How to Start / Open A Boda Boda Business in Kenya

Boda Boda Business Plan (Kenya)



Overview

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This refers to the business of ferrying passengers from one point to other using motorcycles. The sector has grown almost geometrically since 2007.

The Bigger Picture

As of December 2013 there was an estimated 800,000 registered motorcycles in Kenya. In 2005 there were 3,759. Then in 2008 the government zero rated motorcycles below 250cc in 2008 and in 2009 the number jumped to 91,151 motorcycles.

Between January and September 2013 there were 109,153 new motorcycles registrations. This was about 35,000 more than the number registered over a similar period in 2012.

Kenya’s annual demand for motorcycles rose from 16,293 units in 2007 to 140,215 in 2011

before dropping to 125,058 in 2013. An average of 11,000 new motorcycles are registered every month since 2012.

Second hand motor cycles go for as little as Kshs.30,000 while new models start from as low as Kshs.60,000 There are also traders, politicians, banks and microfinance institutions availing finance to youth groups for purchase of motorcycles . A large percentage of riders also don’t bother looking for driving licenses.

The business has moved from rural areas where it started to urban centers where motorcycles are on their way to rival vehicles in numbers.

Other Indicators

Honda Motor Company has set up a local assembly line with a capacity of 25,000 units per year, and which started operating in December 2013.

Car and General which had been importing and distributing TVS motorcycles from India, and Suzuki parts from Japan set up an assembly factory in Nakuru with a capacity of 70,000 units.

In December 2013 Toyota Kenya introduced a scheme called Crux Finance which enables more motorcycle riders to own motorcycles by pooling in resources. Toyota through its Yamaha division provides the motorcycles which are then paid for through a daily remittance of Kshs.300.

Negative Policy trends

For long the Boda boda business had been much unregulated with the authorities keeping off. However with the coming of the county governments, and increased accidents blamed on the riders there are now more efforts to control the business.

Many county authorities are trying to formulate ways to regulate the boda boda. This is by increased taxes, zoning which restricts operators to certain areas only and hours of operation.

For example towards the end of February 2014 police in Nairobi ordered boda boda riders to operate until 8pm so as to curb growing insecurity. The former inspector general on his part tried to limit operations of the boda boda to between 6am and 6pm. The restrictions didn’t last for more than a few days.

The National Transport and Safety Authority is also set to implement regulations governing the operations of boda boda. These in terms of skills of riders, amount of cargo they can carry, registration and conditions of the motorcycles.

If policies such as the above are strictly implemented then the annual growth of the boda boda sector will reduce in the short and medium term (6 months to 1 year) from the present average of about 25% but stabilize in the long run after the initial shocks. However since boda boda are more about convenience no matter the policies the public will continue using them.

Other Negative Trends: .

øThere have been calls to ban the importation of boda bodas with a speed of over 50km/hr for use in public service.

øNational transport and safety authority (NTSA) has proposed to ban boda bodas from town centers and limit hours of business to between 5 am and 11 pm. It has also proposed boda boda should carry only one passenger with no allowance for goods. They should also register with county governments and safety committees and not be allowed to operate across counties. violation 20k or 6 months jail

The proposed rules will also require all motorcycles, whatever their intended use, to be sold or transferred along with two helmets and two jackets with reflectors. The helmets must have the motorcycles registration number prominently printed on them.

In Nairobi Eastleigh south MCA had proposed in a 2014 motion to have each boda boda boda operator to be registered with a Sacco that will be held liable for any criminal activity by a member in addition to having special identification on helmets and reflective jackets.

A section of MPs have also been pushing for laws to govern the boda boda sector.

The growth in the sector can only be slowed down by extreme regulations and not because of cost, inflation or a downturn in the economy.

Barriers to Entry

The barriers to entry in the boda boda business are minimal. The high turnover in the industry has availed many secondhand motorcycles with prices as low as Kshs.30, 000. Prices of new motorcycles start as low as Kshs.60, 000

There are also financing options offered by dealers, cooperatives, banks and even politicians making it easy to get into the business as a means of earning livelihoods. Riding a motorcycle is a low skill job. Authorities, as noted, have also not been strict. Though essentially all those riding should have a driving license many comfortably operate without one.

Competition in the business will continue increasing. Demand for motorcycles especially to meet last mile requirements continue to grow. The boda boda are preferred for their ability to use short cuts, reach where matatu and taxis don’t reach and the ability to pick passengers from the door.

Safety among the boda boda is becoming a major concern; still number of people opting to use boda bodas is big as compared to those who are opting not to.

Generally the market is becoming saturated and the number of exists almost equaling those of entry. A survey of Nairobi, Nakuru, Thika, Kisumu, Machakos show that on average 3 in 10 investors in the business quit within the 1st year. And 4 in 10 have joined the business within the last 1 year. Base (November 2014)

Reasons for closing down are:

øLow Returns

øDishonest Riders

øBreakdowns

øAccidents

øMore profitable alternatives

øOthers

66 % of those how have in the business for over 2 years are owners.

Revenue has remained constant for the last 2 years. With the average daily take being the same and at times reducing. Generally though there has been a downward pressure on revenue so that now more effort and hours are required to make the same amount as 2 years ago.

Although the market is getting crowded, there is still enough revenue to be made to sustain a newcomer in the business. However the ability to seize the opportunities in the business depends on the Critical Success Factors:

Rider

Location

Motorcycle Brand

Management

Licenses

County Government License – This is charged by the county government. In some counties or particular locations within a county this could be a daily fee, monthly or annual license. The daily fee could be as low as Kshs. 20 per day, Kshs. 300 per month, Kshs. To Kshs. 5500 annually. There are operators who operate without the license but this exposes them to harassment by the county authorities.

Driving License – A motorcycle rider is required to have a driving license. This is acquired after training in a driving school and subsequent passing of relevant tests and exams. The cost averages Kshs.5000. There are riders who operate without the license. This however exposes them to county authorities and traffic policemen.

Motorcycle

When purchasing a motorcycle for the Boda Boda business consider:

The price

Prices of motorcycles used in the boda boda industry range from Kshs. 60,000 to Kshs. 110,000. The price differences will depend on the brand, engine capacity of the motorbike, supplier, location and the general demand in the market.

Budget at least Kshs. 100,000 for a standard motorbike. Nonetheless you could get a motor bike for Kshs. 75,000 to Kshs. 90,000.

Prices of second hand motorcycles could be as low as Kshs. 30,000. Be careful when purchasing second hand. Make sure the motorcycle is in good condition and not more than a year old. Sometimes if a rider or owner has not taken good care of the motorcycle a 7 month old could be a wreck.

Pick the motorbike that best serves your purposes. Boxers and TVS are relatively expensive with prices of between Kshs. 90,000 and Kshs.120, 000. Chinese models like Skygo, Haojin go for between Kshs. 70,000 and Kshs. 85,000

When purchasing second hand make sure the motorcycle is in good condition. Have a mechanic look at it and advice. Don’t take the owners word for it.

Related to this there are investors who rather than purchase a motorbike outright hire from an owner. They then find a rider to operate it. The returns in these agreements are so reduced. For instance if you are hiring the motorbike at Kshs. 300 a day, then you expect to at least make the same amount every day. If the agreement between you and the rider is Kshs. 400 per day, the n

you will be making Kshs. 100 per day. If the rider as much as misses the mark then it’s total loss for you. (See more in Revenue)

Fuel Efficiencies

Since you are purchasing the motorcycle for business you need to keep the costs of fuel low. Ideally an engine capacity of between 100cc and 125cc is good for the business. Lower capacity can consume less but at the expense of power. Higher capacities are more powerful but also consume higher amounts of fuel. At the extreme keep it 150cc. A 150cc is powerful and fast. Have motorcycles that can comfortable carry a passenger and luggage. If you are in a hilly area you could need a more powerful motorbike. If you are in a market route and you need to carry lots of luggage then you need a more powerful higher capacity motorcycle.

Suitability of the Motorbike to the Terrain

A motorbike operating in a rough rural terrain should be tougher when compared to one operating in an urban area with smooth roads. Basically all motorcycles can operate anywhere but the difference is how often you will need to service them.

Whereas some brand can constantly hit boulders and pot holes consistently and still remain in good condition, others can’t survive more than a few hits. We are reluctant to recommend a particular brand but open information in the market has that TVS can run in all terrains fairly well, Boxers and TVS are more suitable for urban less rough terrains, while models such as Kingbird and Captain are the best for rough terrains.

Still do your due diligence especially if you are operating in the rural areas. Whereas a motorbike that is hardy enough to operate in the rural rough terrain can also operate in urban centers, the vice versa is not true. A bike suitable for urban areas cannot necessarily survive in rural areas.

