A keke hire purchase business can be quite a lucrative venture if implemented with a good strategy. Hire purchasing is a business arrangement which allows a keke driver possess and control your vehicle for an agreed term, while paying towards the purchase of the keke in regular instalments. The fee should factor in depreciation of the keke and interest to cover your initial capital cost. At the end of the term, the driver fully owns the vehicle.
Most people find this arrangement more financially viable than a rental agreement where the driver just pays a regular fee in instalments with no hopes of owning the vehicle. If the driver understands that he is paying for an asset which will definitely become his someday, he is likely to take better care of it. If on the other hand he feels that he is being tasked to make the “oga” as much money as possible, without consideration for his future, then he’s likely to use the vehicle as he pleases, and dump it when he receives for a better offer.
How to start a keke hire purchase business
- Calculate your capital costs and devise a strategy
There are 3 main brands of kekes in the Nigerian market – Bajaj, Paggio and TVS , with brand new units typically costing ₦390,000 to ₦420,000. There seems to be a preference for the TVS range as these are proposed to have the highest second hand value of all the brands, selling for ₦110,000 to ₦130,000 depending on the condition. While second hand vehicles mean that you get a return on your investment quicker, you might have a harder time getting suitable drivers, as they might feel that this has a shorter working life. Your best bet is to go for a compromise strategy and purchase a high end, bodily intact second hand keke in good condition which a driver will want to invest time and care into.
You will need to register the vehicle with the association governing the route you intend to ply, and this costs around ₦25,000 – ₦30,000. You will also need to purchase a number plate before our vehicle is allowed on the roads and this will set you back an additional ₦20,000
- Research viable transport routes
Investigate the routes and areas which you would like your vehicle to ply. Some routes are more financially rewarding than others, and it is up to you to do the work involved to find out which routes these are, and whether you can position yourself to take advantage of them.
- Devise a strategy on how to manage your drivers
Your human capital (in this case, drivers) will make or break you in this business, so this is where you will need to draw on your best judgement. If possible, drive it yourself for a start to get a ‘feel’ of what the driver might experience on the roads, what routes work best and realistic earning expectations. This might not sound conventional, but then the most successful business people are usually unconventional.
One guys uses our culture of elders to his advantage and always uses the drivers parents as guarantors when signing the contract. He meets their parents at their homes and explains the situation and also asks them to hold their children accountable for fulfilling their end of the contract and so far, this has worked.
“One driver tried his luck with me, and tried to miss one weeks payment. I immediately went to his mother who asked me not to worry, and she was right – after speaking sense into him, he paid up in a couple of days”.
- Negotiate a returns strategy with your driver
The most efficient way to make money from this investment is through a hire purchase agreement. You purchase a Keke at a set price (e.g ₦390,000) and sell it to a driver for a higher price (e.g ₦600,000). The driver starts using it straightaway and pays the ₦500,000 in daily or weekly instalments until the balance is cleared when he can keep the Keke.
How long does it take to break even?
A brand new Keke costs more than a second hand one, however is likely to give you and your driver lower overall maintenance costs. Apart from this, your driver will be better incentivised to ensure that proper maintenance is a priority for a vehicle he is working towards owning. On the other hand, a good quality second hand Keke requires very low investment capital (probably about ₦120,000) and relatively quicker returns on your investment in as little as 3 months. So it depends on what your objectives are: social responsibility or quick financial returns.
How long you are prepared to wait? The transport business is best suited as a short term investment, and this is in the best interest of both the driver and the investor. To check how many weeks it would take to recoup your investment, use this formula:
If starting a keke hire purchase business sounds like it is for you, there are so many more things to consider which I have not added to this post, in order to keep it short and simple. I have however created a business planning guide with a lot more information such as how to structure the business, projecting your income managing your driver(s) and much more. You can download it here:
