Fleet Management Costs: A Comprehensive Guide
If you’re the owner-operator of a fleet of commercial vehicles, you know that there are dozens of expenses involved with owning just a single vehicle—let alone an entire fleet of them.
To maximize profitability and optimize fleet efficiency, you must regularly perform a fleet management cost analysis.
This vital element of financial planning gives you visibility over business operations and makes it possible to base your decisions on data instead of guesswork. But to build your fleet budgets and plan for the future, you’ll first need to account for every single one of your fleet management costs.
What Fleet Management Costs To Account For
In order to properly plan a budget and perform an analysis, you should begin by dividing your fleet’s various expenses into one of two categories: fixed costs and variable costs.
Note: All cost averages and estimates have been pulled from the American Transportation Research Institute’s (ATRI) 2019 report.
Fixed costs, sometimes referred to as overhead costs, are expenses that don’t change over the short term, regardless of whether your trucks are on the go. They’re predictable, which makes them easier to budget for.
The most prominent fixed costs you need to consider include:
- Truck/trailer lease or purchase payments – You can’t operate a fleet without the vehicles. At 27¢ per mile, vehicle financing represents the highest fixed cost in a fleet budget. This category will likely account for 10%–20% of a fleet’s total operating costs, depending on the operation.
- Truck insurance – Every professional driver needs insurance to legally operate a commercial semi-truck. Insurance protects your driver, their truck, and other motorists on the road. Clocking in at 8¢ a mile, truck insurance tends to be the second-highest fixed cost.
- Depreciation – How quickly a vehicle’s value depreciates depends on how carefully you maintain it. However, as a fixed asset, a certain percentage of its value will automatically decrease each year. You can calculate depreciation by subtracting the estimated final value from the purchase price, then dividing it by the amount of time you expect the fleet vehicle to remain operational.
- Licenses and permits – To legally operate a vehicle, the company and the driver must obtain and renew dozens of applicable licenses and permits, and each one will have an attached fee. Examples include:
- ~IFTA licenses
- ~Commercial driver’s license (CDL)
- ~Non-resident business permits
- ~Over-length permits
- ~Oversize and overweight permits
- ~Hazardous material permits
- Office space – If you have an office, you need to include it as an operating fleet cost. This will include other fixed expenses like:
- ~Property taxes (if you own the building)
- ~Monthly rent or loan payment
- ~Office supplies and equipment
- ~Utility bills (electricity, water, internet, phone)
Expenses within this category include the costs necessary to operate a vehicle. Month-to-month, variable costs tend to be less predictable due to changes in work volume or macroeconomic factors.
Prominent variable costs you need to consider include:
- Fuel – Trucks run on diesel—and they burn a lot of it every day they operate. As a result, fuel consumption will typically represent the highest variable cost for any fleet. In the past, fuel costs accounted for up to 25% of the operating budget with an average marginal cost of 43¢ per mile. As fuel prices increase, owner-operators must take hold of their fleet fuel management processes by budgeting for fuel expenses and taking proactive steps to reduce fuel consumption costs.
- Maintenance and repair – Complex machines can’t run forever. They need to be regularly inspected and maintained. On average, repair and maintenance cost approximately 17¢ for every mile driven. However, the cost of this category depends on your company's philosophy regarding preventative maintenance. If you take proper care of your vehicles and set regular wet and dry maintenance schedules, you can increase the lifetime value of each vehicle in your fleet.
- Tolls – Depending on where you operate, your drivers may need to pay tolls to operate on certain roadways. Proactive route planning can help you budget for this expense, or even reduce the number of toll roads drivers use.
- Accidents, tickets, and fines – This is one of the most unpredictable cost categories. The size of this line item primarily depends on driver behavior. Creating driver safety programs and installing in-vehicle monitoring technologies can help reduce the frequency at which these unfortunate incidents occur.
You may have noticed that a major cost hasn’t yet been discussed—your professional drivers’ salaries. You need to pay people to operate the vehicles, after all.
Driver salary doesn’t fall neatly into either fixed or variable costs. Instead, it’s considered a semi-variable cost. That’s because pay structure may be different from one business to another.
For instance, if drivers have a flat salary, it would function more like a fixed cost. But if they receive a per-mile payment, it would fall into the variable category. There are also other elements of the salary that aren’t as easy to predict, such as overtime.
Salaries tend to be the largest single factor in your total cost of ownership. On average, salary costs 60¢ per mile and benefits cost 18¢ per mile. That can represent up to 50% of the total operating costs.
Calculating the Total Cost of Ownership (TCO) and Cost Per Mile
To perform a fleet management cost analysis, you need to know the total cost of ownership of each vehicle in your employ. Calculating these costs is the first step toward taking control of your fleet budget.
The equation is simple: (fixed costs + variable costs) = TCO. From there, you can calculate the vehicle cost per mile by dividing the TCO by the total miles driven.
Armed with this information, you can make data-driven decisions to improve operational efficiency, such as:
- Deciding when to sell, decommission, or replace a vehicle
- Determining whether to increase or decrease the total size of the fleet
- Setting preventative maintenance strategies
- Evaluating whether to lease, buy, or rent your vehicles
- Analyzing driver behavior and performance
Cut Your Variable Costs with AtoB
The commercial fleet industry is highly competitive.
To thrive over the long term, fleet owner-operators must plan for and then monitor their expenses. Investing the time and energy into budget planning and analysis enables you to make better, more informed decisions about how to maximize your fleet’s profits.
Given that fuel is one of the single most expensive variable costs, it's essential to find ways to reduce fuel cost expenses. Every cent you save on fuel consumption will benefit your bottom line.
AtoB fuel cards can help with that. In addition to a flat 5¢ per gallon discount, AtoB fleet fuel cards have zero fees, can be used universally, and provide access to an insight and analysis dashboard that lets you monitor your fuel spend.
With AtoB, it takes less than five minutes to start saving at the pump.
ATRI. An Analysis of the Operational Costs of Trucking: 2019 Update.