The Business of Parking

Parking operators working under management agreements earn contracted fees to cover overhead and profit. Management fees can range from just a few hundred dollars a month to many thousands of dollars, based on the complexity of the operation and the pressures of the competitive marketplace. It is arguable that a low-fee parking management contract may not be profitable with only a nominal amount charged. Operators often address this by providing ancillary services for which they charge the client, enhancing the profit potential beyond the management fee. Examples include:

Liability insurance—Many major parking operators provide comprehensive liability insurance coverage through self-insured retention (SIR) programs. SIR programs can work as follows: The operator purchases third-party insurance over a very high limit only (for example, $500,000). So, its out-of-pocket insurance premium cost can be low, as claims rarely approach that limit. It then charges its clients fees per space for insurance coverage. The fees collected across an operator’s system may be pooled to fund an insurance administration and risk management program plus cover the cost of settling claims below the SIR threshold. If the operator is an effective risk manager, considerable profit can be made by self-insuring.

Health insurance—Health insurance is often handled via self-insurance programs. The operator contracts with a medical insurance administrator who manages the parking company’s claims, and the program can be profitable if managed effectively. Medical insurance charges on the monthly parking management statement cover claims, administration costs, and profit (if client charges exceed operator costs.)

Internal services allocations (accounting fees, multi-site manager allocations, computer charges, payroll tax charges beyond mandated cut-offs, etc.)—Monthly management statements provided by the operator often include overhead-covering allocations such as accounting fees and technology fees. Plus, if the parking company assigns a manager to oversee multiple automated locations, the allocations charged to clients for that supervisor’s payroll may far exceed the actual costs incurred. Internal services allocations should be included in the parking management company’s annual operating expense budget and can be subject to negotiation with the client. Although the fees charged cover legitimate expenses such as the cost of producing monthly financial statements or payment card industry data security compliance, the parking operator’s real cost may not be “dollar for dollar” as compared to allocations included on the monthly financial statement.

Limiting an operator’s profit and overhead to what is covered by the management fee is transparent, as compared to allowing an operator to augment a low fee with various allocations to the monthly statement. In fact, some RFPs and management agreements strictly prohibit operators from allocating their overhead to numerous locations via fixed monthly charges. However, there can be an across-the-board benefit to allowing an operator to profit from self-insured liability and medical insurance programs. For example, if the operator charges a flat but market-competitive monthly fee for liability insurance, that operator is incentivized to implement claims reduction programs such as:

1. Safe driving training for valets.
2. Painting curb edges yellow to minimize the risk of “slip and fall” claims.
3. Location-specific analysis of claims losses, making operational adjustments to improve results.

Arguably, if claims are prevented because the operator manages the facility effectively, and the charge to the client reflects good value, while the operator’s bottom line can grow, everybody wins.

Management should be familiar with the nuances of operations requests for proposals or consult with an expert before issuing an RFP and negotiating a parking management agreement. ◆