Managing a fleet involves more than organizing drivers and vehicles on the road. Understanding and controlling associated costs is also a key part of the job.
For every fleet of trucks, there’s a considerable cost of fuel, regular maintenance, unexpected repairs, and even training for those behind the wheel. These expenses can quickly pile up, making fleet management challenging.
But, with some planning and wise decision-making, you can keep your fleet rolling without breaking the bank. In this article, we’ll explore the different areas of fleet management costs and share some handy tips to help you keep everything balanced and on track.
What Are Fleet Management Costs?
Fleet management costs encompass a wide range of expenses related to managing a fleet of vehicles. A fleet’s operational costs, such as fuel, maintenance, driver salaries, and equipment, are often the first to come to mind. These expenses are often the largest—and most obvious—part of a fleet’s budget.
Managers may also use fleet management technology like telematics and GPS systems to track and monitor their vehicles. These tools can identify areas for improvement, such as better route planning and more efficient driving, as well as reduce fuel costs and vehicle wear and tear, but they can be costly.
Finally, fleet management expenses include administrative costs associated with managing a fleet, such as vehicle registration, insurance, and taxes. These costs are often mandatory and can add up quickly.
Types of Costs in Fleet Management
Although fleet management costs cover a wide range of expenses, you can divide them into two categories: fixed and variable costs.
Fixed costs, sometimes known as overheads, form the basis of fleet management costs. These expenses, typically scheduled monthly payments, remain consistent over a set period regardless of variables like time or distance. Their predictability makes budgeting and forecasting straightforward.
Examples of fleet fixed costs include:
- Truck and trailer payments
- Licenses and permits
- Office space rent
- Accounting and legal fees
In contrast to the stability of fixed costs, a fleet’s variable costs fluctuate based on a wide range of factors. Things like shifts in work volume, mileage and travel, and services and parts used can all affect costs. These variable expenses can significantly impact a fleet’s bottom line, making management essential.
Variable costs commonly associated with fleets include:
- Maintenance and repair
- Accidents and violations
- Lodging and food
Fleet Management Cost Analysis
Maintaining and controlling costs is one of the biggest challenges in fleet management and one of the most significant. Keeping detailed records of expenses can help you manage fixed costs, predict and plan for future variable costs, and manage your fleet more effectively.
To implement fleet management cost controls effectively, you must find a systematic analysis approach that works for you. Fleet management automation tools facilitate quick, accurate, and real-time expense tracking. Not only does this provide valuable insights into fleet operations, but it also helps to identify cost savings areas.
As part of a fleet management cost analysis, fleet managers should consider two critical metrics: Total Cost of Ownership (TCO) and Cost Per Mile (CPM).
Total Cost of Ownership (TCO)
Understanding your fleet’s Total Cost of Ownership (TCO) is essential to cost analysis. TCO measures the true cost of your fleet by removing fleet management costs from asset purchase prices and making value adjustments.
Insights from the TCO can guide several strategic decisions, including preventative maintenance schedules, decisions on fleet size adjustments, and optimal timing to sell, decommission, or replace vehicles.
To calculate the total cost of ownership, use the following formula:
TCO = Initial cost – (Operation cost + Maintenance + Downtime + Production) – Remaining Value
You’ll need to know the following to complete the formula:
- Initial cost: The upfront price of vehicles, considering their specifications and whether they’re leased or purchased.
- Operation cost: Recurring expenses associated with running the fleet, such as fuel usage, licensing and vehicle administration, and driver compensation.
- Maintenance: Periodic expenses required to keep the fleet functional, including costs related to vehicle upkeep, repairs, and downtime.
- Production: The fleet’s revenue-generation potential, often equated to the distance traveled or miles covered.
- Remaining value: The depreciated value of vehicles as they age and wear.
While smaller fleets may have less access to detailed information, they should resist the temptation to calculate TCO based on industry-standard data. Fleet size significantly impacts averages and calculation differences, and it’s imperative to use data specific to your fleet to get the most accurate results.
Cost Per Mile (CPM)
Another key cost analysis metric is the Cost Per Mile (CPM). CPM calculates the costs of driving a truck a single mile using the following formula:
CPM = (Fixed expenses + Variable expenses) / Total number of miles traveled
By adding all of your fleet management costs, both fixed and variable, and then dividing them by the mileage driven during a period, you can determine how much you spend per mile. This measurement offers a granular understanding of your company’s fleet management costs.
Understanding your fleet’s CPM allows you to:
- Evaluate the financial efficiency of each vehicle’s operation
- Analyze current routes’ effectiveness
- Understand the direct correlation between vehicle usage and costs
- Improve driver performance by analyzing routes and driving habits
How to Reduce Fleet Management Costs
For fleet managers, efficient operations and cost control are vital. If you need to reduce your fleet management costs after performing a cost analysis, the following tips may help.
Enhancing aerodynamics improves fuel efficiency and reduces wear and tear on vehicles. By decreasing air resistance, trucks experience less drag, allowing them to move more efficiently and consume less fuel.
Technologies like TruckWings, designed to close gaps between the cab and trailer, can significantly improve a truck’s aerodynamic profile. Innovations like these can offer substantial long-term savings.
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Reduce fuel costs
In fleet management, fuel consumption is often the most significant variable cost. Adopting fuel-saving strategies, such as regular engine maintenance, driver training for efficient driving practices, and aerodynamic improvements, can make a tangible difference.
Furthermore, integrating fuel management software can assist in monitoring and managing consumption patterns, paving the way for further cost reductions.
Lower maintenance costs
Routine and preventative maintenance extends vehicle lifespans and reduces downtime. Ensuring regular inspections, adhering to recommended service intervals, and promptly addressing minor issues before they escalate can curtail costly repairs in the future.
Fleet management technologies enable proactive maintenance scheduling and vehicle tracking through real-time diagnostics. They can help identify potential problems before they occur, saving time and money.
Optimize Your Fleet Management Costs With TruckLabs
Fleet management is no small feat, especially regarding cost management. For fleets to operate efficiently and profitably, every detail counts.