Special offer 

Jumpstart your hiring with a $75 credit to sponsor your first job.*

Sponsored Jobs are 2.6x times faster to first hire than non-sponsored jobs.**
  • Attract the talent you’re looking for
  • Get more visibility in search results
  • Appear to more candidates longer

Fleet TCO: Calculating Total Cost of Ownership from Cost to Depreciation

The total cost of ownership (TCO) is the difference between the purchase price of the assets plus the costs of operations. When it comes to calculating total cost of ownership for fleets, it’s a matter of getting the data you need to make the best decisions going forward. Fleet TCO has to be measured carefully because faulty insight can lead to damaging financial decisions.

Ready to get started?

Post a Job

Ready to get started?

Post a Job

Benefits of fleet management

Fleet management can lead to tangible results including:

  • Improved safety. With proper management, you can see the health and continued usability of your assets. Fleet management helps companies maintain strong communications with drivers. Vehicles that aren’t operating properly put drivers at risk and compromise road safety.
  • Better compliance. Fleets are subject to health, safety and environmental regulations, such as operators being required to log driving hours.
  • Stronger security. Thankfully most vehicles have some sort of tracking system installed. This helps organizations find out where the vehicle is and fulfills the duty to take care of the driver and the unit.
  • Higher efficiency. Managing your fleet means you’re being proactive about addressing maintenance and potential mechanical issues before they become critical.
  • Improved productivity. With all of the data from the systems in place, drivers are more aware of their errors and issues and can take steps to rectify them. This reduces the antagonism that can develop when they feel criticized by their managers.
  • Reduced fuel costs. Fleet management can reduce fuel costs by as much as 20%. Tracking helps drivers and managers see how much fuel is used in gallons or dollars.

Six factors to consider when calculating total cost of ownership

Calculating total cost of ownership requires fleet owners to integrate.

Initial cost

How much the units cost initially depends on how they’re detailed, whether they’re leased or purchased, along with other considerations. Fleet owners may be able to specially design their units to deliver the best ROI. Organizations that pull that off can get the most out of every dollar spent and improve TCO over time.

Operation cost

All of the operating costs that accompany the fleet, including fuel, licensing, taxes and other administrative costs, such as driver compensation.

Maintenance

Maintenance and repairs are part of the logistics industry. With this data, you can accurately see how each unit performs, which will determine maintenance scheduling and the extent of the cost.

Downtime

Units out for maintenance are a significant source of invisible costs, such as lost customer confidence, production or customer accounts. Those that break down or require unscheduled maintenance incur secondary costs that will significantly impact the business and must be quantified.

Cost of production

With fleets, the miles equal money made.

Remaining value

The minute you drive it off the lot, the unit starts depreciating. Assessing the remaining value of your fleet is about choosing between how much the unit would be worth on the open market and the amount of profit it can still make before its operation costs get to be too much. It’s a balancing act that brings into focus the question of whether to buy or lease for the next seven or 10 years.

Hidden TCO factors

What can be tracked easily can be quantified for calculations, but there are some hidden factors that affect your bottom line.

  • Accidents and collisions: In addition to unexpected maintenance, accidents and collisions are major expenses that owners need to consider. About one in five units get into a collision. Along with the cost of repairs and injuries to the drivers, fleet managers have numerous hidden costs, such as legal fees, employee morale taking a hit due to stress and higher insurance rates in their TCO calculations.
  • Recalls. Even though you have diversified your fleet, there are millions of recalls issued from the National Highway Traffic Safety Administration that can affect your fleet.
  • Driver habits. Wasteful operating costs, such as poor routing or idling, are one way to drive up expenses. Poor driver habits such as harsh braking and sudden accelerations not only increase the risk of accidents but cause significant wear and tear on the vehicle.

How to calculate total cost of ownership

Organizations have access to the industry-standard data that’s available for TCO calculation. However, fleet size matters. Small and mid-size fleets may not have the capacity or the readily available data to really understand every nuance of their operations like the big fleet companies do.

This is why it’s important to customize fleet TCO calculations with your actual numbers. The averages and differences in fleet size matter too much to rely solely on industry data throughout your calculations. With your custom data, you can benchmark your fleet’s data against comparable companies and have a proper baseline for more accurate decision-making.

In general, calculating the total cost of ownership is a simple formula:

TCO = Initial cost – (Operation cost + Maintenance + Downtime + Production) – Remaining Value

TCO is about better fleet replacement and life cycle management

Calculating TCO is all about getting the most value from each unit’s cost, from buying to selling. Once you’re able to collect real-time data that goes into every aspect of owning and operating your fleet, you’ll be able to come up with a replacement and life cycle management system that doesn’t drag your vehicles in the ground.

Recent Starting your business articles

See all Starting your business articles
Boost Employee Engagement
Use our guide to plan, implement and analyze employee engagement surveys.
Get the Guide

Two chefs, one wearing a red headband, review a laptop and take notes at a wooden table in a kitchen setting.

Ready to get started?

Post a Job
Editorial Guidelines