If you are a fleet manager, the chances are that you are always on the lookout for ways to reduce fleet costs. While that may be challenging, it is certainly not impossible. The tips below can help optimize fleet management, lower expenses, and make your business more efficient across the board.
What Are the Biggest Cost Contributors in Fleet Management?
Fleet expenses are divided into fixed and variable costs. Fixed costs do not change over time. They can include:
- Asset depreciation
- Licenses and permits
- Loan and lease payments
Variable costs may fluctuate, which is why controlling them is key to maximizing your ROI. Examples include:
- Part replacement
- Other expenses
By analyzing the fixed and variable costs, you can determine your total cost of ownership (TCO). And once you have your TCO, you can establish your cost per mile. Simply take your TCO and divide it by the miles driven annually.
10 Tips to Effectively Reduce Fleet Costs
These best practices can help keep your expenses at a minimum:
1. Decrease Fleet Size
Downsizing your fleet is the most effective way to reduce your costs. The average annual TCO for a light-duty vehicle typically ranges between $5,000 and $8,000. That means scaling your fleet down by 100 vehicles can save you over $500,000 per year.
That said, keep in mind that while decreasing fleet size may eliminate certain fixed costs, you should expect a corresponding increase in the workload of the remaining vehicles, which may slightly raise those vehicles’ operating costs. However, the net effect should be an overall decrease in operating costs.
2. Reduce Vehicle Size and Weight
If possible, consider switching to smaller and lighter vehicles. To that end, spend some time in the field to better understand your fleet’s physical characteristics and functional purposes and how these serve your business requirements. It may be possible to downsize the vehicle models and engines.
3. Lower Acquisition Costs
One strategy to lower your vehicle acquisition costs is negotiating a price based on a “triple-net” cost. You start negotiating with the dealer or lessor at dealer invoice, exclusive of flooring, OEM factory holdback, and advertising refunds.
You should also try to negotiate factory-paid dealer delivery fees and receipt of national fleet or retail incentives. Once you have established a transparent net price, you should negotiate a flat fee of profit for the dealer.
You may also consider negotiating volume discounts. For best results, start negotiations early in the model year to benefit from the best savings.
However, remember that a lower acquisition cost may not be optimal, as it is often associated with lower resale value further down the line.
4. Cut Unnecessary Miles
To avoid excess mileage, consider installing GPS or telematics systems to gather accurate mileage readings. You should also monitor and enforce personal-use policies and eliminate unnecessary trips.
5. Optimize Fuel Costs
In most cases, fuel is the second highest variable cost after depreciation. To lower fuel costs, consider:
- Reducing vehicle weight
- Installing additional transmission gears
- Leveraging fuel-efficient technologies and vehicle models
- Explore cheaper fuel alternatives such as natural gas or propane autogas
6. Monitor Driver Behavior
Driver habits such as idling, cornering, hard acceleration and braking, inconsistent speeds, and excess use of air conditioning can have a big impact on fuel efficiency. Provide your drivers with training and monitor their behavior on the road using vehicle tracking systems.
7. Save on Maintenance
Preventative maintenance is a must, but you may not need to service all your vehicles every 3,000 miles. Newer trucks, in particular, can usually last longer between maintenance sessions. For light-duty vehicles, servicing them every 6,000 to 7,000 miles should suffice.
8. Lower Crash Costs
If you take the expenses associated with crashes and divide that number by your operating profit margin, you will have the additional sales revenue you must generate to replace lost profits due to crashes.
For instance, if you have a 10% operating profit margin and accident-related costs of $500,000 per year, you will need an extra $5 million in sales revenue to replace the lost profits.
To keep crash costs to a minimum, consider implementing an enterprise-wide safety management program. In addition to helping keep drivers and vehicles safe, it can have a direct impact on your bottom line by reducing insurance costs and preventing potential damage to your assets.
9. Maximize Resale Value
To ensure optimal resale value, consider selling 10–20% of your fleet to your employees. This can have many benefits, including:
- Faster receipt of proceeds
- Higher residuals
- Auction and transportation fee savings
Drivers also tend to take better care of vehicles they plan to buy. However, make sure to discourage drivers from splurging on unnecessary cosmetic repairs that may lower the resale value.
10. Optimize Route Planning
Consider investing in route optimization software that will pick the best route for each vehicle in real time. This will allow you to cut unnecessary mileage, avoid congestion areas, and maximize fuel efficiency.
Reduce Your Fleet Costs with Routyn
Routyin’s logistics and transportation software solutions can be your best-kept secret to reducing fleet costs and boosting your ROI. Thanks to our software, our clients are able to cut fleet operating costs by up to 25%.
To learn more, drop us a line and tell us about your needs. We’ll take it from there.