How to predict and control the business costs of your fleet

How to predict and control the business costs of your fleet

As every business searches for consistency, predictability and cost assurance, here’s a guide to controlling your van fleet management spend.

We all know that vehicles incur ongoing costs beyond initial acquisition, from routine management and maintenance, to unexpected downtime. Fleet management budgets are expected to cover a consistent set of costs, a contingency for potential costs and an amount of unpredictable ‘crystal ball’ numbers.  Whatever the size of your fleet, both the contingency and the unpredictable costs can quickly mount up and become difficult to predict.

So, we’ve gathered our expertise to summarise what we see as the three key areas for you to keep in mind when counting your expected and unexpected fleet management costs annually. Where to uncover hidden costs; what might be considered draining fixed costs; complete ownership vs. business LCV rental; and how to account for something that’s unpredictable bring cost assurance to your fleet of vehicles. 

Our aim is to help you make a better informed decision about the approach that is best for your business. As a result, you may find you have more options than you think.

Step 1: Consider the total cost of acquiring vehicles

Many businesses feel that buying a Light Commercial Vehicle outright comes with increased control and assurance. However, let’s not forget that acquisition also comes with a sizable capital expense that’s rarely as simple as paying the list price and filling with fuel - you know better than most, it takes more than a purchase to truly bring a vehicle into your fleet.

On acquisition of your LCV, consider both the initial outlay on bringing it into your fleet and the routine ongoing costs of keeping it on the road.

Depending on your line of business, you may need to invest in buying and fitting telematics units, ply lining, vehicle livery and conversion. What’s more, every vehicle you add to your fleet will increase your ongoing costs and the likelihood of unexpected expense you will be responsible for.

We’ve converted the above to a formula that looks a bit like this:
£ in fleet + £ on road + £ fittings + £ extras? + £ ongoing costs + £ unexpected x number of vehicles.

What would the formula look like under a business LCV rental contract?
Depends on the contract. You’ll need to consider what the contract includes and what it excludes as well as the duration of the hire times all of that by the size of your rental fleet.

Factors that will affect the formula and your costs:

  • Does the contract include livery, service and maintenance, accident and repair management, and tyres?
  • How will downtime affect the costs? Include in this the vehicle and admin costs. Could your team benefit from outsourcing this admin freeing them to do more strategic work?

Step 2 considering the cost of routine management

Take the number of services, winter checks and tyre changes you expect per vehicle in your fleet, and times that by your fleet size.

Now we add-on routine downtime cost. A recent RAC estimate suggests that a single vehicle costs the business £500 for every day it is off the road. For routine servicing, winter checks and tyre changes alone, a van could be down for 1.5 days – even with just 10 vehicles in your fleet, that’s £7,500 per year.

Your second cost counting consideration formula = £LCV services, winter tyre checks and tyre changes expected per vehicle + £7,500

The good news? This is an accurate average cost across the year that’s can be predicted. You’ll need to allow space for some unexpected spikes in management time and downtime – we suggest you base these on your past year’s staff and fleet performance.

Step 3 predict your base line unpredictable costs

One way to predict the annual costs of unexpected damage, faults and downtime is to consider the averages.

  • Our research shows that, in a three and a half year lifespan, one LCV doing 20,000 miles per annum will encounter on average:
  • 11 running repairs like damaged wing mirrors and chipped windscreens
  • 3 events requiring roadside assistance
  • 3 damaged tyre events
  • 3 instances where a replacement vehicle is required

However, with 40% of LCVs in the UK between 6 and 13 years of age, many vehicles are prone to a higher number of incidents, so you may want to upscale the figures for a bigger contingency budget.

In the event of a fault, or failing that takes your vehicle off the road, you’ll need to consider the cost of replacement vehicles, downtime, parts and expertise. There is also the administrative cost of authorising repairs, processing repair invoices, and dealing with parts on back-order.

In short: the baseline administrative cost of fleet management is predictable.

Your third formula = number of vehicles x 11 running repairs + 2 roadside repairs + 3 tyre events + 3 vehicle replacements + admin and fleet manager costs for each repair handling.

Unfortunately, there will be numerous costs that are out of your control and impossible to predict. To counter this, we suggest you go back to averages and your past year’s costs marked as ‘unexpected’ events.

More in-depth advice on Fleet Management costs

Earlier we touched on fleet ownership vs. rental. At Northgate, we understand the business of vehicles.  Moreover, we understand the importance of cost assurance when it comes to your vehicles. That’s why, with our fixed price rental product, we offer a predictable, fixed-term package with everything included.

The above formulas aim to guide you in what works best for you. Use them to calculate your current costs and compare the results to our rates. We include all servicing, maintenance and repairs at our network of 50 wholly-owned workshops. If we can’t fix a vehicle within 2.5 hours, we’ll replace it as standard. All as part of a service-inclusive commercial vehicle rental where our team takes responsibility for management and administration both as a matter of routine and when the unpredictable happens.

To help you see the various annual costs of fleet management at a glance, we’ve prepared a summary guide as a free download. Use it to compare your current scenario and to see what the impact of fixed versus unexpected fleet costs would be. Tailor it to present to your management team or to engage them on how to make your fleet management costs more consistent and predictable.

Download free presentation for understanding cost of fleet management

Created: 10/10/2018 15:21:36

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