In the rural areas there is a pool of anecdotes about which brands have survived and which have crushed thus talk to riders in the area.

Resale value

At some point you will need to sell your Motorcycle. This could be due to anything from you quitting the business to the need to purchase another model. So when purchasing consider the model that will attract the best prices when selling second hand.

Of course don’t do this in isolation, consider all the above factors first. The model likely to give you a good resale value will be a popular well known brand, or the most common type of motorbike in your area. TVS and Boxers have some of the best resale value in Nairobi. Still this could change depending on market conditions.

Availability of spares and fuel efficiencies.

Although some motorcycle spare parts are universal, others are brand specific. When picking a brand of motorcycle make sure spare parts for the particular brand are available.

In major urban areas spare parts are not a problem, however in small rural areas spare parts shops stock based on the most popular motorcycles in the area. And if your motorcycle brand is not among the well known you could have problems getting model specific parts.

Among the common brands of motorcycles used in the Boda Boda business are:

Boxer, Captain, TVS, Kingbird, Yamaha, Taojin, Jincheng Mikasa, Haojin, Skygo

The best deals in new motorcycles come at least with the following:

Helmet

Registration

Logbook

Reflector jacket

Tool kit

Warranty, at least 1 year

Some dealers offer 2 or 3 services free of charge.

Suppliers

Motorcycle sellers are now ubiquitous in any sizeable town. Shop around, not just looking for the best value in price but with value additions like service, warranty, and availability of spare parts.

Capital Breakdown

Item

Price (Kshs.)

Motorcycle

85,000

Licenses

3,000

Insurance

12,000

Location Fee

30,000

Miscellaneous

3,000

Total

133,000

 

 

This is just a guide. Actual prices could vary. For instance the price of the Motorcycle could be anything between Kshs.85, 000. The Location fee is could range from Kshs to Kshs. 40,000. Insuarnce ranges between Kshs.10,000 and Kshs.15,000

Operations

You can get into the boda boda business at 3 levels:

øOwner / investor

Here you purchase a motorcycle and hire a rider. You get into an agreement on how you will be paying him or sharing revenue.

øRider

In this case the motorcycle is not yours rather you are employed by the owner to ride it. You are supposed to remit an agreed amount of money to them.

øOwner / Rider

Here the motorcycle is yours; you ride it and keep all the money.

Revenue Share Agreements

If you are not riding your motorcycle then you will need to get in to a contract of sorts with the rider detailing how much money you will be receiving.

The agreements that a motorcycle owner gets in to with a rider are not cast in stone. Rather they are based on mutual agreements with the template being other riders in the region. The common type of agreement is where the rider remits an agreed amount of money daily, weekly or fortnightly. The amount will depend on the location, expected revenue, competition and negotiating skills.

In deep rural areas the amount could be between Kshs. 150 and Kshs. 300. (For instance in parts of Kirinyaga, Embu, Machakos and Nakuru the amount is Kshs. 200.) In peri urban areas the amounts range between Kshs. 300 and Kshs.500 with Kshs.400 being the mode. In Nairobi the amounts ranges between Kshs. 400 and Kshs. 600 with an average of Kshs. 450 daily excluding Sunday when the rider takes home everything he makes.

Though all looks good on paper the reality in the market is that you are unlikely to be consistently getting the exact amount you agree on. This could be because of the craftiness of the riders and also the fragilities of the market. Often expect the amount to be less by Kshs.100 and sometimes nothing at all.

The standard agreement has it that the rider does the fueling and minor servicing but you as the owner do any major service. The amount you spend on service will depend on the terrain, model of motorcycle and most important how responsible a rider is.

Careless riders will hit potholes, over load and throw away basic good riding habits, the motorcycle being the casualty. On average owners in urban centers spend between Kshs. 1000 and Kshs.2000 per month on service. Any figures above that are exceptions.

In other agreements the rider does all the minor and major servicing, fuelling and pays local authority fees. In order to make the riders more responsible some owners get into service agreements with the riders. Such an owner will say I will spend a maximum of Kshs. 1000 on servicing, anything above that is on you. At other times the owner could take a lesser daily amount in exchange for the rider meeting the costs of service, local authorities and any other related fees.

If the rider is arrested and the motorbike impounded for one reason or the other then it’s your role to pay any necessary fees and have home released.

