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Business Idea To Explore: Taxi Cab Business in the Philippines(6-min read)

Interested to be a taxi cab operator? I must admit I am eyeing that too. Some would say the taxi business is already saturated, but for a commuter like me who can’t easily find an available taxi during rush hour or Friday gimmick nights, then there’s still opportunity

Taxi by Ben Fredericson (xjrlokix), on Flickr


As follows are some building blocks as we try to build and understand the taxi business model. Gathered from reading forums on taxi operations, internet research and most especially, interviewing manong drivers.

Find A Franchise
To operate a taxi cab, or any public vehicle for that matter, one must have a franchise issued by LFTRB. In simple terms, this makes the vehicle public (yellow plate), for public and commercial use, and allows it to traverse a certain route, such as say Montalban to Cubao or Marikina to Ayala. If you don’t have a franchise but use it for public transport, then your vehicle is considered colorum. For taxi cabs, the franchise is more or less flexible, such as Within Metro Manila to Any point of Luzon. The franchise is good for a certain number of years, like 5 years, and according to drivers, costs around Php120k to Php150k. The bad news is, LTFRB is no longer releasing new franchises. Maybe it does not want to saturate the market.
So is this a barrier to entry? Slightly. The way to get a franchise then is to locate those who are willing to sell theirs, for various reasons. Like those migrating, no longer interested to operate a taxi cab or to renew, those suffering losses, etc. And there are franchise resellers to be found. Also, some drivers suggest inquiring in bigger taxi companies, those who have dozens and dozens of units because at times, these companies allow small players and star-ups to buy partial ownership of their taxi units and their franchises. Once you have a franchise, this will be transferred to your name. So what will you name your taxi cabs?
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Find a Vehicle
Again there are many ways to do this, either brand new or second-hand. There are lots of taxi cabs for sale in the internet. Car companies also offer basic car models fit for use as taxi cab. Note though that not all car brands allow their models to be used as taxis. One quick example is Honda. Lots of banks offer taxi cab financing or auto loans, but usually for a minimum number of units and for a partial down payment. Similarly, car companies offer financing and leasing services. Your major considerations should include how old the vehicle is, how it looks like and how’s the performance. Older models (no offense meant) may tend to be less fuel efficient, more prone to breakdowns and accidents (hence repair costs) and attracts less passengers as it may come across as unsafe, unreliable, uncomfortable and mahina ang aircon. Watch out too for regulatory policies, I think there is an upcoming rule wherein public vehicles will have a mandatory maximum age, after which it has to be replaced already. In choosing a vehicle, you might want to bring an automotive technician with you for expert assessment.
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Find A Driver
A good, reliable, trustworthy driver that is. Or drivers. This can be the make or break of a taxi cab business, according to cab drivers themselves. If you have good working relationship with your driver, then you can expect him/her to be honest and transparent with you. Likewise, this should translate to good customer service which is crucial. Remember, customers would tend to remember the taxi name and plate number in case of bad experience (more than the driver), which affects your reputation as the registered taxi operator.
Usual daily boundary (or quota) ranges from Php1,000 to Php1,500 net per day, for drivers who use the taxi for 24 hours. If you have a second driver, then they can alternate. The second driver can use the taxi the next day while the first one takes a rest day. Or they can do 12-hour shifts per day. At Php1,500 quota, that’s roughly 15 trips at average of Php100 per trip (some smaller, some bigger especially given the traffic). The rest is his/her take home pay. For those who only have one driver, make sure s/he gets enough rest and does not drive the whole 24 hours. This is risky not just for the driver, but for the business.
The driver shoulders the fuel costs, violation penalties, and what is left is his take home pay. Of the many drivers we have interviewed, they all said that they can easily reach the Php1,500 boundary. Some can even park on the roadside and get some sleep (i.e. 1am to 5am) if they are on graveyard shift and still have enough take home pay before returning the unit by 6am. The operator meanwhile usually shoulders car amortization payments, repair, tune-up and check-up costs, payments in case of accidents (that’s why you need a good driver), regulatory and registration costs.
Operators also have reward systems to encourage good performance from drivers. Some offer a sack of rice or groceries for example when quota was hit daily for the whole month. Or allow lower quota during weekends. In case of deficits, some operators allow make-ups, as long as the deficit gets compensated and paid say within the week. Otherwise, driver cannot use the taxi as long as deficit is unsettled. The trick is to make your drivers, your employees, happy, so they deliver good customer service. Everybody happy.
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Rough Profit Analysis

Assuming you got a second hand taxi unit worth Php400k, on bank auto loan for 3 years at 8%. 

Down payment is say 30% or Php120k. Amortization on the loaned amount (Php280k) is Php8.8k. 


Cost of new franchise, regulatory tests and registration requirements, paperwork, say Php180k. Provisions for repairs, insurance, driver rewards, say Php5k a month. 

 

Total initial investment is Php580k (Php120k cash out, Php280k auto loan and Php180k franchise costs etc). Quite big initial investment especially if you compare to food carts franchise.

