## Thursday, February 25, 2010

### Patching Potholes, Part 2: Plan

Yesterday we discussed patching problematic potholes. I did some research and I have a plan to propose today. A business plan. That means we need some math. Just elementary school math, nothing complicated.

My plan involves a JetPatcher machine - a faster way to patch potholes. Go on and take a look at their site; I'll wait here, checking out this used truck I found.

Maybe I could buy one and rent myself out to the city and make a ton of money... Shall we do a preliminary business plan here?

My used JetPatcher will cost \$70,000 dollars compared to \$200,000 for a new one. Let's say I keep it one year and sell it for \$50,000 at the end. My equipment cost is \$20,000.

I'm going to estimate (guess) at the other expenses.

FIXED EXPENSES
We assume \$20,000 for the machine.
We estimate \$50 per day in fuel, insurance, repairs, etc. times 250 working days (5 x 50 weeks)
(We might also have to work a few weekends if there are too many rainy days.)

Fixed Expense Total = \$20,000 + (\$50 x 250) = \$32,500

VARIABLE EXPENSES
We estimate \$5.00 per patch in materials (sand, asphalt and oil).
We estimate 20 minutes per repair including driving from one to another = 3 potholes per hour
We estimate paying \$15 per hour per person for 2 people = \$30/hr or \$10 pph [per pot hole]

Variable Expense Total = \$5.00 materials + \$10.00 labor = \$15.00 pph

WORK TARGET
(5 days x 50 weeks) x (3 per hour x 8 hrs/day) = (250 x 24) = 6000 potholes per year maximum

ESTIMATED INCOME
What if I could charge the city \$20.00 per pothole?  If I could do this, we have:

STEP 1. \$20.00 - \$15.00 = \$5.00 pph that I can put towards my fixed expenses.

(REALITY CHECK \$32,500 ÷ \$5 = 6500 potholes to break even = 26 per day to break even.)

STEP 2. \$20.00 per pothole x 6000 repairs = \$120,000 income - \$32,500 fixed expense = \$87,500

STEP 3. (\$87,500 - (6000 x \$15.00)) = (\$87,500 - \$90,000) = \$-2,500. That's a small loss.

We're not going to make any money at this \$20.00 price  :-(

What if I could sell the city on a \$25 per pothole price? We'd work fast and make the streets look good. If I could get this price, now we have:

STEP 1.  \$25.00 -\$15.00 = \$10.00 pph towards the fixed expenses.

(REALITY CHECK \$32,500 ÷ \$10.00 = 3250 potholes to break even = only 13 per day to break even.)

STEP 2. \$25 per pothole x 6000 repairs = \$150,000 income - \$32,500 fixed expense = \$117,500

STEP 3. (\$117,500 - (6000 x 15.00)) = (\$117,500 - \$90,000) = +\$27,500 That's a profit.

We're making a good profit at this \$25.00 price  :-) so now we will have to pay a few taxes  :-(

PS - A newspaper article said Tijuana's pothole patching pace is 200 per day! Maybe I could hire THEM to fix our potholes! Or is something wrong with our math? Or are their potholes smaller, closer together and easier to fix?