A Fleet Contract at a Price That Looks Too Good
You run a two-bay independent workshop in a district town in Rajasthan, open 8 hours a day, 26 days a month. Fixed monthly costs are: rent 35,000 rupees, two technicians at 22,000 each, electricity and utilities 12,000, tool and equipment loan 8,000, insurance and permits 5,000, and other overheads 6,000. You bill labour at 450 rupees per hour, and the bays are occupied about 55 % of available hours. A fleet operator with 12 similar vans offers a standing contract: clutch replacement on each van at 9,500 rupees all-inclusive, one van per week, with 30 days' credit and free pick-up and drop. Your clutch kit (pressure plate, disc, release bearing) costs 4,200 rupees and takes about 1.5 hours to order and chase. The job books 5.0 hours, plus 0.5 hour to check the dual-mass flywheel. Similar retail jobs are quoted at 13,500 rupees. The fleet operator expects the 9,500 rupees to be the final figure, with nothing added.
1. Calculate your monthly fixed costs, your billable hours at current utilisation, and the labour rate you actually need to break even. What does this say about the 450 rupee rate?
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Fixed costs per month: 35,000 + (2 × 22,000) + 12,000 + 8,000 + 5,000 + 6,000 = 1,10,000 rupees.
Available bay hours: 2 bays × 8 h × 26 days = 416 h. At 55 % utilisation: 416 × 0.55 = 228.8 billable hours.
Break-even labour rate: 1,10,000 ÷ 228.8 = about 481 rupees per hour.
At 450 rupees you bill 228.8 × 450 = 1,02,960 rupees - a shortfall of 7,040 rupees a month before you pay yourself anything, before parts wastage and before any comeback warranty work.
So the headline rate is below break-even at current utilisation. The business may still be profitable because parts markup hides it, which is exactly why the shortfall is dangerous: you cannot see the real problem until a slow month arrives. The levers are: raise the labour rate, raise utilisation, cut a fixed cost, or add fast, high-margin services. Quoting every job by habit at 450 rupees ignores all four.
2. Evaluate the fleet offer: compute contribution per van and per month, and decide whether to accept, decline or accept with conditions. Show your comparison with retail work.
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Per van, cash view: 9,500 − 4,200 parts = 5,300 rupees contribution. If the 9,500 is GST-inclusive, net revenue is 9,500 ÷ 1.18 ≈ 8,051, so contribution is about 3,851 (better if you can claim input credit on the parts). Get this settled in writing - it is a 1,000+ rupee swing per van.
Time per van: 5.0 h job + 0.5 h flywheel check + 1.5 h ordering/admin = 7.0 h. Contribution per hour: 5,300 ÷ 7 ≈ 757 rupees/h (about 550/h on the GST-inclusive, no-credit view).
Monthly: one van per week ≈ 4 vans = 28 h and about 21,200 rupees contribution (about 15,400 GST-inclusive).
Retail comparison: 13,500 − 4,200 = 9,300 contribution over 5.5 h ≈ 1,690 rupees/h.
Decision: accept with conditions. The key fact is idle capacity - 45 % of 416 h is about 187 unused hours a month, and 28 h will not displace retail work. The fleet work earns above the 481 rupee break-even rate and uses hours that earn nothing. But: cap it at one van per week, confirm the GST treatment in writing, and build in a review clause. If utilisation climbs past about 75 %, that 28 h would displace retail work at roughly 1,690 rupees/h and the contract then becomes a loss. Also remember 30 days' credit ties up about 38,000 rupees of receivables plus 16,800 of parts outlay each month - you are financing the fleet operator.
3. The operator refuses to move on price. What non-price terms would you negotiate, and what risks are you managing with each?
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Payment terms. 30 days on a new customer is a credit risk and a cash-flow problem. Counter with 15 days, or 30 days against a post-dated cheque or a small security deposit, and a 2 % early-payment discount. Risk managed: one unpaid month of 38,000 rupees is a third of your fixed costs.
Pick-up and drop. Free collection of a vehicle with a failed clutch needs a driver, fuel, time and insurance cover. Limit it to a radius, say 8 km, and charge beyond that. Risk: a hidden cost that silently eats the 5,300 rupee contribution.
Extra work authorisation. Insist on a written rule: if the flywheel is worn or the hydraulics are leaking, no extra work is done until the fleet office authorises it in writing (message or email is fine). Risk: doing unpaid extra work to keep the contract, or an argument about the invoice.
Price review and volume. A six-month review clause indexed to parts prices, and a stated volume cap. Risk: being locked into a fixed price when the clutch kit cost rises.
Retail protection. Keep at least one bay always available for retail bookings and keep retail turnaround priority. Risk: fleet vans queueing ahead of customers who pay three times the margin, and reputation damage in a small town.
Paper trail. A job card per van with photographs of the worn clutch and the flywheel reading. Risk: warranty disputes and disputes about the condition of the vehicle on collection.