The cost of running scooter sharing operations
What are the costs of scooter sharing?
Scooter sharing is poised to take centre stage in the modern spectacle that is micromobility. Behind the curtain, imperfections lurk and need to be dealt with. Overcoming the operationally intensive demands that currently dominate the scooter sharing business model will not only pave the way to profitability but also help to democratise urban mobility.
Previous articles have looked at what scooter sharing is, and what its operations are. This article takes a look at the operational costs incurred when running a scooter sharing operation. To do so, we will explain what the different cost types are and how they add up.
We begin with the table below, which gives an indication of scooter sharing’s cost structure and how all the cost types differ. Be aware that we will not talk about cost types such as marketing or people administration.
Some of the most important cost types:
Hardware, IoT & Software
These products can either be developed in house or externally by a business partner. The former is a research and development cost, the latter is a recurring operational cost as you purchase the software.
Charging & Swapping
The labour cost of having an agent out on the road collecting and replacing batteries as well as the electricity cost of charging all the batteries.
Fleet Management
The labour cost associated with supervising a varying number of fleets in one or more cities.
Cleaning & Repairs
The labour cost for the mechanic and material cost for stocking spare parts.
Customer Support
The labour cost for having a team dedicated to assisting users. The working hours are likely to extend into the evenings, weekends, and public holidays.
Payment
Each customer payment carries processing fees, which will vary according to method, e.g. credit and debit, international, or local.
Insurance
A recurring cost per vehicle set by the insurer with conditions stipulating things like the frequency of garage services
With these brief descriptions, we can take an informed look at how the cost types add up by reviewing the results of our own research depicted in the pie chart below. These costs of course vary depending on country and operation and a lot of the choices that an operating company makes.
It is worth noting that in making the cost estimates above, we considered the hardware and software costs as operational costs, instead of estimating how much it would cost to develop these products in-house. But what exactly does this mean? Let’s investigate them one by one.
Vehicle acquisition costs are laid out in a leasing contract
A company keen on launching a scooter sharing system will not always necessarily have the amount of cash to pay for a fleet of vehicles upfront. Instead, they will opt for a leasing option. Consider the following example. Molly Mobility wants to start a scooter sharing operation and source their hardware products from Scott’s Scooters. In order to do so, she enters an agreement with Francesca the Financier, who has enough cash available upfront. In this leasing agreement, Francesca owns the vehicles and Molly pays Francesca for their use on a monthly basis.
Such a leasing agreement may look like the following: each vehicle is 3,500 EUR, the lease term is 3 years, the residual value of each vehicle is 350 EUR, and the interest rate is 7.7%. This results in a monthly payment of approximately 100 EUR per vehicle (you can play around with the numbers on this website).
It is this monthly payment that is considered as an operational cost of scooter sharing. When it comes to entering a leasing agreement like this one, the monthly payment can usually be lowered by increasing the order volume or negotiating a higher residual value of each vehicle. And of course, if the company in the position of Molly Mobility is in good financial health, someone like Francesca the Financier would lower the interest rate.
Only minimising costs is not a strategy
It should go without saying that working with the cheapest hardware is not the recommended course of action due to the limiting factor that a scooter’s durability has on revenues and cost. When it comes to searching the market for potential hardware providers, we advise working with manufacturers that are willing to invest in research and development to produce scooters with longer lifespans and a design that allows a fast and efficient replacement of spare parts.
A final note for hardware costs. One also has to estimate things like:
- How many batteries should be bought per vehicle?
- How many chargers will be needed per vehicle?
- Should each scooter come with one or two helmets?
These estimates may differ from fleet to fleet, city to city, and from season to season. This strong dependence on context means a case by case assessment needs to be done.
The software can also be paid for on a month by month basis
In the same way that a company will rarely have the cash to buy their vehicles upfront, an equally scarce situation is that a company will be able to develop all four separate software products that are unique to scooter sharing from scratch. These products are as follows:
- Telematics and Cloud Connectivity
- Fleet Operations
- Sharing Operations
- Mobile Application
(Note: a more detailed discussion of these products can be found in our article, What technology is needed for scooter sharing?)
Returning to Molly Mobility, this time the company is going to partner with Sophie’s Software to outsource the connectivity and fleet operations at 20 EUR/month per scooter and 15 EUR/month per scooter respectively, resulting in a cost of 35 EUR/month per scooter. To clarify, Molly Mobility is not paying for the development of the software — it is already developed. They are paying for a white label software solution on a subscription basis. Like before, it is this monthly payment that is considered as an operational cost of scooter sharing.
Don’t sacrifice usability for profitability
Molly Mobility could search the market and decide to partner with whoever offers the cheapest monthly cost for each individual product and could finally enter agreements with 4 different software companies. Although, as before, only minimising costs is not a strategy. If a main desideratum for hardware was durability, for software one is the ease of integration. As a result, it is preferable to have the various software products developed by the same team, or by a number of well compatible and trusted partners.
This is mutually beneficial for the operator and the customer. It lightens the operator’s workload, hastens their market entry and minimises any negative impact on the user experience arising from a poorly integrated software suite. Therefore choosing the cheapest solution at the beginning will most likely negatively affect a scooter sharing operation’s profitability in the long run — poor design and complex integration will create a product that is as hard to sell as sand in the desert.
So, what can we take away from this article? Our aim was to explain the generic cost structure of scooter sharing as well as diving into the most significant costs: hardware and software, and how managing these costs impact business strategy.
Given the intense focus that has recently been given to the issue of improving the unit economics of vehicle sharing services, we hope this article has demonstrated that just strictly cutting down on costs is not a sustainable business strategy.
As always, we’re happy to keep the discussion going through any critiques or additions you may have, so please do not hesitate to get in touch. We believe our insights should be like the future of mobility: shared!
This article is published by unu. Find out more about what we offer by visiting share.unumotors.com
