Managing a commercial fleet is expensive. Reducing expenses is one of the best ways to increase your bottom line. But knowing what expenses to cut and the best tactics for reducing spending in various areas are challenging because you can’t just eliminate fuel costs or depreciation on vehicles. Here’s a look at how to focus on your largest expense categories to find opportunities for savings and operate a leaner company.
What are a Commercial Fleet’s Largest Expenses?
Before you start looking for opportunities to cut costs, you’ll need to review your expenses. Most fleets have the same five primary expense categories.
- Asset depreciation: Depreciation is often a fleet’s largest expense, yet obviously it’s an essential expense because you have to have vehicles to operate a fleet. Vehicles generally lose 15% to 20% of their value annually, which is a lot of money on such an expensive asset.
- Fuel: Not only is fuel a large expense, but it’s also unpredictable. Fuel costs can fluctuate a great deal, making it more challenging to optimize this spending.
- Maintenance: Scheduled maintenance, unplanned maintenance and downtime all factor into this expense category as do the labor and parts to complete the maintenance. But you’ll need to keep vehicles operational to move your business forward.
- Accidents: Collision repairs and insurance costs associated with accidents can get costly. That’s why the industry places so much emphasis on driver and vehicle safety.
- Loan interest: Purchasing vehicles is expensive, and, to maintain cash flow, many businesses take out loans for the purchase. But borrowing money increases the vehicle’s total cost of ownership because of the interest on the loan.
6 Steps for Cutting Costs on Commercial Fleet Expenses
After reviewing the largest expense categories most commercial fleets incur, you might be feeling disheartened about how to reduce expenses because they’re all essential. While you won’t be eliminating any of these large expense categories, you can optimize and reduce fleet costs with several tactics.
Take into Account the Entire Cost of Fleet Ownership
Before purchasing a new vehicle, review the total cost of ownership and not just the upfront cost. Some of the less-expensive options might have enormous maintenance expenses and low resale value, making them more costly over time. You cannot purchase vehicles solely based on sale price.
Research carefully how much the vehicle will cost to own and operate. As you look at the total cost, consider fuel, maintenance, oil and availability of parts. That way, you make a decision to purchase based on long-term expenses and not just upfront costs.
Cut Down Fuel Costs
While fuel costs fluctuate making them challenging to budget for, you can use several ways to reduce fuel expenses. First, focus on fuel efficiency by training your drivers on how to use gears efficiently and reduce hard braking and accelerating. Plan routes with fuel efficiency in mind by reducing stop-and-go traffic and side streets as much as possible while balancing distance. Reduce idling when possible to ensure all fuel use is getting the driver to their destination. Ensure tires are inflated properly. Every PSI that your tires are underinflated can lead to a 0.2% reduction in gas mileage. Use a fuel card with good benefits and savings. And when purchasing new vehicles, factor in fuel efficiency to the total cost of ownership.
Reduce Depreciation
Whether you purchase or lease your fleet vehicles, reducing depreciation can have a meaningful impact on your bottom line. The best way to achieve this goal is to focus on resale value before purchasing a vehicle to help you factor in the total cost of ownership. Sometimes a more expensive vehicle is a better move for long-term finances than purchasing the least expensive vehicle.
Negotiating vehicle costs and getting low-interest loans to pay for the vehicle can also aid in reducing the difference between the original price of the vehicle and its resale value. Building a relationship with a manufacturer when you purchase large volumes of vehicles can also help with securing a volume discount.
Optimize Routine Repairs and Maintenance
Routine repairs and maintenance cost far less than a roadside breakdown. Creating a routine for scheduled maintenance can reduce repair expenses by allowing you to do them in-house or with an approved network of shops where you’ve negotiated the price for labor and parts.
Preventative maintenance ensures your drivers get from point A to point B without issues. But another essential element of breakdown prevention is completing a pre- and post-trip inspection.
Save on Cost of Collisions
Collisions are a major area of expense that in most cases can be avoidable. Reducing speeding and reckless operation of a vehicle can help prevent at-fault accidents. One way to do this is to use fleet telematics to track driver actions and coach them on risky behavior. Incentivizing good driving or gamifying driving by showing a list of top safe drivers within your company could help reduce collisions.
Using Fleet Telematics
Monitoring drivers often produces safer driving and mindful behavior, which reduces the likelihood of accidents and improves fuel efficiency. Drivers who know their managers can see how they are doing are more likely to drive a vehicle in a way that reduces fuel costs, lowers wear and tear on trucks, ensures timely deliveries and keeps insurance premiums low.
Managing Your Fleet’s Expenses
Ultimately, you’ll never eliminate the largest expense areas that a commercial fleet experiences. But you can reduce those expenses to make them more manageable by following the tactics outlined here. The less you spend on your fleet, the greater your annual income will be, which can improve cash flow and instill greater customer confidence in your long-term viability.
FAQ
Fleet expenses are the total cost of managing the fleet, including fuel costs, depreciation, insurance, maintenance and loan interest.
Depreciation is often the largest cost associated with operating a heavy-duty commercial vehicle. A close second is fuel cost.
A fleet optimization model calculates the total cost of owning a vehicle and reviews metrics and environmental impacts to reduce expenses throughout the vehicle’s lifetime.
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