Forty-four percent of fleets rated increasing costs as a top challenge to daily fleet operations, while 22% of the total cost to own and operate a vehicle is fuel. With numbers like these, it’s easy to see why conducting a fleet management cost analysis is crucial.
In this article, we discuss what goes into a fleet management cost analysis and offer tips for controlling and reducing the expenses that underlie your final numbers.
Understanding Fleet-Related Costs
Fixed Costs
Fixed costs are expenses that remain the same from month to month or year to year regardless of fleet activity.
For example, fixed costs for a single vehicle might include lease or loan payments, insurance premiums, license and registration fees, telematics installation costs, and GPS subscriptions.
Your business may have other fixed costs tied to its vehicles, as well. Review your spending to identify these data points for inclusion in your fleet management cost analysis.
Variable Costs
Variable costs are expenses that depend on vehicle activity and change from week to week, month to month, and year to year. These expenses include things like fuel, vehicle maintenance and repairs, driver salaries, tolls, and parking fees.
Again, your business may have other variable costs tied to its vehicles, so take a look at your spending to identify hidden expenses that can influence your fleet management cost analysis.
Total Cost Of Ownership
There’s more to owning and operating a vehicle than just the price of the vehicle itself (i.e., lease payments, loan payments, or cash outlay for purchase).
The Total Cost Of Ownership (TCO) calculation measures the true cost of a vehicle by combining all fixed and variable costs associated with keeping that vehicle on the road. Knowing your TCO helps you budget accurately, choose cost-effective vehicles, and plan for optimal replacement timing.
You can also combine the TCO numbers for each individual vehicle into a larger number that reveals the total cost of ownership for the entire fleet.
Cost Per Mile
The cost per mile (CPM) calculation gives you a different perspective on what your business spends to field a specific vehicle by breaking down the total cost of ownership into a per-mile number.
You’ll be able to see how much your business spends for every mile driven by one of your fleet cars, service vans, work trucks, or semis. And, as with total cost of ownership, you can combine the CPM numbers for each vehicle to reveal the average cost per mile for your entire fleet.
We’ll show you how to run the calculation for a single vehicle in the next section and give you an example of how it works.
Conducting A Fleet Management Cost Analysis
1) Streamline Data Collection With Fleet Technology
Conducting a fleet management cost analysis starts with data collection. Use your fleet management software, telematics, and fuel card software to gather the fixed costs and variable costs associated with the vehicle you want to analyze.
As you do, be sure that all the data points are from the same time period (i.e., the same week, month, months, or year). For example, figure out your fixed costs, variable costs, and total miles driven for the first quarter of the year (January, February, and March).
This may seem like a monumental job, but the fleet technology you use for your day-to-day activities makes it easier.
Smart fuel card software, for example, streamlines data collection by giving you access to reports that put all of your fleet expenses at your fingertips and allow you to see where every dollar goes.
2) Calculate Total Cost Of Ownership
The first calculation you’ll run in your fleet management cost analysis is Total Cost Of Ownership (TCO). The formula is:
Total Cost Of Ownership = Fixed Vehicle Costs + Variable Vehicle Costs
As you can see, you’ll use the fixed vehicle costs and variable vehicle costs to reveal the true cost of ownership for a specific asset.
Here’s an example calculation:
Timeframe: One month
Data:
Fixed Costs = $6,000
Variable Costs = $12,000
Total Cost Of Ownership:
Total Cost Of Ownership = Fixed Vehicle Costs + Variable Vehicle Costs
Total Cost Of Ownership = $6,000 + $12,000
Total Cost Of Ownership = $18,000 per month
3) Calculate Cost Per Mile
After calculating Total Cost Of Ownership, you can use that number to calculate Cost Per Mile. The formula you’ll use is:
Vehicle Cost Per Mile = Total Cost Of Ownership / Total Miles Driven
Here’s an example calculation:
Timeframe: One month
Data:
TCO = $18,000 per month
Total miles driven for that month = 15,000
Cost Per Mile:
Cost Per Mile = Total Cost Of Ownership / Total Miles Driven
Vehicle Cost Per Mile = $18,000 / 15,000
Vehicle Cost Per Mile = $1.20
With these numbers in hand, you can start thinking about ways to change the variables that go into the calculation to reduce costs and make the final numbers smaller. Let’s take a look at some strategies for spending less in your fleet.
