Achieving Profitability in Shared Mobility: Insights and Solutions
The landscape of shared mobility is dynamic, with operators facing both opportunities and challenges as they navigate towards profitability. Competitors like Bird, once valued at nearly USD 3 billion, have encountered financial turbulence, signaling the importance of sound business strategies in this evolving sector. In this detailed guide, we explore the factors influencing profitability and offer practical solutions to maximize revenue and efficiency.
Understanding Market Dynamics
Successful shared mobility operations hinge on understanding local markets. Factors such as population density, traffic patterns, competition, and regulations significantly impact demand and revenue potential. Through data analysis and market insights, goUrban helps operators identify growth opportunities and make informed decisions.
Maximizing Revenue per Vehicle
Vehicle utilization directly impacts profitability. By strategically placing vehicles in high-demand areas and optimizing fleet management, operators can increase usage rates and improve customer experiences. goUrban’s Service Area Optimization system assists in identifying prime locations, enhancing operational efficiency. Whilst not the sole factor in determining high quality revenue, we still see significant correlation between vehicle utilization (e.g. defined as rides per deployed vehicle per day) and gross margins.
Implementing Dynamic Pricing Strategies
Dynamic pricing is key to balancing supply and demand in shared mobility. By adjusting prices based on real-time data, operators can optimize revenue streams while remaining competitive. goUrban offers dynamic pricing solutions, leveraging algorithms to ensure optimal pricing decisions and customer satisfaction. This is not to that dynamic pricing is a panacea without underlying side effects and operators should tread carefully when implementing such schemes as customer feedback may be negative if (perceived) price spreads cross a certain level.
Optimizing Unit Costs
Managing unit costs is critical for sustainable profitability. From vehicle procurement to maintenance and insurance, controlling expenses is essential. goUrban provides solutions to streamline operations and reduce costs, enabling operators to maximize profitability.
Managing Operating Expenses
It is key for operators to be cognizant that other operating expenses have to be fully financed with existing gross profit in the long run. This a lesson that may have been forgotten in the boom years when the venture capital fundraising market was much different and growth was prioritized over profitability or unit economics. Large costs with no clear path that they result in a defensive “moat” and above-average net returns on invested capital are to be avoid. A prime example of an oversized cost base for a relatively low-margin business was Bird. We have looked at their public filings since their SPAC in 2021 and summarized their FY 2022 financials in the chart below. Clearly, it is key to retain costs when overall margins can be low, at least once adjusted to seasonality effects. Spending almost 100% of revenue on G&A seems implausible unless stellar growth and software-like gross margins justify such a cost base, both of which was not the case at Bird.
Note: Shown financhials already adjusted for e.g. impairments / other items of non-recurring nature.
Unlocking Profitability
Whilst the challenges of shared mobility operators will to a large degree be idiosyncratic and there is no single panacea, clear conclusions can be drawn from the example of Bird: Unit economics have to be attractive — and ideally with an upwards trajectory through the cycle — which requires multiple tweaks with regards to pricing, customer retention and overall operations. Outsized overhead expenses stemming from inter alia software development costs can be justified at a certain scale and provided incrementally larger gross margins can be achieved from such an inflated cost base. But in a market backdrop where capital allocators are exponentially more focused on (a credible pathway towards) profitability, it appears increasingly more challenging to justify such an approach, and as the example of previously high-flying sclale-ups like Bird have shown, the ultimate costs of pushing out the point of break-even may not only be expensive (and dilutive) financing rounds with ever more punitive liquidation preferences on newly raised capital but also the complete shutdown of operations. Having said that, there is multiple examples of privately held companies that operate profitable operations and whose detailed financials are not in the public domain. The rise and fall of Bird, however, should serve as a cautionary tale with many valuable lessons to be learned.
