Managing fleet costs can be challenging—just when you think you’ve figured everything out, something new crops up. As a fleet manager, you’re constantly juggling expenses, trying to keep your fleet humming like a well-oiled machine.
That’s where fleet management cost analysis enters the picture. It’s your key to understanding what your fleet really costs. You can then go beyond the sticker price of your vehicles, giving you the full picture of expenses from acquisition to maintenance and everything in between.
A good cost analysis sounds the alarm on approaching issues, helping you proactively manage them. Read on for the rundown on what fleet cost analysis is, different types of fleet costs, and steps to accurately conduct a fleet cost analysis.
What is Fleet Cost Management Analysis?
Fleet cost management analysis is a series of steps fleet managers take to minimize their total cost of ownership (TCO) and maximize profitability. Modern fleets use software and data to calculate fleet costs and manage vehicle lifecycles.
Here are the three most important elements of a fleet cost management analysis:
Getting started with fleet cost management analysis
Before getting started with your analysis, you’ll want to get some foundations in place.
- Fleet software: Software like smart gas cards and fleet management systems centralize fleet data, giving you an easy dashboard to conduct fleet management and analysis. For instance, Communications Unlimited saved $22,000 in a month thanks to a combination of fuel rebates and automating spend controls on important categories.
- Vehicle onboard diagnostics: If budget allows, you’ll want to get some hardware in place in addition to your fleet software. Electronic devices measure and track vehicle performance, giving you insights into mileage, maintenance needs, and routes driven.
- Key performance indicators (KPIs): It’s good to have an idea of what metrics you want to track when doing fleet cost analysis. Some common ones are fleet total cost of ownership (TCO), the sum of the direct and indirect costs of owning the vehicles in your fleet. Fleet TCO analysis helps you track vehicle ownership costs and spot concerns such as increasing maintenance costs ahead of time. Another is fleet cost per mile (CPM), which measures your fleet costs per mile driven. It accounts for fixed and variable operating costs.
Types of Fleet Costs
Fleet managers often miss hidden non-cash expenses that skew cost analyses due to not understanding the different kinds of fleet costs. Here are the three types of fleet costs you must account for:
Acquisition Costs
Acquisition costs are the expenses tied to bringing vehicles into your fleet. Your acquisition costs change depending on the type of fleet financing you use.
For purchased vehicles, you’re looking at two main factors:
- Purchase price: This is the amount you paid to buy your vehicle
- Internal cost of capital: This is the interest rate or opportunity cost of using your company’s money for vehicles.
Fleet managers often ignore the internal cost of capital since it isn’t a cash expense. However, it has huge ramifications when comparing financing choices.
For instance, let’s say you buy a delivery van outright for $30,000. Investing $30,000 in other areas of your business might have earned you a 5% return—a return you’re giving up by purchasing your vehicle outright. Thus, 5% is the cost of buying your vehicle in cash.
Remember to add this amount to the purchase price instead of subtracting it.
Leased vehicles are a bit simpler. Your main costs here are:
- The down payment
- Lease administration costs
- Insurance
- Interest amount
- Taxes paid on purchase
- Licensing costs
- Vehicle add-ons
- Dealer rebates (subtract this from costs)
Running Costs
Running costs are all the expenses that keep your vehicles on the road day in and day out. These costs can be divided into direct and indirect operating costs.
Direct operating costs include:
- Fuel costs
- Scheduled maintenance and unexpected repairs
- Tire replacements
- Accident-related expenses
- Vehicle insurance
- Plate renewals
- Washes
- Tolls
- Parking tickets
Taxes are another direct cost, though you might be able to offset some of these with subsidies for eco-friendly vehicles or charging infrastructure.
Indirect operating costs are sneakier but just as important. These include your fleet management software costs, administrative costs of ordering and maintaining vehicles, and the expenses of eventually selling or disposing of them.
One often overlooked indirect cost is downtime—when a vehicle is out of commission, you’re losing revenue or paying for alternative transportation. You can calculate downtime by projecting what a vehicle would have earned on jobs in the field when it was out of action.
Resale Costs
Resale and residual costs play a crucial role in your fleet management cost analysis. These costs vary significantly depending on whether you’ve purchased or leased your vehicles.
For purchased vehicles, your resale cost is the resale price of the vehicle. You’ll need to factor in costs for vehicle assessment and any refurbishment to get the vehicle ready for sale. These prep costs can eat into your resale value, so they’re an important part of the equation.
Leased vehicles are a different story. Instead of selling the vehicle, you’re returning it to the leasing company. Here, your main concern is vehicle-return-charges. These are costs for any damage beyond normal wear and tear.
Keep your vehicles in good shape, and you’ll minimize these charges.
How to Conduct a Fleet Management Cost Analysis
Now that you understand the different costs connected to your fleet, it’s time to dive into a cost analysis. Here are the steps you must take:
Step 1 – Install Fleet Data Collection Mechanisms
To conduct an effective fleet management cost analysis, you need reliable data. Start by installing telematics devices in your vehicles to gather real-time information on location, speed, fuel consumption, and driver behavior.
Pair them with smart fuel cards that capture detailed fleet purchase data. For example, plumbing contractor Tristate Plumbing moved from manually separating fuel and service purchases to streamlining them on Coast cards, making these costs easier to track and categorize.
