Calculating the Total Cost of Ownership of Your Fleet
Why Total Cost of Ownership Matters
Whether you're a small to medium-size business with no more than just a few vehicles in your fleet or a larger more established organization operating a robust fleet, fleet management can pose several significant challenges for your business but budgeting doesn’t have to be one of them. It’s important to calculate your fleet management costs with precision because incomplete or incorrect estimations can be detrimental to your business. Accurately calculating your fleet’s total cost of ownership (TCO) is not only essential to effectively and efficiently managing your fleet but can also be used in financial projections to inform procurement decisions.
Fleet management costs can include a wide variety of both fixed and variable costs and value metrics, including expenses such as the initial purchase price, ongoing maintenance and service costs, fleet operating expenses and more, as costs can differ significantly depending on the nature of the business and utility of your fleet. You might also consider some soft costs and value metrics such as the value of eliminating even just one accident through safety and other related technology features or value derived from organizational objectives such as sustainability initiatives or operator recruitment and retention.
How to Calculate Total Cost of Ownership
While there is no universal formula for accurately calculating your fleet’s total cost of ownership, there are some universally applicable costs and value metrics that should almost always be included in your calculations:
In order to calculate the total cost of ownership of your fleet, you must first calculate the individual cost of ownership of each vehicle within your fleet, as your fleet’s total cost of ownership, is the sum total of the individual cost of ownership of all the vehicles within your fleet. However, before you can calculate the individual cost of ownership of a vehicle within your fleet, you must first determine the vehicle’s term of service. A vehicle's term of service can be measured by both time or kilometres driven. Once you’ve determined a vehicle’s term of service you can use that to calculate what the residual value of the vehicle will be upon completion of the term of service.
Initial Cost - Depreciation = Residual Value
Once all the relevant costs and value metrics have been determined you can use the following equation to calculate the individual cost of ownership:
Initial Cost + Operating Costs + Maintenance Cost - Residual Value = Individual Cost of Ownership
Once you’ve determined the individual cost of ownership for each vehicle within your fleet you can add them all together and obtain your fleet's total cost of ownership. It is essential that you identify the relevant cost and value metrics based on the unique nature of your business and utility of your fleet.
How to Reduce Your Total Cost of Ownership?
The primary factor in maintaining a low total cost of ownership is selecting the right vehicles for your fleet. Schedule a consultation with one of our fleet specialists today and explore our award-winning lineup of compact, mid-sized, crossover, SUV, performance, hybrid and electric vehicles equipped with our industry-leading comprehensive warranty and technologically advanced safety features.