So how much should you ask for? First get to know the local averages. These you can get by talking to riders. Mostly they will exaggerate by a hundred or so, but if you talk to several you will get an idea. Also negotiate hard, looking at what returns you expect. Try as much as possible to go for at least Kshs.400 if in urban and peri urban areas, and Kshs. 300 in rural areas.

The norm is for the rider to remit the amount weekly. This is because if he doesn’t make the daily amount today, then he will hope for better returns tomorrow and compensate. Still there are those who remit daily, fortnightly or monthly. The best practice is weekly.

The longer he stays with the money the more tempted he might be to use it and later have problems repaying you. It’s always a bad sign when the rider starts giving excuses for not remitting money especially if you are doing weekly and fortnightly agreements.

Remember the long term goal of the rider is not to remain a rider but save or swindle and purchase an own motorbike in the shortest time possible.

Despite these agreements there are times when the rider will complain of how bad business was, and say he was not able to make the daily amount. At times a rider is honest, while at others he is lying and either used the money or didn’t turn up for work at all. You might never actually know but you should use your own tricks and understanding of the rider to know whether he is lying or not.

If you believe him, and its true the situation on the ground is tough then you could let it pass. Still don’t let it pass so easily otherwise he will start taking you for granted. Be humane but also firm.

If a rider says is consistently not meeting targets then have conversations with other riders and see whether things are that bad or he is taking you for a ride. With a little sweet talking riders will tell on each other. There are times and places where the business environment changes and riders can’t meet targets.

If the rider is supposed to make weekly remittances and come Saturday he claims not to have made, then he is likely to be taking you for a ride. There are riders who will disappear by switching off their phone when it’s time to pay up. If a rider does that severally then rethink. Others will give the money in installments with all manner of excuses. Use your judgment to make decisions. The point is to be as firm as possible without pushing the rider to the wall.

How much does a rider make? The amount is not consistent and will vary from day to day. However in urban areas the average is Kshs. 1500, sometimes going as high as Kshs. 2500 and as low as Kshs.500. In peri urban areas the average is Kshs. 1000 while in the rural it’s Kshs.600. Sometimes the amounts in all the areas can be as low as Kshs.300.

These are averages and actual amounts will vary depending on the season (December / holidays) days – Market days, school and so forth. Of this amount a rider deducts the cost of fuel, miscellaneous expenses like daily county charge, bribes or any unexpected expense and depending on the agreement service.

Ideal Returns

In an ideal situation where you the rider is giving you Kshs. 400 per day except on Sundays, then it means you get Kshs. 2,400 per week and Kshs.9600 per month. Of this you deduct Kshs.1500 per month on service, which leaves you with a net of Kshs. 8100. In 12 months this totals to Kshs.97, 200. If for instance you had bought the motorbike at Kshs.90, 000 , paid insurance Kshs.12,000 and the Location ‘ base’ fee , Kshs.5000 then you need to make Kshs. ( Kshs.9800 (107,000 – Kshs.97,200) to get 100 % return

If the motorcycle is relatively well maintained and you sell it at Kshs. 60,000, then it might turn to be a good investment. A well maintained motorcycle can run for 2 years. However the lifespan of most boda boda is 1 year due to poor maintenance, poor driving habits and overloading.

However this is a very ideal situation. You are unlikely to receive Kshs.400 everyday for a whole year. The first quarter could work very well but then hitches start developing. The rider does not remit the agreed amount for a reason or another, the motorcycle starts breaking down more often , competition stiffens, authorities become strict and any of many other reasons. The remittance reduces to Kshs. 300 per day and sometimes zero. When planning don’t overestimate the returns especially if you are using a rider.

Location and Location Fees

Chose a location where there is opportunity, high traffic and less competition. Of course with the increased competition you could think such a location is hard to come buy but the distribution of

competition is not uniform. Urban areas, like Nairobi are the best because of high traffic, higher fares and returns.

Ideally you should also be in a location where you can, as need be, easily meet with the rider, this makes him more responsible and accountable compared to the case when you are operating remotely and you can stay for two or so months without meeting him.

As competition in the business becomes intense, boda bodas are starting to organize, zone off and ‘protect their markets. Thus in some cases though opportunity exists, the existing boda boda won’t allow new comers on the route.

