Globonomics!

Consulting|Technology|International business

Taxi’s in Bangalore / economics

with 2 comments

I commute by CitiTaxi sometimes and get into a chat with the drivers to understand their business economics.

It works this way.

A Citi Taxi service such as Spot Citi Taxi would typically work on the following business model:

1. They hire a fleet of taxi’s to get that critical mass (currently they are running at about 200-300 taxi’s).

2. They then charge those drivers/owners of those taxi’s a round figure of Rs. 3000 per month or so as service charges.

3. The catch here is that these drivers get to pocket the money that they earn from trips but lets say they are going through a lean day and incur measly earnings of say Rs. 50 per day for 30 days (=Rs. 1500) then they still end up with a negative cashflow of (1500) because they still have to pay that operator Rs. 3000 as per the contract.

4. The operator per se does not do anything to increase the driver’s income etc. I am told by the drivers that everything from the Motorola wireless handset to the trip meter and the vehicle plus fuel charges need to be incurred by them only and the operator does not foot any of those bills (say in case of accidents etc.) In other words, the risk is the driver’s while the reward is for the operator! How cool can that get?

5. The operator’s monthly cashflow shows a very positive picture. They earn almost Rs. 3000 * 200 = Rs. 600000 by just playing the role of a middleman and probably employing about 30 operators and the phone call charges.

6. The basis on which the charges are calculated (usually it is Rs. 12 to a km) is based on the distance and the waiting time when the vehicle is stationary.

Cool!

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Written by Naveen Athresh

October 4, 2007 at 8:57 pm

2 Responses

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  1. I do talk to cab/taxi drivers as well to understand their business model. Seems profitable and at times you are tempted to starting such a business :).

    Mohasin

    October 12, 2007 at 12:48 am

  2. The cost of 300 taxis would be Rs. 12 Crores @ Rs. 4 lakhs per taxi. Rs. 12 Crores if deposited in a bank @ 8% interest fetches you Rs. 96 lakhs per annum. You are earning Rs. 72 lakhs on the taxis minus the phone bills minus depreciation. You call it a cool business model!! You will end up with nothing in five years !!!

    H.l Ramesh

    September 28, 2010 at 3:05 pm


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