Fleet Management Costs: A Comprehensive Guide
Companies face numerous questions when it comes to managing a fleet of vehicles. How many trucks should we own? How many drivers to hire? Is it better to buy, lease, or rent? Who will do maintenance and repairs? Answering these questions and figuring out the costs involved is complicated enough with just a few vehicles and employees. With a giant team, it can lead to trouble if you don't have a handle on all the numbers. That's why monitoring fleet management costs are so important. You must track every cent you spend so that proper data analysis is achieved and leads to informed decisions. Tracking your spending is especially important with the inflation issues of recent years, as owning a fleet of vehicles now costs over $3 per mile driven.
Using technology to track your real-time costs helps. Still, to accurately gauge your return on investment, you must be able to measure the data to find ways to increase productivity and decrease inefficiencies while cutting fleet management costs as much as possible to stay within your budget. This article dives into the importance of analyzing fleet management costs, the different types of expenses, and how to save money to ensure your entire fleet is running at peak efficiency.
The Importance of Fleet Management Cost Analysis
Companies must be aware of the amount they spend in all areas of their businesses, including the cost of vehicles, depreciation, maintenance costs, fuels, and insurance. The sum of every expense over the year is the total cost of ownership (TCO). By calculating the TCO, more accurate views and a better understanding of the budget is possible. With the help of software, you can analyze to make proper decisions on where to spend money in the future and where to cut fleet managem1ent costs. You may now break down each aspect of what the business is costing in an attempt to improve ROI. It is now possible to strategize for important decisions, such as the cost breakdown of keeping a truck for another year versus investing in a new one.
What are the Fleet Management Costs to Track
Fleet management costs fall into three categories: fixed, variable, or semi-variable. Here is what each type of expense entails and some examples.
These types of expenses, also known as capital costs, are the same no 1matter how much business a company does or how much revenue it brings in. Fixed costs are predictable and budgeted easier. They are based on time rather than usage. Here are some of them:
- Purchases: If buying an asset such as a truck, the monthly cost will be steady for as long as you own the vehicle. If purchasing the asset outright, it is just a one-time capital cost. A down payment may also be used, with fixed monthly charges after that. Purchases are usually the most expensive fixed cost for companies, as a new high-end semi truck runs nearly $200,000.
- Insurance: This will be most companies' second-most expensive fixed fleet cost. Rates may go up occasionally, but there shouldn't be a fluctuation every month. Companies and drivers require different types of insurance to remain in compliance.
- Licenses and permits: A one-time payment per year is expected for these expenses and will not vary month by month. Companies must usually renew these yearly, and drivers may have to renew several of them to remain on the road legally.
- Depreciation: The depreciation of each vehicle will be the same each month, depending on its lifecycle expectancy. The asset will depreciate until you decide to dispose of it or until it has zero value.
- Office space, loans, and lease payments: These rates are set ahead of time, and the same monthly rate is expected, no matter how much business you do or the revenue you bring in.
- Other fixed costs: Some additional fixed costs include property taxes, office overhead, vehicle disposal costs, and certain utilities.
These operating costs will consistently vary and rarely be the same for two consecutive months. You can project these fleet expenses ahead of time, but planning won't be as accurate as it is for projecting fixed costs. Variable costs are based on usage rather than time and may include the following:
- Fuel: Not only will fuel costs change depending the number of miles driven, but fuel prices are constantly in flux from location to location. Fuel expenses must be monitored closely and accurately, especially with how quickly prices have soared in recent years. Along with salaries, this is one of the highest fleet management costs for a company, as 18-wheelers usually get only 5-7 miles per gallon and may have fuel costs of $70,000 per year.
- Maintenance, repair, and replacement: Maintenance at regular intervals keeps vehicles in better shape and helps them run longer, but breakdowns could happen suddenly, resulting in higher costs for that month. These fleet costs include simple maintenance such as oil changes and tire replacements or much more expensive repairs that could run into thousands of dollars.
- Tolls: Different routes have varying tolls, meaning each month will bring different costs depending on how many of your trucks pass through them.
- Training; Training new employees – and even offering recurring education for veteran employees – will result in new expenses depending on how many need training. This cost may constantly be in flux depending on how many workers join and leave your company, as rapid turnover has led to a truck driver shortage.
- Accidents, tickets, and fines: Avoidable costs like this can be near zero some months and then skyrocket the next, only to go way down again the month after. Proper training helps limit these expenses.
- Detailing: Upkeep, such as cleaning and painting, may be necessary at different times during the vehicle's lifespan.
- Other variable costs: Some other potential variable costs include parking, vehicle disposal, roadside assistance, travel costs for fleet managers, and some utilities.
These types of expenses are a mixture of fixed and variable costs. These fleet management costs may be fixed up to a certain level, then variable. The expenses may go up or down depending on usage, but not always at a linear rate. They may include:
- Driver salaries: There may be a lot of driver and employee turnover at times, so monthly salaries often swing wildly during times of having the correct amount of workers or if there is a shortage due to other employees leaving. Drivers may also rack up overtime hours or be paid by the mile, resulting in different monthly amounts. Driver salaries are often the highest operating cost for a fleet company.
- Other salaries: Salaries for other managers and personnel may change on how much office staff you employ, whether you have your own maintenance crew, and how much overtime is granted.
- Other semi-variable costs: Other types of variable costs include employee benefits, insurance premiums, technology expenses (such as GPS and software), recruiting, and background checks for drivers.