 

While monthly expense is approximately Php13.8k (Php8.8k amortization and Php5k provisions).

 

At Php1.4k boundary, 22 workdays = Php30.8k

At Php1k boundary during 4 Saturdays (Sunday as rest day) = Php4k

Total revenue = Php34.8k

Adjusted Revenue = Php31.3k (assuming boundary is only reached 90% of the time, and you’re kind)

Total expense = Php13.8k
Total Net Income = PHP17.5k
ROI in ~33 months

In 33 good months, you have recovered your Php580k investment. Assuming good months.

 

More inputs? Let us know through the comments box below.

 

 

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Photo: Taxi” by Ben Fredericson (xjrlokix)
Creative Commons License

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192 thoughts on “Business Idea To Explore: Taxi Cab Business in the Philippines(6-min read)

  1. Are we going to buy one franchise for each cab or can we buy a franchise to be used for 2 or more cabs?is this possible?

  2. Thank you Anonymous for this information.

    This is the first time I'm hearing this but knowing our BIR of recent years, this is not unexpected.

  3. when you buy a franchise please be aware of the following

    THE Bureau of Internal Revenue (BIR) has issued Revenue Memorandum Circular No. 50-2012 prescribing the issuance of certificate of tax clearance to public transportation operators as a pre-requisite for acceptance by the Land Transportation Franchising and Regulatory Board of an application for approval of sale and transfer of a certificate of public convenience.

  4. The most tricky in taxi business is the paper related things. You've secured franchise, you've got brand new units, that doesn't end there. You still need to put the franchise in the car because the car you bought is considered as private and it requires some paper application in the LTFRB in order to convert it into a PUV. What does that mean? that means you apply and fall in line, that means you need to dance with the employee in LTFRB and we all know how the government employee works, right? that means delay, while your monthly in your brand new car is running.

    Here is my suggestion, go to LTFRB, make some inquiries, have some friends inside the office, even just the coffee boy there and you will eliminate some burdens in applying. Oh before i forgot, if you are really planning to go with the brand new car, make sure you will declare in the bank that it will be used for PUV but prepare for a very large downpayment.

    Don't lure yourself on the promos that requires small downpayment, some banks might even ask for as low as 10K and I am sure that those cars are intended for private use. Here is the trick, the LTFRB requires an authorization from the bank that finance your car before they will convert it into a PUV and the bank will never ever issue the authorization no matter what happen. This means that your taxi application and the issuance of your yellow plate number will put in hang unless of course you know someone inside the LTFRB-the power of friend and money under the table. Until then, hope this helps.

  5. Getting a brand new car has it's pros and cons. Of course brand new is more attractive to passengers and will carry less maintenance cost. If you completely trust your driver to take care of the car why not. I used 2nd hand in my example due to assumed budget constraints haha! And if you search the internet, lots of 2nd hand units for sale.

    I suggest you work on getting the franchise first before the unit. Since you've done preliminary costing anyway using brand new, then your assumptions will just go down should you opt for the 2nd hand. Getting the franchise I think is more tricky than securing a unit.

    As for the boundary, some do alternate, while some do 12-hour shifts. And yes I would think doing the 12 hour shifts would mean 500-750 per driver. Depends on the driver/s you get! Though I would think most will prefer to have the units for whole day and just alternate with fellow drivers.

    Goodluck and hope to hear updates from you!

  6. Thanks so much for this!

    I'm actually trying to get into the taxi business.

    I was thinking of getting a brand new car to use as taxi, though. That increases my monthly payments but it seems like the monthly revenue would still cover it. Still, I'd like to ask your opinion; is that a good idea? I'm just wondering since you chose a second hand model for the example.

    Also, about the boundary. since 1000 – 1500 is per day… that means if I have 2 drivers working in shifts, they each pay me 500-750?

    And would it be better to instead have them alternate in days?

    I'm just asking because most of the drivers I've talked to seem to be the sole driver. So I'm not sure if they can drive 12 hours and still get the daily boundary or if they drive 12+ hours and just bring it in for the car barn…

    Thanks!

  7. Hi anonymous. Caveat first, the P180k is just a best estimate. Actual price might be different. And based on our inquiries, that cost is for each car. Hope this helps. More investments for every Juan!

  8. @Anonymous, Caveat first, these are all just rough assumptions and projections. The PHP13.8k monthly expense is coming from PHP8.8K car loan amortization and PHP5k provisions for unforeseen expenses.

    This does not cover the initial cash outs you did upfront. These are just the recurring monthly expense once you have the unit. Nonetheless, the 33 months target positive ROI mentioned above already includes all monthly expenses and your initial cash outs.

    Hope this clarifies.

  9. A good driver is indeed crucial for a taxi business much like good employees in any business. Sadly with the incidents involving cab drivers “spraying chemicals” or “drugging” their passengers before robbing or even harassing them does not help in improving the taxi image. This not only affects the cab drivers but the cab operators and owners as well.

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