When speaking with a client about their recent vehicle purchase, the owner smiled and said, "I want to show you something". He pulled out a spread sheet containing the cost centers for all of their pickup trucks, vans, rack trucks and dump trucks.
"I know how much it costs to run our trucks, which is why we decided to replace that aging pickup with a 2-year old Chevy we just picked up at the auto auction," he said.
I was eager to learn how he was able to distill this key metric, or when it's time to replace a vehicle instead of repairing. I want to share with you what I have learned since that day, calculating total fleet costs, and why this is the first step in controlling costs to improve your bottom line.
Vehicle cost center worksheet (Excel)
Cost per mile
There are five major costs associated with the running a fleet that are part of a vehicle cost center. While these costs vary depending on your business, here is a baseline calculated by the American Transportation Research Institute (ATRI).
Based on the ATRI's 2019 report, the average cost per mile to run a truck is up to $1.79, which is a 6% year over year increase. However, you should take these numbers with a grain of salt as they vary by region, fleet size and load type.
Measure to manage
If you can't measure it, you can't manage it. To get a handle on reducing fleet costs, we need to start by organizing expenses into the basic categories mentioned above, or come up with your own that better suite your business. By doing this, you are able to compare your own cost per mile with industry standards. If possible, use annual averages to calculate your vehicle cost.
For the purpose of this, labor should be counted as the time drivers spend behind the wheel plus time spent on inspections, fueling, etc. Two ways to calculate this: export a report from your telematics system with total drive time and times that by your hourly wage. Alternatively, vehicle labor can be calculated from your payroll and divided by annual miles.
If you use a fuel card or have on-site fueling, use those invoices over the year and divide by annual miles. Otherwise, take all receipts from gas stations and divide by annual fleet miles.
If you lease vehicles and preventative maintenance is part of your lease, you only need to add up wear items like tires for this. Otherwise, add all invoices from parts, repairs, preventative maintenance in addition to wear items.
There is no hard and fast rule for depreciation, it can vary on the make and model, market for the vehicle and more. By researching resale value of some commercial dump trucks, I calculated an average of 9% of the vehicle's value is lost every year since new. If you have real numbers based on your purchase and sale price of your vehicles, use this instead.
This one should be pretty straightforward, take your total commercial auto policy costs, including deductibles for accidents and divide it by your total fleet miles.
Behavior changes lead to cost savings
After looking at your own cost per mile, and comparing it to the industry average, you will identify areas for improvement. Making small, simple changes will have an impact on your annual fleet spend, and the sooner you adopt these habits, the bigger the impact will be on your organization.
Here are a few simple ways to reduce your fleet operating costs. Note: simple does not mean easy. These can require changes in company culture, procedures and maybe require attitudes to change. This doesn't all have to happen at once, identify which items are most likely to pass muster with your team and go from there.
Limiting highway speed
Lowering the cruising speed of your trucks on the highway will reduce your operating costs like fuel and maintenance. By reducing highway speed from 75 to 65 MPH will reduce your fuel consumption by 27%.
Of course a lower top speed means longer trips and more hours on the driver's timecard, so going too slow will cost more as well. The optimal speed depends on your wages, but a good rule of thumb is between 55-65 MPH is ideal.
If your trucks are not fitted with a speed limiter, there are a few things that are cheaper and can have the same effect like stickers on the inside and outside with a maximum speed posted.
1. Slow it down
|For every 5 MPH slow your trucks travel on the highway, fuel costs are reduced by 9% (NHTSA)|
2. Optimize your routes
|Using commercial truck GPS navigation helps reduce miles travelled by up to 10% (FMCSA)|
3. Improve driver habits
|Changing bad driving habits can improve fuel economy by 33% (Fleet Financials)|
4. Cut out idling
|Idling is bad for the environment, your engine, is illegal in many states, and provides nothing to productivity|
5. Sell unused trucks
|If the utilization of a truck is very low, consider selling it and renting when extra capacity is needed.|
Vehicle cost center worksheet (Excel)
If you want to see how much money your fleet is spending per truck, download the worksheet (free) to calculate your cost per mile based on your annual spend or vice-versa.
To learn more about how to implement a telematics system to gather data used in this spreadsheet, check out our article on GPS for first time buyers.