Posted 2011-08-25 14:51 under parking, business models, interactive, visualization
Last week, I received an GBP 60 parking violation ticket while parking at a museum, even though I paid for parking in advance and displayed my ticket on the dashboard as instructed. The charge is still being disputed, but the private parking company (PPC) involved has a good incentive to deny my appeal, however logical. That's because penalties can be hugely profitable for this unregulated industry. Let's look at the numbers.
Below is an interactive "dashboard" of the possible economics for one parking lot run by a PPC. The numbers are for example only, and are not based on real data yet. The idea of the dashboard is that you can play around with the assumptions by moving the sliders, and see the impact of your changes on the economics. Please add comments below if you'd like to discuss the assumptions.
NOTE: THIS DASHBOARD WORKS BEST IN A MODERN BROWSER THAT SUPPORTS STANDARDS, SUCH AS FIREFOX, SAFARI, CHROME AND OPERA. IT MOSTLY WORKS IN INTERNET EXPLORER, BUT WILL BE SLUGGISH.
Hours per day:
Days per year:
Number of StaysAverage stay (hours):
Parking Revenue DriversPrice per hour:
Percent kept by PPC:
Penalty ParametersPercent receiving:
Percent who pay:
Percent kept by PPC:
Cost DriversLegal cost per penalty:
Staff, per lot:
Annual pay per employee:
Overhead, per lot:
The basic assumptions are as follows, and apply to a single parking lot for a whole year:
- Capacity can be measured in terms of slots, i.e., the number of (say) 2-hour slots available over the whole year. This depends on the size of the parking lot, but also the number of hours per day it operates, the number of hours for the average stay, and the number of days per year the lot is open. In the base case above, we assume 1000 places, average 2 hours per stay, and open 8 hours per day, 250 days per year.
- Places sold is the number of slots actually sold, and depends on utilization (e.g., 50% means half of the slots are sold on average) * Parking revenue is the number of places sold times the hourly price, times the average hours per stay; this is the first green bar in the graph
- Penalty revenue is where it gets interesting: we assume that about 2% of stays are deemed infringing (overstay, ticket now showing, etc.), and that each is charged about GBP 60, and that 90% pay. This gives the second green bar on the graph. The 2% is plausible, I think, since it assumes about 2% X 1000 X 8 / 2 = 80 tickets per day in our hypothetical parking lot, or about 10 per hour.
- Annual fee the annual amount paid by the museum, council, or other PPC customer each year; this probably does not apply to each contract, and I have assumed 100k for simplicity (third green bar in the graph)
- Costs are driven by parking lot staff (we assume 4 at 20k each per year), legal costs (we assume an average of 10 per ticket), and share of overhead (we assume 200k); these are the three red bars on the graph
- Profit is the sum of the three green bars, minus the sum of the three red bars (shown in blue on graph)
What is striking on the graph is the size of the penalty revenue -- under these assumptions, it is a third of total revenue, even assuming only 2% of visitors are given a ticket.
Some of these ticket recipients will appeal, but anecdotal evidence on internet forums (perhaps one-sided) suggests that PPCc rarely back down, even when presented evidence such as copies of tickets, resorting to legal intimidation and repeated, increasing claims.
If 10% of recipients feel the ticket is unjust and appeal, and 50% of the disputed charges are subsequently withdrawn, that's equivalent to watering-down the percent infringing by 5%, or 19,000 per day in lost revenue, or over 4 million per year.
Penalties charges are virtually pure profit, and probably account for most if not all of the profits for the PPCs. They may well be a core component of the business model for these companies.