“If you can't measure it, you can't manage it”, said the father of modern management, Peter Drucker. It is no surprise that good fleet managers act strategically, always looking for data that further improves the potential of the services provided.
After all, these indicators lead to more accurate decisions in purchases and investments, cost visibility, financial planning, error-free budgeting and so on. But there are so many acronyms, so many metrics… Where to start?
To help you with this task, we will show in practice how Total Cost of Ownership (TCO) and Return on Investment (ROI) are important for efficient fleet management.
What is the relationship between fleet management and indicators?
What does TCO mean?
How important is ROI?
How does the TCO calculation work?
How does a fleet management system automate TCO calculation?
What is the relationship between fleet management and indicators?
Fleet management involves knowing and better understanding all your expenses, as well as proposing changes to save and profit even more within the segment. This is a continuous process, which must be done carefully.
Regardless of the size of your company or the number of vehicles and employees, you wouldn't want to reach the end of a month with cash in the red. Therefore, the acquisition of a new service or tool must be evaluated carefully.
At first, opting for more economical cars, implementing a telemetry system or investing in fuel cards may seem like a high cost.
But have you ever stopped to think about the benefits that come with adopting these resources? Or did you put the savings that would be generated at the tip of your pencil?
When investing in the purchase of new vehicles, for example, values cannot be the only factor when making your decision.
Let's assume you find a model with a more attractive price. Consideration must also be given to fuel expenses, insurance, maintenance, among others. In other words, what seemed advantageous at first could end up being expensive for your pocket.
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Therefore, you begin to evaluate other options and rethink your decision. Studying a little more, you discover that in less than a year there would be a drastic reduction in the operating costs of cars.
A fleet management system, in addition to providing accurate data to save you money in times of crisis like this, will free your team from manual processes that consume time and energy. It's worth the investment, isn't it?
With the adoption of these resources, managers can count on key performance indicators (KPIs) that are extremely important for an operation, such as TCO.
What does TCO mean?
The Total Cost of Ownership (TCO) of a product is the metric used to identify all expenses that are included in a given offer. Therefore, it is one of the main key indicators for fleet management.
This is because for a strategic planning results of fleet management, it is not enough to just take into account the direct costs of a purchase, it is also necessary to understand the indirect and hidden costs of the operation.
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This is one of the countless benefits of TCO. It not only evaluates the cost of an acquisition, but also the costs of maintenance necessary for the running of the vehicles.
The broad view of these values helps not only in reducing costs, but also in the size of expenses and profitability of your business.
Therefore, a fleet manager who can count on accurate data to plan the operation of his fleet has better results.
But the importance of this calculation is not only in the information provided, as it also assesses whether an investment is bringing positive returns to your operation or whether a certain product or service is really viable.
Furthermore, TCO does not contain surface data. It contains indicators that often go unnoticed by your company.
As we saw earlier, when you buy a vehicle for your fleet, the price is just an index of the total cost.
On the other hand, if you have this detailed study about the purchase, future expenses and hidden costs like state tax fees, you know exactly what to expect from the investment you are making.
In fact, making this calculation may be simpler than you imagine. To simplify this task, the ideal is to define 5 initial indicators:
- Mileage driven per month and per year
- Cost per kilometer driven per vehicle
- Type of vehicle for each operation
- Region of operation
- Return on Investment (ROI)
A fleet manager who pays attention to TCO optimizes the work of his entire team, from drivers to suppliers. From this, it is possible to develop precise actions aimed at reducing costs and gaining efficiency.
How important is ROI?
In the dynamic universe of fleet management, understanding and optimizing Return on Investment (ROI) is another fundamental element for business success.
After all, this administration goes far beyond simply driving vehicles, as it requires an analytical perspective that considers economic performance and operational efficiency.
Therefore, ROI is an indispensable metric, providing valuable insights and informed decisions about investments made in general. In vehicle fleets, TCO is made up of items such as:
- Billing installment
- Tire costs
- Corrective and preventive maintenance
- Fuel
- Management system
- Fines
- Documents
- Insurance
- Registration and licensing
- Financing interest
- car depreciation
All of this is necessary to guarantee the operational conditions of the vehicle. But the TCO calculation does not take into account the benefits generated by the product, for example.
Therefore, managers need to analyze another important indicator for fleet management, ROI. A very effective indicator for fleet management and a powerful ally for measuring any process that requires investments of time, money or human resources.
The calculation takes into account the return on sales, the improvement in operational capacity, security, among other benefits acquired with the investment. Simply subtract the cost from the generated revenue and divide the result by the cost as well.
Although the calculation is simple, it is necessary to identify all the variables that can be classified as a business investment cost.
Check out a more practical example.
Let's assume you purchased a fleet management system and managed to reduce your fleet's fuel costs, the calculation would be:
ROI = [profit amount] – [investment amount] / [investment amount]
In other words, Calculating ROI is essential for optimizing fleet management and enhancing your company’s performance.
This is because it can be used in the purchase and maintenance of vehicles, training and qualification, acquisition of tools and innovations as a management system.
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It's important to note that a lower TCO does not mean a higher ROI. The two cannot be considered inversely proportional because, sometimes, the cheap can be expensive.
After all, if you buy a car of lesser value, it may end up being expensive due to the high costs of corrective maintenance and, therefore, you will not have a good return.
How does the TCO calculation work?
If you've made it this far, you certainly understand the importance of TCO and ROI for your strategic planning. But how to make this calculation?
In general, it is composed of the acquisition cost, maintenance costs, use and depreciation:
- Vehicle purchase price: represents the total invested for the acquisition or, in some cases, the amounts paid monthly in installments for the financing.
- Usage costs: These are costs related to fuel, tolls and washing for the day-to-day use of the vehicle at the company.
- Maintenance costs: they involve expenses for prevention and correction necessary to guarantee the useful life and availability of vehicles.
- Depreciation: It is related to the loss of value of an asset belonging to your company due to use or time.
Now that you better understand what each variable involved in this calculation means, check out the equation:
TCO = [vehicle purchase value] + [operating expenses] + [maintenance costs] – [vehicle resale value]
Yes, the subject is complex. It takes a lot of attention and a lot of study to act strategically and deliver good results for the fleet.
O Fleet Management Program (PGF), for example, has a complete module of specialized content and several exercises for you to understand in practice how these acronyms work.
However, the use of spreadsheets for these calculations is very risky, given their complex nature, number of cost items involved and volumes of transactions that are carried out.
How does a fleet management system automate TCO calculation?
Measuring these indicators is extremely important, but investing in solutions to strengthen their management is just as important.
Therefore, a fleet management system is a great ally at this moment. Once it records all costs, categorizes, evaluates the mileage traveled and other indicators that help calculate the TCO.
O TCO module Golfleet integrates all the information you need for efficient cost control in your operation, with indicators, operators and navigation options.
This means that you can organize and structure the dashboard according to your needs and priorities.
Throughout our history, we have heard stories from many managers who were surprised by the real costs of a vehicle within their company. With this in mind, we developed the TCO module.
At various times you wonder about the direction your investments need to take, right? In these cases, Golfleet can answer questions like:
- When is it worth buying a new vehicle?
- What is more advantageous between buying or renting a vehicle?
- When is it most appropriate to renew the fleet?
- What is the market value for each vehicle in the fleet?
- What are the annual costs related to documentation and taxes?
- What is the monthly expenditure on fuel?
Having this information at hand, you will be able to lead effectively and promote more efficient and sustainable resource management for your operation.
The TCO module is a Golfleet add-on, which integrates a series of features and functionalities to optimize your work. To learn about everything our technology can offer, schedule a free demonstration of our fleet management system:
