Operating a successful fleet of any size ultimately comes down to controlling costs. A well-running fleet is essential to providing services to your customers in the field — and cost management is an important aspect to running an efficient fleet.
If you neglect your budget for too long, spending can get away from you and may create bad habits that can cause problems later on.
In this article, we discuss tips for better fleet cost management so your business can work toward saving money rather than watching it come in and go right back out.
Tips For Better Fleet Cost Management
1) Conduct A Cost Analysis
You can’t control what you don’t measure, so take the time to conduct a cost analysis, including such metrics as total cost of ownership and cost per mile for each vehicle.
Monitor Key Performance Indicators: Key performance indicators (or KPIs for short) are measurements you take in order to evaluate how well an employee, process, program, or business is performing.
There are a lot of KPIs that your business can use, but you can narrow down the list by first setting goals to improve some aspect of your workflow and then monitoring the numbers accordingly.
For example, if you want to reduce fleet costs, you may choose to analyze indicators such as:
- Fuel costs
- Fuel usage
- Total cost of ownership
- Vehicle cost per mile
Here’s more about those last two KPIs which, as it turns out, are very important for the success of your business.
Calculate Total Cost Of Ownership: Calculate total cost of ownership for each fleet vehicle with the following formula:
Total Cost Of Ownership = Fixed Vehicle Costs + Variable Vehicle Costs
When using this formula, be sure to specify the time period you’re examining — you can do it for any length of time you choose — and make sure that none of the costs fall outside that range.
For example, let’s say that you want to see what the total cost of ownership for one of your newer work vans is (Vehicle A).
First, you would add up all the fixed vehicle costs (e.g., payments, insurance, licenses, and permits) you pay in one month for Vehicle A. In this example, we’ll say it’s $2,000.
Next, you would add up all the variable vehicle costs (e.g., fuel, tolls, and maintenance) you pay in one month for Vehicle A. In this example, we’ll say it’s $5,000.
Finally, plug those numbers into the equation, and you get:
Total Cost Of Ownership = $2,000 + $5,000
Total Cost Of Ownership = $7,000 per month
You can customize the equation to reveal your expenses for any amount of time you choose (e.g., three months, four months, six months, 12 months) by adding together the fixed and variable vehicle costs for that period of time.
The Coast smart fuel card can make finding data for this calculation much easier. This card can help you track and control, not only fuel cost and usage, but also other variable costs, such as maintenance, repairs, food, and supplies that your drivers need while they’re on the road.
Calculate Vehicle Cost Per Mile: After you calculate the total cost of ownership, the next metric in your cost analysis is the vehicle cost per mile.
The formula is:
Vehicle Cost Per Mile = Total Cost Of Ownership / Total Miles Driven
Continuing with the example from the previous section, you examine your records to discover that Vehicle A drove a total of 10,000 miles last month.
Plug that number into the equation along with the total cost of ownership, and you get:
Vehicle Cost Per Mile = $7,000 / 10,000 miles
Vehicle Cost Per Mile = $0.70 per mile
Armed with this data, you now have a benchmark against which to measure the success or failure of the other tips on this list.
2) Research Buying Vs. Leasing Vs. Renting
Next to fuel costs, vehicle acquisition can be one of the biggest pinch points when it comes to fleet cost management.
Regardless of the type of vehicles your business uses, you’ll be faced with three options: buying, leasing, and renting.
Buying (a.k.a. ownership) involves spending business funds upfront to purchase a vehicle.
This, then, comes with the responsibility of keeping the vehicle in good working order, maintaining government-mandated paperwork, ensuring compliance, and verifying that repairs are done correctly and in a timely manner.
Leasing involves paying another business to use their vehicles for a specified period of time.
In a leasing situation, Company 1 (the owner of the vehicles) and Company 2 (your business) enter into a contract whereby Company 1 charges Company 2 a monthly or yearly fee in exchange for the use of certain cars, trucks, vans, and/or SUVs.
Leasing may be the right option for your business if you don’t have the capital to purchase a vehicle outright.
Renting is similar to leasing, but the former is structured more toward the short term. A lease contract may last a year or longer, while a rental contract may only last a week or two.
Renting is a viable option if you’re going to need a vehicle you don’t already have access to — a bulldozer, for example — for only a few days or weeks.
You’ll save money in the long run by only paying for what you need at the time.
3) Lower Fuel Expenses
Lowering common fuel expenses is one of the most important steps you can take in your fleet cost management efforts. Here are some ideas that may help you cut back on your fuel spending.
Skip The More Expensive Grades: Fuel typically comes in a variety of grades and at a variety of prices.
Your business can get a discount right off the bat by skipping the more expensive grades and filling the tank with the lowest-priced option that works for your commercial vehicles (e.g., 87 octane for gas-powered vehicles and Diesel #2 for diesel-powered vehicles).
While the higher grades do offer some benefits in certain situations — Diesel #1 performs better in cold temperatures, for example — you’ll be paying extra for something you don’t necessarily need.
4) Increase Miles Per Gallon
Another method for improving fleet cost management is finding ways to increase the miles per gallon (MPG) your vehicles get while on the road.
Not sure how to do this? Here are some useful suggestions.
Maintain Correct Tire Pressure: One of the easiest ways to increase miles per gallon is to maintain correct tire pressure at all times.
Regardless of the type of vehicles you run, keeping the tires inflated to their recommended PSI can help you get the most out of the tire itself, maintain the life and safety of the vehicle, and reduce fleet fuel expenses.
How? An under-inflated tire increases the rolling resistance of the vehicles and forces the engine to use more fuel to maintain forward movement.
Even a small deficit in air pressure can add up to hundreds of dollars in extra fuel expenses over the course of a year. And that’s just one vehicle.
Multiply those hundreds of dollars by the number of vehicles in your fleet and you could be losing four, five, even six figures every year because of improperly inflated tires.
A simple solution to this issue is to make sure that every vehicle has an air pressure gauge in the glove compartment (or somewhere in the cab) and that drivers check and maintain the tire inflation before starting out on a trip, at every stop, and at the end of the trip.
Remove Non-Essential Cargo: Did you know that as little as 100 pounds of extra weight can reduce the fuel efficiency of a vehicle? And, when you think about it, it doesn’t take very long to accumulate tools, equipment, and in-cab supplies that well exceed that weight.
Every six months or so, go through all your vehicles and remove non-essential cargo that might be weighing things down.
Look in frame-mounted storage boxes, under seats, behind seats, in the glove box, in the center console/armrest, in the driver and passenger door storage, and anywhere else that items might accumulate.
As you inspect your vehicles, keep in mind that some things are essential (e.g., a fire extinguisher), but other things (e.g., a furniture dolly in an IT technician’s vehicle) likely won’t be used every time and don’t need to be hauled around on every trip.
Reduce Unnecessary Idling: Another relatively easy way to increase miles per gallon and improve fleet cost management is to reduce unnecessary idling in all your vehicles.
Unnecessary idling is loosely defined as the time that a vehicle’s engine is running but the vehicle itself isn’t moving forward.
Granted, there are times when idling is necessary (or unavoidable), such as when the driver needs to warm up the engine before setting out when the vehicle is caught in traffic.
Consider Adding Aerodynamic Improvements: Depending on the type and size of vehicles in your fleet, you may find some fuel benefits from adding aerodynamic improvements.
For example, adding curved caps on top of the cabs of your box trucks can help the vehicles cut through the air more efficiently and experience less drag. The less drag on the vehicle, the better fuel economy overall.
New vehicles, to some extent, are already aerodynamically efficient. But older vehicles and trailers can usually benefit from some relatively inexpensive aerodynamic upgrades that result in a significant rise in miles per gallon.
Improve Driving Techniques: A big part of increasing your fleet’s MPG is improving the way your drivers pilot their vehicles.
Behaviors such as accelerating fast from a stop, constantly speeding up and slowing down over long, open stretches, and braking hard into a stop actually use extra fuel (and aren’t that good for the vehicle to boot).
Instead, encourage and train your drivers to:
- Obey the speed limit
- Use the cruise control when possible
- Accelerate and brake smoothly
These fuel-saving techniques should serve as your baseline for correct vehicle operation so that all your fleet assets are treated the same.
This will require monitoring driver behavior via telematics, dash cams, and other fleet technology, but you can make it fun by implementing an incentive program. Provide rewards for those who exhibit efficient driving techniques most consistently through a certain period of time.
For more tips on fielding a safe and fuel-efficient fleet, check out these articles from the Coast blog:
- Fleet Safety Program: Policies For A Safe Work Environment
- Driver Coaching: A Complete Guide For Fleet Managers
5) Reduce Miles Traveled
Reducing miles traveled can be difficult to maintain but may produce substantial savings if done correctly.
Try cutting back on trips with little business relevance and using technology to:
- Plan the shortest route
- Group nearby stops together
- Prevent extra driving for in-person meetings
6) Improve Your Fleet Maintenance Program
As your vehicles age, fleet maintenance costs can skyrocket.
But, with the right program in place — including preventative maintenance and pre– and post-trip inspections — you can extend the life of your vehicles and reduce the expense involved in keeping them on the road.
7) Keep Your Fleet And Vehicles The Right Size
Right-Size Your Fleet: Fielding the right size fleet is another great way to control and reduce costs.