Strategies For Controlling Your Fleet Management Costs
Monitor Fuel Expenses With A Smart Fuel Card
When it comes to reducing the numbers in your fleet management cost analysis, monitoring and controlling fuel expenses is one of the most important things you can do.
Smart fuel cards give you all the tools and features you need to monitor and control cost per mile — and other important metrics — for both individual vehicles and the entire fleet, including:
- Open-loop capability so drivers can fuel up at the least expensive gas station
- Fuel discounts on every gallon on your statement, with up to 9¢ per gallon at our extensive network of partner stations
- Precise card rules to help you reduce unauthorized expenses and control your costs
- Fraud detection features for blocking or flagging suspicious transactions
- More accurate fuel and fleet data to help you report on your miles per gallon consumption for each transaction and vehicle, as well as the cost of your maintenance operations
Conduct Driver Training To Increase Miles Per Gallon
Fuel-efficient driving techniques can help your business reduce fuel use and increase miles per gallon throughout your fleet.
If you’re noticing that one driver uses more fuel than another driver when operating the same vehicle over the same route, it could be because of the driving techniques they’re practicing behind the wheel.
The first driver may be allowing their vehicle to idle unnecessarily and accelerating and braking hard, while the second driver may be turning off the vehicle whenever possible and accelerating and braking smoothly.
Excessive idling and heavy acceleration and braking use more fuel than smooth acceleration and braking. That’s why you’re seeing the difference.
To avoid this unnecessary fuel drain, train your drivers to operate their vehicles with the most fuel-efficient techniques possible.
Optimize Routes With Telematics
The fewer miles your vehicles travel and the quicker they arrive at their destination, the less you’ll spend on fuel.
Fleet management technology such as telematics, fleet management software, and smart fuel card software combine to give you a 360° view of your fleet activities and reveal the information you need to optimize routes for better fuel use and less vehicle wear and tear.
Change The Way You Acquire Vehicles
A big chunk of the fixed costs that go into running a fleet is the price of the vehicles. If you can reduce your lease payments, loan payments, or the total cash price of vehicle purchases, both your Total Cost Of Ownership and Cost Per Mile will drop.
Simplified Data Collection And Cost Analysis With Coast
If there’s one fundamental principle of conducting a successful fleet management cost analysis, it’s this: accurate numbers in mean accurate numbers out. In other words, you need to collect the right data for the analysis to show you anything useful.
That can be difficult in today’s business environment where data is everywhere and sorting the relevant from the irrelevant can be a monumental task.
Dauphin Ewart, president and owner of The Bug Master in Austin, Texas, recalls the daily frustrations with their old fuel card:
“When the card generally associates with the vehicle, it can cause a lot of operational confusion because it’s very easy for cards to end up in the wrong vehicle. That makes it very difficult to maintain reporting accuracy.
When they [drivers] pulled up to a fuel station, they would run that card and the card was supposed to indicate what vehicle you were in. If for some reason that card wasn’t in that vehicle anymore, or was in a different vehicle, your data was wrong. All of your data around fuel attribution just became a mess.”
But after Dauphin switched his fleet to the Coast smart fuel card, he immediately noticed an improvement in fleet data quality.
“What Coast brings to the table is the data accuracy and knowing that the information that’s going into [our fleet management software] is correct. It’s accurate. It’s usable, you can trust it.”
To learn more about everything that Coast can do for your fleet, visit CoastPay.com.
