How do you manage the total costs of your fleet business? Do you create a budget and then spend accordingly? Do you consider all expenditures in that budget? Fleet business may put you in unforeseen expenditure. Thus calculating the total cost of ownership(TCO) for your fleet becomes important as it measures the total cost of a vehicle including every cost like maintenance and acquisition.
The total cost of ownership is one of the highest costs linked with fleet management. Thus, each element of TCO must be carefully calculated and managed so fleet managers can easily recognize issues and make quick and accurate decisions. You will also find the link to the tool using which you can directly calculate TCO.
The TCO calculation also gives you an idea about when to replace your vehicles or go for leased vehicles. You have to be very careful while calculating TCO as a small mistake can generate false reports on the cost of your assets and can mislead you in making decisions on the budget.
What does it mean by the total cost of ownership?
The term total cost of ownership in fleet business indicates the calculation of total vehicle cost for your company with the aim of showing the right financial path to both the buyers and owners. You can easily identify the economic value of your investment in the vehicle on the basis of TCO calculation.
You can analyze the TCO report for making financial decisions. The TCO report includes:
- Operating costs
- Replacement or upgrades in any vehicle
- The total cost of acquisition, and much more.
But it contains some other uncommon factors that you might forget to think about while making purchasing decisions:
- The initial buying cost of the vehicle.
- Return on investment while selling the vehicle.
- All the expenditure between buying and selling the vehicle.
Why calculating the total cost of ownership for your fleet is important?
The TCO includes all the vehicle costs from the time of buying by the owner till the time they sell it including the time of operation and maintenance in between. It is an important part of fleet management as it gives a better understanding of your vehicle performance compared to other vehicles in your fleet.
Make sure to calculate it accurately as it can help you in making decisions like:
- Leasing or purchasing decision
- Vendor and vehicle selection
- Budgeting and financial planning
- Asset lifecycle maintenance.
Fleet success is mostly dependent on a reliable vehicle that does all the jobs it is expected to do at the lowest cost possible. Using the right tools to track vehicles and their performance or driver and their behavior makes the task easy for fleet managers.
Also calculating the total cost of ownership for your fleet ensures that you do not forget to include all the costs regarding owning vehicles. Because if it happens, it can lead to major challenges like the inadequate budget to fund the maintenance and repair of the vehicles, organizing driver training, and hiring a fleet manager.
What costs should be included while calculating TCO?
|What costs do you see?||What hidden costs you don’t see?|
|Fuel costs||Labor costs|
|Repair||Fees and taxes|
|Importation costs||Toll and parking costs|
While calculating the total cost of ownership for your fleet, you have to keep both of these costs in mind.
Financing costs include the following:
Finances are related to the vehicle when it is either leased or owned. It is the company’s decision on whether to take the benefit of leasing or borrowing or opt to purchase. So the charges imposed on vehicles include interest costs, lease administration fees, or opportunity costs of ownership.
Acquisition costs include the following:
The more functionalities you choose to add to the vehicle, the higher becomes the cost. Thus, you must first analyze the value of these functionalities to your business including the resale value of the vehicle.
Here is the list of things included:
- Local taxes
- Manufacturer incentive or concessions
- License charges
- Additional functionalities cost(installation, storage designing, configuration)
- Administration charges
- Environmental taxes
- Charges of Fueling up the tank.
- Dealer’s selling price
- Pre-delivery investigation
Running a vehicle cost includes the following:
Vehicle maintenance, fuel, upkeep, repair, etc are the expense on a daily basis that contribute the most to TCO:
Here is the list that comes under it:
- Vehicle repair
- Car washing
- Parking tickets
- Unforeseen maintenance repairs after a mishap.
- Plate renewals
One of the most important factors while calculating the total cost of ownership for your fleet is considering the resale value that we miss. Think of two factors while reselling:
- The highest amount a vehicle can cost you at the time of resale.
- The best age, time, and mileage to replace the vehicle.
While purchasing the vehicle you can consult the market professional and resale resources to understand the market and the value of your vehicle at the time of resale.
Formula to calculate TCO:
TOTAL COSTS: Financing costs + Acquisition costs + Vehicle operating costs - Resale value
TOTAL MILEAGE: Engine hours over the life of the vehicle
You can calculate the TCO from this formula as per the conditions of your business. But here is the tool that you can use to calculate the TCO for your business quickly. Click HERE.
Tips to calculate the total cost of ownership for your fleet
As per the guidelines and steps mentioned above, prepare a list of all costs and expenditures. Put them in the formula to calculate the TCO for your fleet.
But remember one fleet will differ from the another and so will its calculation, quality of maintenance, asset number, the economy of scale, etc. So the metrics for calculation differ from one fleet type to another. You can also compare the TCO of a similar type of fleet to get a better idea.
So now go and start calculating your TCO. We hope that this article could be of some help to you. If you are having any issues regarding the topic, feel free to reach out to us by dropping your queries in the comment section below or email us at firstname.lastname@example.org. You can also fill the “contact us” form on our website to seek our help.