Forecasting the total cost of owning and operating fleet vehicles has always been tricky business. But if you do it right, those calculations can save you a substantial amount of money.
Professional fleet managers overseeing large fleets have for years spent considerable time and effort on putting such financial forecasts together. Before the advent of personal computers the task was labor-intensive, involving a considerable amount of research and computations using pencil, paper and calculators.
Today, the small business owner can use the Web to procure forecasted data on a given make and model. The problem is that almost all Web sites provide data geared to the retail buyer. They don’t project costs for the considerably higher mileage rates incurred by most fleet vehicles.
Edmunds.Com offers an invaluable service in its proprietary “True Cost to Own” section. It helps users estimate the total five-year cost of buying and owning a vehicle. It’s free, and it’s at your fingertips.
Spreadsheet 1 illustrates this data for an intermediate sedan that we’ll call A1. The cost data are broken down into categories (depreciation, interest on financing, taxes and fees, insurance premiums, fuel, maintenance and repairs) and forecasted year-by-year for five years, ending with a five-year total.
Converting Retail Cost Data
Edmunds.com forecasts its cost data based on an average of 15,000 miles a year and 75,000 miles over the five-year period. Those numbers reflect the average mileage of a normal consumer driving back and forth to work, plus non-work related mileage. As you know all too well, fleet vehicles average from 20,000 to 30,000 miles annually.
You can convert those retail numbers into meaningful fleet data by applying techniques found in Spreadsheet 2. Spreadsheet 2 takes the five-year cost totals at 75,000 miles and adds four more intermediate sedans (B1, C1, D1 and E1).
Breaking Out Fixed and Variable Costs
It is not accurate to simply convert the difference in mileage to a percentage and then recalculate all costs using that percentage. Variable costs will increase when we calculate for the higher fleet mileage, yet fixed costs stay the same regardless of mileage. So we have also segregated the cost categories shown on Spreadsheet 2 into variable and fixed expense.
We begin the conversion process on Spreadsheet 3. The key is to reduce the five-year/75,000-mile variable costs on the five intermediate sedans to a common denominator, cents-per-mile. This is done by dividing the 75,000-mile total into the five-year variable costs provided by Edmunds for each of our five intermediates.
Forecasting for Fleet
We now can forecast the five intermediate sedans’ five-year costs using an average annual mileage appropriate to fleet rather than retail annual mileage.
Average annual mileage for a business fleet varies, depending on the fleet’s mission. Mileage will differ for each type of vehicle in fleet as well (i.e., a sales force using sedans versus a service force in pickups.)
With your cents-per-mile figure, you can now project out to any mileage you want. In Spreadsheet 4 we have assumed a 25,000-mile average annual mileage, or 125,000 miles over five years for our five sedans.
Multiply the cents-per-mile costs on Chart 3 by 125,000 miles to determine the variable costs.
We have forecasted the five-year expense of each of the intermediate sedans and calculated further for a 25-vehicle fleet.
If you chose a fleet of 25 D1 models over the C1s, you’d spend a cool $201,700 less on the better value model over five years. These examples show the benefit of accurately calculating and comparing costs before you decide to buy or lease.