Understand your fleet management costs and learn how to reduce spending

When it comes to the cost of fleet management, there are effectively two areas to look at: capital and operational costs.


a lady using a calculator to figure out fleet management costs

Effective fleet cost management allows managers an opportunity to develop an understanding of all financial aspects of the business – where and how money is being spent and areas that it needs to be reduced. As with any business, fleet managers are being challenged with reducing overheads and to keep within budgets. Any overspend needs to be quickly addressed in order to retain overall profitability.

How can fleet expenses be reduced?

The first stage is knowing exactly how and where money is being spent.  This puts you in a strong position to better manage spend, creating the ideal opportunity to reduce costs.

So, what are the costs associated with fleets?

We have split these into capital costs and corporate costs.

Capital costs

The capital costs of your fleet include:

Acquisition costs
Ongoing financing of the vehicles
Deprecation (relevant for company purchased vehicles)

Not only does this include the actual figure of buying or leasing the fleet vehicle, but also the cost of acquiring the money to do so.

If, for example, you are outright purchasing, you need to understand how much the capital outlay is costing the company if the money has come through a lender. If the vehicle is leased, you’ll need to understand the tax advantages – or disadvantages – of that approach over the course of the vehicles’ fleet life.

This can differ across companies, depending on accounting procedures and financial position.  It’s imperative, however, that you start here when looking at your fleet management costs, otherwise the results of your subsequent calculations will always be skewed.

A good fleet management company will be able to lay this out in clearly, and once you know your base financial position you can start to act.

Lowering capital costs

This obviously varies according to the way that vehicles are acquired – be that owned or in a form of lease agreement. Accounting for about half of a fleets’ total running costs. it’s worthwhile looking at the cost benefit analysis to determine which is the best option for your fleet,  giving consideration to the capital costs available to you.

So, what are the options?

Company car ownership – the vehicles are purchased outright which means that responsibility for all servicing and maintenance repairs to keep vehicles roadworthy is yours. Fleets that don’t have their own in-house workshop division can outsource this work.

Lease – the vehicles remain the property of the leasing company but on a hire agreement to the fleet. Depending on the what’s agreed in the contract, this can mean that all maintenance and servicing is carried out by the leasing company at agreed intervals – helpful for fleets that don’t have their own maintenance departments!

Taking this approach can have the potential to cut your leasing costs by as much as 10%, but this third party agreement does need to be managed strategically – choosing the cheapest option every time doesn’t always work out in the long run.

reduce your leasing costs by 10%

Pool cars – these are company owned vehicles that can be used by eligible employees for ad-hoc business trips. For infrequent business journeys carried out be several employees, this is a more cost-effective option than providing individual company vehicles,

Grey fleet – the vehicle is the property of the employee but utilized for business purposes such as carrying out sales appointments. All running and maintenance costs are picked up by the vehicle owner and the company pays an agreed business mile rate for each business journey taken.

With options available, a fleet manager needs to take the time to calculate the most cost effective and practical vehicle solutions for their business. Capital available to fleet manager to source vehicles plays a part in influencing this decision too. Loaning money to purchase vehicles may become an expensive option with interest rates and other charges that apply through such a business decision.

Depreciation 

Depreciation is a major part of capital cost, accounting for as much as 40% of the total cost of running a vehicle. From a fleet management perspective, there are many elements to consider including:

Picking vehicles with strong predicted used values
Working with the finance department to account for depreciation throughout the vehicle’s life on your books
Maintaining and looking after them properly
Ensuring they always have the right paperwork
Managing drivers so they look after them
Defleeting them at the right time

As with buying or selling anything, striking a deal at the right time can be an art and for this, it may well be worth sourcing a fleet management company in to help.

Operational costs

The operational fleet management costs are those that arise from day-to-day vehicle activity and the ongoing business of running them. These associated costs include fuel, insurance and service, maintenance and repair.

We look at each and how you can reduce the costs.

Fuel

Fuel cost is a major expense of running a fleet, and it can fluctuate depending on a wide range of factors that are sometimes out of your control. That said, from a fleet management perspective, there are some actions you can take to best manage costs.

Firstly, understanding the performance of your vehicles and choosing those with the best fuel-efficiency is a good place to start. Alongside this, it’s important to select the right type of fleet vehicles for the intended job. There is little point in picking a 4×4 vehicle to do short, urban commutes, for example. The tax, fuel and insurance costs alone will make it an expensive vehicle to run, let alone excessive wear and tear through start/ stop journeys.

For high mileage vehicle workloads, diesel has always come out the best in terms of value but with the recent changes to legislation and increases in taxes, this may no longer be the case.

Whichever fuel type you opt for, it goes without saying that it needs to be purchased at the best price possible. There are a number of options available to purchase fuel at a competitive rate such as through the use of fuel cards.

There are other factors that can influence fuel consumption such as driver behavior.  Drivers that are heavy on both the accelerator and break are going to have higher fuel consumption  rates during each journey when compared to a driver that makes smoother gear changes and has more consideration for the vehicle.

If you suspect that your drivers are being over demanding on your vehicles (telematics and fleet management can help evidence this) then it’s time to incorporate additional driver training and address company policy to help address this.

The maintenance levels of vehicles can have a direct correlation to fuel consumption. A clear example of this is under inflated tyres that can, for example, increase fuel consumption by as much as 15%. See our infographic for more tips on how to reduce your fleet’s fuel costs.

Insurance

It’s always worth shopping around when your insurance premium is up for renewal. Whatever policy you currently have, you need to have an understanding of  your risk to help reduce the costs of your next fleet insurance premium. Incorporating a risk assessment (usually with the support of your insurer and fleet management company) helps to analyse your claims history and highlight areas that need to be worked on.

Driver behavior, particularly those considered to be a risk, can have a significant effect on your premiums. Fleet driver training or fitting telematics into vehicles can help mitigate this.

Service, Maintenance and Repair (SMR)

Service, maintenance and repair (SMR) rates can have a big impact on your fleet management costs of ownership, but there are options to help reduce these costs.

There are both advantages and disadvantages to having an in-house workshop verses outsourcing the work. It’s not just about the costs though – thought needs to go into length of vehicle downtime, service level agreements and customer expectations. There’s no point using a cheap maintenance provider if the turnaround time is a week verses a couple for days for a more expensive provider. This could leave you without vehicles to fulfil orders and an additional costs to hire in vehicles in the interim.

It goes without saying, always read the small print and agree on the service level agreements before outsourcing any work to avoid being tied into a contract that fails to meet expectations at the detriment of your business. With these sorts of contracts, it’s not always about cost but more overall value for money.

The importance of fleet management software

Having the tools in place to help you track and manage processes to enable informed decisions is paramount to any business. Fleet management software is a single depository for all fleet information including vehicles, fuel and drivers. By utilising the information available, the reporting structures will provide an in-depth analysis of spend incurred, support the decision making process and help control costs.