A Complete Guide to Fleet Management Cost Analysis

In today’s unpredictable world economy, fleet management cost analysis is an essential part of protecting and growing a business. As a fleet manager your responsibility is to manage the fleet in the most efficient and cost effective way possible, maximizing performance and profit.

Latest research by the American Transport Institute shows that total average costs jumped by 23.1% in 2023. Fleet managers need to be more strategic to keep costs down and fleet management cost analysis helps identify what’s being spent and where.

More importantly, you’ll discover exactly the unnecessary costs killing your profit margins and operate more efficiently overall.

The Importance of Fleet Management Cost Analysis

According to industry publication Trucking Dive, the findings from the American Transport Institutes report means fleet owners and operators need to closely monitor and prioritize costs to maintain financial stability. This is why fleet management cost analysis is so important. The importance of fleet management cost analysis can be broken down into two main areas.

• The overall profit picture: Fleet managers need to be keenly aware of every expense their fleet generates and what impact that has on the profit of the business.  Fleet management cost analysis helps you identify where money is being spent, how it’s being spent and crucially where money can be saved, ultimately improving your profit margin.
• The return on investment in the fleet: Fleet management cost analysis helps you discover which costs are performing or underperforming. It shows how much is being spent on drivers salaries, fuel, fuel cards, insurance and other similar costs. Fleet management software then helps you analyze if each of these costs is worth the investment or if you need to eliminate it.

How to Perform a Fleet Management Cost Analysis

According to Verizon Connects Fleet Technology Trends Survey, the number one trend for 2024 is that vehicle fleet management is key to reducing costs. It’s never been more important to perform regular fleet management cost analysis – but how do you perform this type of analysis?

Calculating Total Cost of Ownership (TCO)

Total cost of ownership, or TCO as it is commonly known, is the sum of every expense throughout the year. The equation for TCO is quite straightforward – fixed costs vs variable costs = TCO.

This is the first step of conducting a fleet cost analysis and gives you an overall view of your fleet expenses for the year. You could also calculate this on a monthly or quarterly basis. Here’s a quick example: A mid-sized fleet calculating its TCO for the year has $80,000 in fixed costs and $50,000 in variable costs.

$80,000 + $50,000 = $130,000

Before going on to the next step of fleet cost analysis, it’s worth explaining what fixed and variable costs are and what they mean for your feet.

What are Fixed Costs?

Fixed costs cover any costs that are predictable. Also known as capital costs or overhead costs, they cover things like insurance, purchases, licences and permits, and anything else that is a fixed, recurring expense. Here are a few examples of fixed costs.

• Vehicle purchasing payments: There’s a broad range of financing options for purchasing a fleet vehicle, which typically includes repaying the financing on a fixed monthly basis. Vehicle purchasing is one of biggest fixed costs
• Insurance: Having insurance is critical and you can’t run a safe, compliant fleet without it. Insurance is another big fixed cost and covers a number of different areas of your fleet.
• Depreciation: The depreciation of each fleet vehicle will remain the same each month through usage and wear and tear until it has no value at all.
• Licences and permits: Like insurance, licences and permits are crucial to the running of a fleet with many up for renewal on a yearly basis for a coast.

What are Variable Costs?

Variable costs on the other hand vary month to month. Examples of variable costs include fuel, vehicle maintenance, tolls, accidents, and employee training. Here are a few of the more common variable costs in more detail.

• Fuel: Most fleets run on diesel and it’s probably the highest variable cost. Fuel consumption can vary month to month depending on the length of journeys taken. Rising fuel costs also must be taken into account, with the latest figures from the US Energy Information Administration showing that diesel is just below $4 per gallon.
• Vehicle maintenance: Fleet vehicles will inevitably have mechanical issues or break down completely. This may happen zero times a month or fifty times a month so you need to be ready to factor in these costs.
• Accidents and fines: An unavoidable part of operating a fleet is the cost of accidents, be it insurance payouts or damage repairs. Again, the frequency of this can be unpredictable.
• Training: Sometimes drivers and other fleet related staff will need training to use new software and systems or if they need to qualify for a certain licence and permit. These costs can occur at any time of year.

As well as variable costs, fleets can incur semi-variable costs, which are things like driver and staff salaries, GPS tracking software and recruitment expenses. Of all these costs, salaries make up the biggest expense in your business. According to the US Bureau of Labor Statistics, the majority of trucking companies pay between $0.28 and $0.40 per mile.

Calculating Cost Per Mile

Once you’ve added all your fixed and variable costs up and get your TCO the next step is to calculate cost per mile. This formula is also pretty straightforward – TCO/total miles driven = cost per mile. Going back to our earlier example, If our TCO is $180,000 and the miles driven is 100,000 miles, then the cost per mile is $1.80.

From this you can make better predictions about your future fleet expenses. Today, a lot of fleet owners use fleet management software to help conduct accurate fleet management cost analysis, allowing them to product predictive cost models, helping them budget more effectively.

How to Reduce Fleet Management Costs

There’s a number of ways to reduce fleet management costs, including cutting down on fuel costs, optimizing routes, improving driver performance and behavior and implementing the best fleet management software. Let’s take a look at a few of these options.

Cut down on fuel costs

GPS tracking can be used to better plan your routes and save fuel. Fuel is one of the highest variable costs and the price of diesel can fluctuate due to global economic conditions. As well as planning more fuel efficient routes, shop around for a fleet fuel card with the best savings and discounts.

Reduce engine idling time

The Environmental Protection Agency (EPA) estimates that an idling diesel engine will consume 0.8 gallons of fuel per hour. In this study on idle reduction, it found that 25 trucks in fleet idling for 2 hours per day will cost $46,000 per year. GPS tracking can be used to see when your drivers are idling and for how long, meaning you can intervene and reduce unnecessary idling.

Schedule regular preventative maintenance

Vehicle maintenance is a variable cost that can have a high impact if the issue is serious and the vehicle needs to be taken off the road for a period of time. To stop this happening, schedule regular maintenance for your fleet vehicles so any issues can be spotted early and breakdowns can be reduced.

Implement fleet management software

The days of running a fleet with radio, map and pen and paper are well and truly over. Most, if not all modern fleets use a robust fleet management software to manage their fleet. Fleet management software will give you a complete picture of what is happening day to day, allowing you to make proactive decisions to prevent costs spiraling out of control.