In some places the boda bodas have organized themselves in groups and although they allow new comers you have to pay a fee to operate from a particular base. The fee is not standard and varies from place to place. In rural areas the fee could be as low as Kshs. 1000, while in urban areas the fee could be as high as Kshs.40, 000. In Nairobi where there is a fee the amount ranges from as low as Kshs.5000 to as high as Kshs. 40,000, with Kshs.30, 000 being the most common. This is the amount per motorbike.

Pay the amount keeping in mind the possible returns. Usually the amount is pulled together in a Chama of sorts from which members can borrow and so forth. In some cases the money is shared among the existing members. If the riders at the base are well organized then the money could be a good investment.

Different bases organize themselves in various ways. In some they are in queues so that each of the riders gets a fair chance to carry passengers. This means no rider can carry a passenger from the same point twice before a colleague carries at least one passenger. In some other areas it’s an open for all, where the riders compete for passengers.

In such cases the more aggressive or luck of the riders can carry severally before a colleague carries even one. This is the most preferred method since it ensures fairness and almost equal chances both for new comers and veterans. In some other places the queues could exists only during the day, while at night it’s free for all. There are areas where one can operate at any place.

Riders:

The choice of a rider plays a big role in determining the success of a boda boda venture. An irresponsible rider will not only wear down your motorcycle but fail to fulfill his side of obligation as pertains revenue. In extreme cases the rider can disappear with the motorcycle or better still collude with ‘robbers’ to have the motorcycle stolen.

There is no fool proof way to know how a rider will turn out. However you can take some measures to reduce the chances of landing a rogue. Don’t go for total strangers, when possible use recommendations from friends, neighbors or trusted riders. Relatives, if not of character are not the best of choices.

A rider with a driving license is better, and so is one who is not so much into drinking, miraa and muguka. These might not necessarily affect your relationship but they could slow him down, or tempt him to use your cash to meet his habits.

Some owners prefer riders who are married. These are assumed to be more responsible as compared to single young men.

Relationship with the rider should be balanced in such a way that the rider does not feel like he is pushed to the corner. Negotiate hard about revenue, service, authorities and all else but leave him some breathing space.

When it comes to revenue let it be clear what happens if he doesn’t meet targets, does not remit and so forth. Most of the agreements are mutually rather than formal and written. A written agreement scares of some riders. Still whether you sign or not if any of you decides to go against the grain then nothing much can happen.

When picking a Rider:

øGet a recommendation from trusted person

øChose someone who is responsible. Depending on the location you can get first impressions by dressing, sobriety and just conversation. A rider who is drunk at 1pm is unlikely to be responsible.

øPick someone with a valid Driving license – A driving license is a validation of sorts in safety and taking care of the motorbike. And if you are operating in urban areas then it reduces the risks of getting arrested by police and county authorities. In the deep rural areas a driving license is not a must but would be preferable.

øChose someone who understands the terrain and route. It’s possible to ‘import’ a rider but there are advantages of having someone local. He knows the short cuts, is able to charge accordingly and build a client base. Also his expenses, say rent, are minimal and thus have lesser motivation to swindle.

øChose someone with a professional mentality not a casual tout like outlook. Someone who respects customers keeps his word and when things are not to expectation is able to explain.

At the end the only way to know how good a rider is for him to get working. Still take the above precautions. No rider will be 100% [perfect so use carrot and stick methods to push and encourage him until he gets into line. And when you try everything and the rider consistently underperforms and rogue doesn’t hesitate to fire him. The problem with keeping such a rider is that not only will it result in reduced income for you but he might run down the motorcycle to the level you have to sell it for a song.

Is it a good business to invest in:

Yes with good rider and management the returns could. Otherwise it will be problematic and lead to losses.

Case Study : Owner Operated

Location: Kahawa sukari

Year started: 2012

Areas of operation: Kahawa Sukari, Kahawa Wendani, Githurai, KU, KM and environs.

Capital Invested:

Business License – Kshs.5400

Driving License – Kshs.5000

Motorbike (Model: Suzuki 275)– Kshs.58,000

Location ( Base ) Fee – Kshs.3000

Insurance – Kshs.11,000

Total Capital – Kshs.82,400

Operations

The boda boda operators operate from one place. To enable fairness, the operators have an agreement that they follow turns when carrying customers i.e. one has to wait their turn. However, some customers have preference for a specific rider. In this case that person is allowed to carry that customer but is then skipped on the next turn.

Average Daily Revenue: about shs. 1500.

Average maintenance cost in a month: shs. 1000

Tires get worn out within the shortest period of time. A new tire costs shs. 1200

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