Fleet Management Cost Analysis
Knowing fixed, variable, and semi-variable costs enables you to maintain an ongoing budget. You may now strategize to optimize efficiency in your company regarding fleet management costs by figuring out where you are spending too much money – or not enough. You may use the data to keep a proper maintenance schedule or examine whether to buy, lease, or rent when it is time to increase the fleet size. Here are some more considerations to determine how much is spent each month, some critical decisions you can make to save money on fleet management costs, and how to get more out of depreciating your assets:
- Calculating the total cost of ownership and cost per mile: Once you know the TCO, you divide that by the number of miles driven in a month or year to figure out your cost per mile. The TCO allows you to find out where you are spending too much money and aids in determining when it is time to de-fleet a truck and invest in a newer one.
- Leveraging TCO to make data-driven decisions: Knowing the TCO allows you to see what percentage of the money you spend on every facet of your business and compare that month to month to see in which areas you are burning cash and need to become more efficient.
- Maintenance considerations: What is your maintenance strategy? How do you decide who makes repairs and when? Knowing the TCO and how much you spend on this may determine whether you have your own maintenance people or outsource the work to others. Regular preventative maintenance helps save on costly repairs that may occur at the worst moment imaginable.
Buy vs. Lease vs. Rent
Deciding how to add to your fleet may be a choice that changes over time as your business grows. Each way has its pros and cons:
- Buy: Purchasing vehicles outright means they are yours, and you have control over them. Use the asset for as long as you'd like; it will be more cost-effective the longer you own it. You will also reap the depreciation benefits. The downside of buying is that it can cost a lot of upfront money and comes with the responsibility that lasts throughout the life of the truck. When buying, you must also decide if you want brand new or used.
- Lease: Leasing means you don't need as much cash upfront and may be able to have access to more trucks – and newer ones at that. But you don't own the asset and may pay hidden fees. Also, you may have limits on how many miles are allowed to drive. This option might be the best choice for companies with no maintenance department, as all servicing may be done by the leasing company instead.
- Rent: Renting saves cash that you would otherwise use to purchase an asset, but it may come with mileage limits and other fees. Like leasing, it may mean access to more vehicles to use that you couldn't achieve without buying.
Lowering Fleet Management Costs
Getting the most out of your fleet at a lower cost helps improve your ROI and save needed cash. Here are some possible methods that may save money:
- More fuel-efficient vehicles: The push is on to go with more environmentally friendly electric vehicles or hybrids that don't require the gas/fuel-guzzling that most current trucks require. The downside is that investing in these vehicles might cost more upfront. Short of switching to EVs, selecting the right vehicle depends on your purpose: Does it need to go cross country or just around town? Knowing the most affordable place to fill up on gas or fuel also saves money, as do fuel cards.
- Software: Investing in software and technology should help reduce expenses in several areas. Technology will help with budgeting and data analysis, and you may use real-time data to direct trucks to gas stations where they save the most money.
- Route optimization: GPS improves route planning for more efficient trips and fewer costs. Monitoring real-time data leads to shorter trips and cuts down on delays.
- Training: Drivers should be trained to avoid speeding and pick the best speed for each vehicle while spending less time idling. They should also be instructed to do daily maintenance to look for issues that may slow vehicle performance. Training drivers on safe driving also may help avoid collisions, leading to insurance savings.
- Share information: Communicating and sharing data leads to better decisions by all parties and decreases fleet management costs.
- Vehicle ownership: If the company owns a fleet of cars, it may decide to lend them out to employees for work trips or even have workers own the vehicles and get reimbursed for business miles driven.
Depreciation is deducting the cost of an asset over the expected lifespan. Here are some ways to consider that involve getting the most value when depreciating assets:
- Perform regular maintenance to keep assets in top shape.
- Select vehicles with strong used values.
- Train drivers on keeping proper care of their vehicles to promote longer lifespans.
- Use depreciation schedules to plan and project the yearly values.
- Know the appropriate time to dispose of an asset.
- Check for possible tax deductions.
- Make sure the asset isn't overused and wears down too quickly.
- Maximize resale value as much as possible with maintenance and cosmetic upgrades.
- Realize that spending more upfront for purchases may also mean the benefit of selling it for more down the line and getting the tax benefit of depreciating more yearly.
Keep Cash Flow High With Asset-Based Lending and Other Financing Options
Cash is king, especially when you must pay off fleet management costs. To be sure you have enough, here are some ways to keep cash handy:
- Asset-based lending involves using owned assets as collateral to secure a loan or line of credit. This lending works well for small and medium-sized businesses with assets on hand but little cash. A company may have an easier time qualifying for this type of loan than conventional lending because of the value of its assets. Asset-based lending puts money into the business' hands quickly but does have some risks involved, such as the fact that they may lose their equipment if they don't pay off the loan.
- Other ways a company can keep cash flow high include equipment financing, capital leases, sale-leasebacks, accounts receivable financing, and inventory financing. These all offer options for companies in different situations and provide a way to expand the business or come up with needed cash while maintaining access to their assets.
Finloc Helps Your Fleet Run at Peak Efficiency
It's essential to keep track of all fleet management costs and to know how to make data-driven decisions to run at optimized efficiency. Knowing the TCO of your company and your cost per mile can help you better understand what is working and not working and allows you to make necessary adjustments. By having accurate information on how much you spend on every facet of your business, you can strategize how to maximize your ROI while limiting costs and improving efficiency.
Finloc helps you better control your fleet expenses and procure cash and equipment your business needs to run more efficiently. Finloc specializes in equipment leasing and lending, project financing, and inventory financing to help you grow your fleet and increase your return on investment while tackling all fleet management costs. Visit Finloc to work with its experts and find out how they can help you pick the proper path forward.