Total Cost of Ownership
Total Cost of Ownership
Do you know your fleet’s Total Cost of Ownership (TCO)? It’s a critical data point for today’s fleets, but many fleets struggle to accurately calculate their TCO due to limited data and constantly changing variables. But, with a little planning and some guidance, fleets can leverage this powerful data point to determine fleet efficiency, analyze acquisition methods and identify opportunities for improvement.
Acquire – Operate - Dispose
First, let’s break down the life cycle of truck ownership into three phases that each have their own unique costs associated with them:
- Truck Acquisition
- Truck Operation
- Truck Disposal
1. Truck Acquisition
When making the initial purchase, commercial truck owners often only look at the purchase price, however there are many variables to consider to optimize your investment.
- Purchase price – A properly spec’d truck is critical to optimize purchase price. Under or over spec’ing a truck can be costly in the short- and long-term life of the truck.
- Warranty – Purchasing the right warranty package for your company's needs can provide lower and more predictable monthly expenses. If desired, warranty costs can frequently be financed.
- Interest rate
- Carry Costs
- Holding Period
- Cost of Capital - This variable is often overlooked as some fleets think if they acquire trucks without financing this cost is not relevant to TCO. While others believe this needs to be factored in for a true cost of ownership – The cost is the opportunity cost of the money being used for truck acquisition vs. another investment in the company that has the potential for a higher return.
2. Truck Operations
Now that you acquired your truck, it’s time to hit the road and keep track of your costs so that you can optimize your fleet performance. Here is a list of data points we recommend tracking for TCO calculations:
- Annual Mileage – to determine total cost per mile
- Maintenance and Repair costs – we recommend tracking this by unit
- Maintenance & Repair cost (labor, parts, tire, road side assistance, etc.)
- Uptime – Cost of lost revenue for unit down/day
- Substitutes – Cost of replacement vehicles when your truck is down
- Administrative Costs
- Licensing & insurance
- Legal and regulatory
3. Truck Disposal
In time, you will need to dispose of your truck once the TCO increases to a point a new truck is beneficial to your overall business goals.
- Disposal Value
- Disposal Cost
The goal of disposal is to hit the sweet spot - “what is the optimal amount of time I can operate a vehicle while still running efficiently and dispose of the unit before the TCO becomes higher than the cost of a new vehicle?”
4. Other Considerations?
Those are the key data points we recommend tracking for TCO calculations, however there are several other potential data points to consider if these variables have a impact on your business decisions:
- Fuel cost/MPG – Fuel cost is market driven, so it will be the same regardless of which trucks you are operating in your fleet. However, MPG is a variable you can impact with truck specs. If a new truck would have increased MPG, then you should factor the cost variance into your analysis.
- Drivers - The cost to recruit, screen, hire and train new drivers is high. Would new trucks increase driver retention? Improve driver recruitment efforts? Offer improved safety features for less experienced drivers? Driver recruitment and retention efforts are impacted by the quality of your fleet and should be considered if this is a key business initiative.
- Safety – Newer trucks offer more safety features that can decrease accidents and help positively impact insurance rates.
- Impact of service to your customers – Upgrading to newer model commercial trucks may increase your TCO, but if it improves your service to your customers, it may be a justifiable increase.
- Core competencies – What are your company’s core competencies and where do you want your team’s focus based on business goals?
Are there other variables unique to your business that should be considered? If so, include it in your TCO consistently to offer a comprehensive view that is aligned with your business goals.
Where to Start?
- Define your company’s fleet goals to help prioritize what is most important for your success?
- Develop a process to evaluate TCO costs for your fleet and define how frequently your team will evaluate TCO (monthly, every quarter, annually, etc.)
- Benchmark results – internally or externally depending on available data. If you utilize external data, make sure you are using like data points (compare apples to apples)
- Evaluate results and determine what is successfully supporting your business goals vs. what is hindering your team – which may or may not decrease TCO.
- Use this knowledge to determine next steps for your fleet!
There is no one size fits all when it comes to fleet management, which is why additional knowledge is powerful to help your team make smart decisions.
Contact us if you would like assistance determining your Total Cost of Ownership (TCO) as a complimentary consultation service. As a commercial truck dealer, we sell commercial trucks, as well as lease (our commercial truck fleet has 800+ units), so we are well versed in TCO analysis and we work with our customers to help them determine the right option for their needs.
Because we are a dealership and a leasing organization,
we can give you an unbiased evaluation of your TCO with recommendations for the best solution for your company’s needs.”
Ric Ciesielka // VP Lease/Rental & Re-marketing, Bergey’s Truck Centers
We would appreciate the opportunity to help you leverage your fleet TCO to maximize your fleet performance and drive your business results!!
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We’d love to hear how we can better serve you.