The success of a car subscription business depends on several factors, including the quality of the cars, the pricing strategy, and the customer service experience. However, one often overlooked factor that can have a significant impact on the profitability of a car subscription business is the utilization rate of its car fleet.
Utilization rate measures the percentage of time that a car is being used by subscribers. A high utilization rate means that the cars in your fleet are in high demand and are generating revenue for the business. On the other hand, a low utilization rate means that there are too many cars in the fleet that are not being used, which can lead to increased carrying costs and reduced profitability.
In this article, we will explore the importance of utilization rate for a car subscription business and provide tips on how to improve it. We will also discuss how to measure utilization rate, how to optimize your car inventory to increase utilization, and how to use utilization rate to make data-driven decisions that can drive the growth of your business.
What Is The Optimal Utilisation Rate?
The sweet spot for vehicle utilization in a car subscription business can vary depending on several factors such as the size of the fleet, the type of cars, and the demand for the service. However, in general, a utilization rate of around 70% to 80% is considered to be optimal for most car subscription businesses.
High Utilisation Rate
A utilization rate that is too high (above 90%) can indicate that there is a high demand for your cars, which may seem like a good thing at first. However, it can also mean that you don't have enough cars to meet the demand, or that your pricing is too low, which can result in longer wait times for customers and increased wear and tear on the cars in your fleet. This can lead to increased maintenance costs and reduced customer satisfaction, which can ultimately hurt your business.
Low Utilisation Rate
On the other hand, a utilization rate that is too low (below 50%) can indicate that there is not enough demand for your cars. This can be a sign that you have too many cars in your fleet, which can result in increased carrying costs and reduced profitability. It can also indicate that your marketing and sales efforts are not effective at attracting new customers, or that your pricing strategy needs to be adjusted to be more competitive.
Improving Fleet Utilisation Rates
Measuring Utilization Rate
To measure utilization rate, you need to track the amount of time each car in your fleet is being used by subscribers. This can be done using GPS tracking software, booking systems, or other fleet management tools. Once you have this data, you can calculate the utilization rate by dividing the total time that cars are being used by the total time that they are available for use.
Here is an example formula for calculating utilization rate in a car subscription business:
For example, if you have a fleet of 50 cars and each car is available for use for 30 days per month, the total days cars are available for use would be 50 cars x 30 days = 1,500 days. If the cars in your fleet are being used for a total of 1,200 days per month, the utilization rate would be:
Utilization Rate = (1,200 days / 1,500 days) x 100% = 80%
This means that your car fleet is being used 80% of the time it is available for use, which is within the optimal range for most car subscription businesses.
Optimizing Car Inventory to Increase Utilization
To increase utilization rate, you need to optimize your car inventory to meet the demand of your customers. This can be done by analyzing your utilization data to identify which cars are in high demand and which ones are not. You can then adjust your inventory to include more of the popular cars and fewer of the less popular ones. Additionally, you can adjust your pricing strategy to incentivize customers to use the cars that are in lower demand, which can help balance out your inventory and increase utilization.
Using Utilization Rate to Make Data-Driven Decisions
Utilization rate can also be used to make data-driven decisions that can drive the growth of your business. For example, if you notice that a particular car model is in high demand and has a consistently high utilization rate, you may decide to purchase more of that model to meet the demand. On the other hand, if you notice that a particular car model has a consistently low utilization rate, you may decide to phase it out of your inventory to reduce carrying costs.
Utilization rate can also be used to evaluate the effectiveness of your marketing and sales efforts. If your utilization rate is consistently low, it may indicate that you need to improve your marketing and sales strategy to attract more customers. By analyzing your utilization data, you can identify patterns and trends that can help you make informed decisions about the future of your business.