On September 1st, the IRS increased the mileage rate allowance to 48½ cents a mile from 40½ cents a mile. This 8-cent increase was prompted by soaring gas prices.
At the same time Amtrak raised its fares, citing fuel costs have risen 40% from a year ago and are expected to continue climbing. Amtrak is in the transportation industry so we just accept this. But what should a small service business do? First, like Amtrak, be aware of how the cost is affecting your profit margin. Then, decide how you should handle it.
Some options are:
- Do nothing. Yes, you are making less money but your margins are still acceptable.
- Increase your rates. (Typically your rates are to cover expenses like gas.)
- Charge your clients for mileage.
- Schedule jobs more geographically, rather than on client demand. (Clients may have to wait a few days longer to see you or charge them extra.)
- Re-evaluate the way you deliver your services. Can you do more support via the phone or computer?
- Refer work to other businesses in areas too far to drive.
- Hire staff that lives farther from the office who could service those clients. Organize work so they don’t have to come into the office as often.
Now is the time to assess your profitability. If you have to raise your rates, now is the time. Clients never like it but they will understand, especially if driving to the client site is the way they are serviced. Be clear with your clients why you’ve had to do this. When we hear that fuel costs have gone up by 40% for Amtrak, we can understand the price increase, even though we don’t have to like it.
(This was orginally posted in 2005. While the specifc rate has changed, the issue has not. The suggestions still apply today!)