dcf.cymru stimulus sheet · Business · Year 10

Olwyn E-Bikes: the costs pack

Olwyn E-Bikes, Ffion Pugh, the trail centre and every figure on this sheet are invented. The figures are realistic for a small hire business. The same costs are in olwyn-ebike-costs.csv.

1. The business

Ffion Pugh has started Olwyn E-Bikes (olwyn is Welsh for “wheel”). She hires out electric mountain bikes from a small unit at a trail centre in the hills above the Cynon Valley. A hire lasts 2 hours. Every rider gets a helmet, a trail map and a small snack pack.

Ffion is a sole trader. She borrowed money from the bank to get started, and the bank manager has asked her one question: “How many hires a month do you need before you stop losing money?”

She also has to choose a price. She wants a model she can change when her prices or costs change, instead of doing all the sums again by hand.

2. The ten costs for one month

These are the bills, invoices and notes Ffion has collected for June. Some are paid every month whatever happens. Some are paid once for every hire.

	Document	What it says
1	Lease agreement: 12 electric mountain bikes	£90 per bike per month, paid on the 1st of every month. 12 bikes.
2	Invoice from the trail centre	Rent for Unit 3: £540 per month.
3	Insurance direct debit	Business and public liability insurance: £240 per month.
4	Online booking system	Subscription: £60 per month. Plus a booking fee of £1.00 for every hire booked through the system. All of Ffion’s hires are booked online.
5	Note from Ffion about charging	“Each hire uses about 2.5 kWh of electricity to recharge the battery. My electricity costs 20p per kWh.”
6	Invoice from the cleaning contractor	Clean and safety check after each hire: £2.50 per bike.
7	Invoice from a local café	Trail snack packs (map, water and a flapjack): £2.00 each. One per hire.
8	Broadband and phone bill	£40 per month.
9	Social media advertising	Ffion sets a budget of £200 per month. It is spent whether she gets 10 hires or 200.
10	Price list on Ffion’s website	2-hour e-bike hire: £30. (This is revenue, not a cost.)

3. Two prices to choose from

Ffion asked 80 visitors at the trail centre whether they would hire an e-bike at different prices. From their answers she made this forecast for a typical summer month.

Option	Price per 2-hour hire	Forecast hires per month
Option A	£30	120
Option B	£25	160

Ffion’s worry: “If I drop the price, every hire earns me less. But more people will come. I don’t know which is better, and I don’t want to guess.”

4. Things that might change

Her electricity supplier has warned that the price could rise from 20p to 40p per kWh.
The trail centre says rent for Unit 3 may go up by £240 per month next year.

5. Key words

Fixed cost: a cost that stays the same however many hires Ffion sells.
Variable cost: a cost that goes up with every hire she sells.
Contribution per hire: the selling price minus the variable cost of one hire. It is the money each hire gives towards paying the fixed costs.
Break-even: the number of hires where total revenue equals total costs, so there is no profit and no loss. Using the contribution method: break-even = total fixed costs ÷ contribution per hire.