Invest in comprehensive fleet management software to centralize and analyze data from various sources. Ensure all these systems—telematics, fuel cards, and fleet management software—are integrated for seamless data flow.
This creates a robust ecosystem of information, forming the backbone of your cost analysis.
Step 2 – Calculate TCO
This step is pretty straightforward once you have fleet data on hand.
The TCO formula is:
TCO = Acquisition costs + Interest costs + Running costs – Resale costs
You can perform this calculation at both the individual vehicle level and for your entire fleet.
Step 3 – Gather Fixed and Variable Expense Data
Collecting comprehensive data on both fixed and variable expenses is crucial for a thorough fleet cost management analysis.
Fixed costs remain constant regardless of vehicle usage:
• Taxes
• Insurance premiums
• Depreciation
• Licenses and permits
• Vehicle payments
Variable costs fluctuate based on vehicle usage and operational factors:
• Repairs
• Tolls
• Parking fees
• Cleaning services
Step 4 – Calculate Cost Per Mile (CPM)
The cost per mile (CPM) metric provides a clear picture of what it costs to operate your vehicles for each mile driven.
The formula for CPM is:
CPM = (Fixed expenses + Variable expenses) / Total number of miles traveled
Perform this calculation for individual vehicles and your entire fleet.
Step 5 – Analyze Data
With your TCO and CPM in hand, it’s time to dive into data analysis. Start by comparing your fleet’s performance to past benchmarks. You can also compare them to industry standards for fleets similar to yours in size and sector.
Next, look for concerning trends in your data. Is your TCO increasing faster than fuel prices and revenue? Dive into the data to check whether you’ve been driving longer routes or if you need to replace vehicles. Have you been maintaining vehicles on schedule? If not, consider how you can either implement or improve use of fleet management software.
Regular analysis allows you to catch issues early and make proactive adjustments to your fleet management strategy, ultimately leading to better cost control and improved operational efficiency.
4 Tips To Reduce Fleet Management and Operating Costs
Here are four ways to reduce fleet management costs and boost vehicle lifecycles:
Proactively Track Risky Driver Behavior
Telematics devices, particularly Electronic Logging Devices (ELDs), can identify behaviors that increase fleet expenses and pose safety risks, such as excessive idling and speeding.
By leveraging telematics data, you gain valuable insights into both driver and vehicle trends.
This information allows for more effective driver coaching and helps optimize route planning, leading to reduced fuel consumption.
The result is optimal running costs that decrease your fleet’s total cost of ownership.
Track Expenses to Spot Maintenance Issues
While telematics systems alert you to potential issues, controlling these issues effectively is a whole different matter. Integrating a smart fuel card with telematics is key to automating expense management and gaining deeper insights into your fleet’s spending patterns.
Smart fuel cards offer several advantages for managing your fleet’s expenses:
1. Set category spending limits for drivers, ensuring better control over various on-the-job expenses.
2. Approve time-sensitive expenses manually, maintaining oversight of exceptional costs.
3. View real-time spending reports on a centralized dashboard, allowing for quick decision-making.
This automated approach to expense management helps you maintain a tight grip on ongoing costs and identify opportunities for more efficiency. The result is optimized costs and an optimal TCO.
Secure Fleet Gas Payments
One effective way to reduce fleet expenses is by using a smart fuel card for your fleet’s expenses. Smart fuel cards offer several advantages over traditional payment methods.
Firstly, they prevent card skimming, a common form of fraud at gas stations. Additionally, these cards often come with a driver verification system.
For example, drivers use Coast’s check-in via SMS before making a purchase. This extra step ensures that only authorized personnel can use the card, significantly reducing the risk of unauthorized transactions.
By implementing smart fuel cards, you can better control and monitor your fleet’s fuel expenses, prevent fraud, and reduce fraudulent fuel purchases.
Automate Tracking and Alert Thresholds
Linking your smart fuel card to telematics to automate fleet management. For example, if a fuel fill-up exceeds a vehicle’s tank capacity, you’ll receive an immediate notification. This could indicate potential fuel theft or misreporting, allowing you to investigate promptly.
You can also set alerts for when category expenses exceed predetermined thresholds. When triggered, these alerts prompt you to manually verify expenses, ensuring that all costs are legitimate and necessary.
This automated approach shifts your focus away from tracking paper receipts and managing complex spreadsheets. Instead, you can concentrate on addressing important issues that directly impact your fleet’s efficiency and bottom line.
Expense Management is Critical to Fleet Cost Analysis
Effective fleet cost management hinges on having access to the right data at the right time. Smart fuel cards have emerged as a critical piece of this puzzle, offering fleet managers unprecedented control and visibility.
Coast takes this concept a step further, providing a comprehensive solution that addresses multiple aspects of fleet expense management. With Coast’s open-loop smart gas cards, you can:
Set category spending limits for drivers enabling granular budget management.
Approve time-sensitive expenses manually ensuring that drivers aren’t hindered by rigid spending rules.
Access financial data on a centralized dashboard.
Learn more about how Coast’s smart fuel cards are making fuel theft a thing of the past and reducing fuel bills by 10%.
Apply in minutes