Examine your fleet, and you may discover that you have surplus vehicles — both in service and out of service — that you can sell to reduce total business expenses, including fuel, registration, insurance, maintenance, and repair.
Develop A Vehicle Replacement Plan: No matter how nicely you treat them, all vehicles wear out over time. When they do, they can become more expensive to operate.
Don’t let older vehicles be a drain on your bank account. Develop a vehicle replacement plan so you know when it’s time to sell or scrap an asset for a newer model.
Use Smaller Vehicles: Smaller vehicles tend to cost less to operate because they get better mileage, use less fuel, and experience less wear and tear because they aren’t being pushed to haul heavy loads all the time.
For example, do your field service technicians absolutely need the cargo capacity and hauling power of a pickup truck? Or, could they fit their necessary tools in an SUV or minivan that comes with a lower cost of operation?
8) Control Other Costs
Investigate Different Fleet Insurance Programs: Insurance can be a major cost center for your operation, so it’s beneficial to investigate different fleet programs from the one you’re on now.
Shop around for the best rates, and don’t be afraid to negotiate with your current or potential insurers and to switch companies to save money. You have a lot of business to offer the insurance company, so it doesn’t have to be a one-sided transaction.
You may have to work on improving driver safety records to get lower rates from a different company, but the savings can be well worth the effort. You may also choose alternative insurance options such as fleet insurance pools or self-insurance as a way to reduce costs.
Eliminate Fuel Theft: In many fleets, internal and external fuel theft happen more often than anyone would like to admit, mainly because there are so many different ways to outright steal fuel or commit fraud, including:
- Theft (from lost or stolen fuel cards)
- Fuel skimming
- Odometer tampering
- Inaccurate reporting
- Unauthorized purchases
You can help control this drain on your bottom line by incorporating smart fuel cards into your workflow that include EMV chips, pre-use activation protocols, instant alerts for suspicious transactions, and the ability to lock cards yourself in one click.
With the right smart fuel card, you can even enable fuel-only purchases, create custom policies and rules for different employees, limit purchases by time of day and day of the week, and assign cards to drivers, vehicles, or both…all from a single dashboard.
Implement A Fuel Surcharge: Protect your fleet from changes in fuel costs by implementing a fuel surcharge into all customer contracts.
There are no laws or regulations in the U.S. that mandate how fuel surcharges should be handled, and there is currently no official oversight from any federal agency. This means you have the freedom to choose a surcharge that works for both your customers and your company.
When deciding on how much of a surcharge to add, keep these three main goals in mind:
- Protect your budget from the effects of fuel price volatility
- Keep your prices competitive
- Provide transparency to everyone involved in the process
For more information on creating and calculating this extra charge, check out this article from the Coast blog: Fuel Surcharge: What It Is And How To Calculate It.
Take Advantage Of Rebates And Rewards: Rebates and rewards are a great way to reduce fleet costs, but you need to find the right kinds of benefits and avoid the wrong kinds of benefits.
The right kinds of benefits include:
- Referral incentives
- Rebates and rewards on regular purchases
- Discounts with partner businesses
- Sign-up bonuses
- Per-gallon discounts
The wrong kinds of benefits include:
- Limited-time rebates
- Limits on gallons purchased
- Limits on qualifying fuel brands
Avoid Hidden Fees: Hidden fees can quickly add up to the point that they equal or exceed the rebates, rewards, and other benefits that a fuel card offers.
Avoid the following fees as much as possible:
- Out-of-network fees
- Per-gallon fees
- Transaction fees
- High-credit risk fees
- Higher late fees when you carry a balance
- Electronic, check processing, and phone-payment fees
Abide By All Fuel Tax Regulations: Abiding by the rules and regulations put forth by the International Fuel Tax Association can be complicated and, if done incorrectly, can lead to unexpected expenses that can cut into your fleet cost management options.
Use fuel expense software like Coast to streamline IFTA reporting so that it doesn’t fall through the cracks and potentially cost your fleet money in fines and penalties.
For more on the ins and outs of IFTA regulations, check out this article from the Coast blog: International Fuel Tax Agreement (IFTA): Fleet Owner’s Guide.
9) Integrate Your Fleet Software
When integrated correctly, your various pieces of fleet software can combine to give you a powerful 360-degree view of everything that’s going on in your operation.
This may not seem like much at first, but such cooperation and data acquisition can allow you to make more informed, better, and quicker decisions for your business.
Coast Can Help With Fleet Cost Management
When it comes to fleet cost management, controlling fuel expenses is one of the most important steps you can take. The Coast fleet and fuel card is universally accepted and can be used anywhere you’d use a Visa card.
The Coast card also comes with advanced spending controls and provides access to an online expense management platform that empowers you with real-time information related to your fleet.
For more information on how Coast can help you manage your fleet better, visit CoastPay.com today.
