Cost reduction is one of the most important expressions in fleet management. After all, it can be the Achilles heel of professionals responsible for the business, regardless of the area of activity.
This is because cutting costs, while seeking improvements in productivity and maintaining the quality standard of services provided, is quite a challenge.
In this sense, cost reduction gains an imperative connotation for fleet managers.
To exercise control and reduce expenses in your operation, first and foremost, a detailed cost analysis is necessary. This is where Total Cost of Ownership (TCO) emerges as an important tool. Continue reading and understand more about the subject.
What is TCO?
What are the direct and indirect costs in fleet management?
What is the calculation that determines the TCO?
What are the benefits of TCO for fleet management?
What is the role of a fleet management system in calculating TCO?
What is TCO?
Generally, Companies need to worry about two types of costs: direct and indirect. After all, both impact the final value of the services and need to be included in your accounts to prevent the company from losing money due to a lack of expense control.
The calculation that adds these two types of costs is called Total Cost of Ownership, or in English: Total Cost of Ownership. Therefore, the term often appears under the acronym TCO.
In short, is the value that measures how much is spent to keep a business open in a healthy way. For fleet managers, TCO helps to understand the general costs of the process, instead of just evaluating the purchase or lease of a vehicle, for example.
Therefore, it is recommended to consider all the company's costs, and when it comes to vehicle fleets, it is necessary to check the expenses related to:
- Planning
- Vehicle purchase or rental
- Vehicle operation and maintenance
- Alienation
- Fuel
- Fines and claims
Suggested reading: TCO and ROI: two indicators that make a difference in fleet management
What are the direct and indirect costs of fleet management?
All costs related to fleet management are included in the TCO calculation, as it is a sum that encompasses the company as a whole, from assets to labor costs. The big question is knowing how to identify them, as not all of them are explicit.
With this in mind, below we share the main costs of an operation that need to be included in the calculation.
Direct costs
These are the obvious TCO expenses, those most common and familiar to everyone involved during planning:
- Vehicle purchase: the price paid, system used for management and even fuel.
- Location: if your company rents vehicles to carry out the operation.
- Maintenance and overhaul: guarantees and expenses for the proper functioning of the vehicles.
Suggested reading: Fleet maintenance plan: how to prepare and ensure greater safety in your operation
Indirect costs
Hidden costs are easily ignored or omitted from purchasing decisions, precisely because they are more difficult to find.
All expenses arising from the decision to make a purchase must be considered in the TCO. Therefore, you need to consider the following elements in your calculation:
- Identification, selection, request, receipt, cataloging or payment for goods and services
- Investments in upgrades and improvements to optimize operational efficiency
- Space configuration, transportation, installation, integration with existing assets and third-party services
- Expenses related to employees, energy and fuel
- User training, guidance, processes and implementation of new practices
- Heating, cooling, lighting and IT support
- Waste disposal, cleaning, anti-pollution measures and environmental reporting
- Expenses associated with insurance coverage
- Security measures to protect against damage and theft
- Loans or financing for acquisition and maintenance
- Depreciation of assets over time
- Alienation, demobilization or dismantling of vehicles
Having control over all these details is what allows you to really reduce operating costs, maintaining the quality of services, safety for the team, productivity and profitability in fleet management.
What is the calculation that determines the TCO?
The account is very complex and has many items. But you won't necessarily need to use all the elements at all times, so For each situation there is a way to calculate the TCO.
For example, in an own fleet, the manager needs to consider licensing, registration, financing and demobilization costs. In a leased fleet, these costs are already included in the rental price, which makes the bill simpler, as there are fewer items.
That is, for each situation, you must use a different formula. The ideal is to map direct and indirect costs to ensure the assertiveness of the final value in your operation. But, in general, we understand the TCO calculation as:
TCO = [vehicle purchase value] + [operating expenses] + [maintenance costs] – [vehicle resale value]
What are the benefits of TCO for fleet management?
The great thing about calculating TCO is that you can generate true cost reductions for the fleet.
Another advantage is that it is possible to justify hiring a safer car for drivers and that, despite the market value being higher, over 24 months, considering items such as fuel and inspection, the vehicle can be cheaper than others.
Therefore, knowing the TCO is a market differentiator for any company that wants to manage the costs involved in owning its assets.
A practical example: when you decide to buy a car, you evaluate the acquisition costs, such as fuel consumption, insurance, maintenance, resale value and even the size of the garage.
But after a few years, the vehicle begins to require increasingly expensive and frequent maintenance. This means that your car is already outdated, while newer models have better performance and comfort than yours.
At some point, the costs of maintaining your car become more expensive than purchasing a new one. That's why fleet demobilization needs to be part of your management, evaluating when it's time to sell the car to purchase a new one.
Suggested reading: A paradigm shift in fleet management: what is TCM and what is it for?
What is the role of a fleet management system in calculating TCO?
Even knowing the importance of TCO for reducing fleet costs, managers often still have doubts about how to map all the values that need to be entered into the account, or even have time to dedicate to the calculation.
On the other hand, having full control over cash flow is an essential step so that all costs can be collected in a truly effective and realistic way.
So, to have more control over these issues and reduce your costs, the best alternative is to turn to technology. Os fleet management systems They are great allies for monitoring drivers' performance in traffic and closely monitoring expenses during activities.
This in itself is of great help when calculating expenses and, consequently, the TCO. But if the tool you use in your operation is Golfleet, This is another item you check off your to-do list.
Our fleet management system has several modules that make your work less bureaucratic, such as fleet policy, shooting, infractions and use of vehicles. And it also allows you to hire add-ons that adapt to the needs of your operation, as is the case with TCO module.
Have you ever wondered when is the ideal time to purchase a new vehicle? Or what is the most advantageous choice between buying or renting? And about the fleet renewal, when is the right time?
With Golfleet, these questions are not just answered, but turned into strategic opportunities. But it doesn't stop there, the TCO module also allows:
- Find out the market value of each vehicle
- Analyze annual costs related to documentation and taxes
- Understand the monthly expenditure on fuel
Having this information at hand is more than just having data, is to have the keys to effective, intelligent and sustainable leadership of your resources, with a clear vision of the path ahead.
Here is your opportunity to make strategic decisions and lead your operation to success more quickly. Request a free demo of Golfleet and discover the full potential of our technology:
