. I do this because I've found people vary greatly in how much they're willing to pay for a ride. If I set my rate too low, then the people who tip liberally wouldn't pay as much as they'd do otherwise. If I set it too high, then I'd carry fewer passengers and my cab would be empty more often. This has an adverse effect on ridership, as I've found that the more people see other happy individuals riding in my cab, the more eager they are to give it a try. In short, working for tips is my way of maximizing revenue while at the same time being the most "fair" to the passenger, as they pay only what they think is reasonable.
Another reason some pedicab operators work for tips only is that local laws forbid them to operate a for-hire cab business (which, I should mention, is not the case where I work). The logic is, a community can't forbid someone from giving people "free" rides, and if a customer chooses to tip their chauffeur afterwards, there is no law forbidding that, either.
I should point out that not all pedicab operators work only for tips. Some set a "floor" rate, and expect some passengers to supplement that amount with a tip. I do this, to, when my cab has been chartered for an event. I charge a fixed hourly rate that varies based on how much I think I might earn in tips from my passengers.
If you choose to work for tips, I suggest telling your customers to tip you after and not before their ride so they can pay you what they thought it was worth. Customers appreciate this approach, and often enjoy the ride so much they end up tipping you more than they originally planned.
When you work for tips, you will find the amount you are paid each trip varies enormously. I've earned anywhere from 25 cents to $20 for what were basically the same trip. Don't let that concern you; only focus on what you average per hour at the end of the day and whether that amount covers your expenses and meets your profit goals. If not, you need to consider trying something else.
