Fleet Management Budget: Strategies for Cost Control and Efficiency

Operating a business fleet can be incredibly expensive. You have to pay for the vehicles themselves, deal with volatile fuel prices and maintenance surprises, and have enough flexibility to work around vehicle downtime.

So, anything you can do to control costs and make your fleet more efficient can have a big impact on your business’s bottom line. In this guide, we dive into everything fleet managers need to know about building a fleet management budget and offer strategies you can use to cut your costs today.

Key Takeaways

• A fleet management budget should include fixed costs, variable costs, and overhead costs. These costs are used to calculate your fleet’s total cost of ownership.
• You can build a fleet management budget by reviewing historical data and predicting future costs. Be sure to update your budget quarterly.
• Strategies to reduce fleet costs and improve fleet performance include adopting preventative maintenance, using telematics software, switching to fuel cards, implementing driver training, right-sizing your fleet, and conducting lifecycle planning.
• You can also use fleet management software, fuel card software, maintenance scheduling software, or route optimisation software to help make your fleet more efficient.

What Goes Into a Fleet Management Budget?

The first step in controlling your fleet expenses is to build a fleet management budget. This budget has three different components: fixed costs, variable costs, and overhead costs.

Fixed costs

Fixed costs include money you pay towards vehicle leases or loans, insurance, and vehicle registration. Depreciation of your vehicles is also counted as a cost in this category.

Fixed costs don’t change from one month to the next, which can be good for planning. However, you typically don’t have much leeway to reduce your fleet’s fixed costs without getting rid of a fleet vehicle. For most businesses, fixed fleet costs make up 10%–20% of their total fleet budget.

Variable costs

Variable costs include money you pay towards things like fuel, maintenance, repairs, tolls, and driver wages.

These costs vary from month to month depending on how much your vehicles are driven. They can also be influenced by factors out of your control, like costly breakdowns or spiking fuel prices.

For most businesses, variable costs make up 30%–50% of total monthly fleet costs. Many of the cost control strategies we will discuss are designed to help you address variable costs.

Overhead costs

Overhead costs, also known as operational costs, are related to the support infrastructure needed to operate a fleet. They include fleet administrator salaries, compliance-related fees, and fleet management software costs.

These costs are typically stable from month to month, and most businesses spend about 10%–30% of their total fleet budget on overhead costs. Crucially, increasing your overhead costs, such as by purchasing fleet management software, can help reduce your overall fleet spending.

Total cost of ownership

Your fleet’s total cost of ownership (TCO) is a widely used metric to measure how much your fleet is costing your business. It’s a little more complicated than just adding up your fixed, variable, and operating costs, since TCO also accounts for the purchase costs and resale value of your vehicles.

Here’s a formula for calculating TCO:

(Vehicle Acquisition Cost + Fixed Costs + Variable Costs + Overhead Costs) – Vehicle Resale Value

How to Build a Fleet Budget From Scratch

Building a fleet management budget can seem like a daunting task, but it’s actually quite easy. We’ll walk through how to build a budget from scratch in five steps.

Step 1: Review historical data

To get started, it’s important to take a close look at your fleet’s historical data. Write down your quarterly spending for the past several years on variable costs like fuel, maintenance, tolls, and driver wages. If any of these costs have been steadily increasing, make a note of the percentage increase each quarter.

Step 2: Forecast key metrics

You can use your fleet’s historical data to forecast costs into the future. First, write down your fixed costs and operating costs, both of which should be predictable.

Then, using the historical data you gathered in Step 1, estimate how much you’ll spend on fuel, maintenance, and other variable costs over the next quarter. For this, you can use the average spend over your last several quarters. For costs that have been increasing, multiply your last quarter’s spending by the average quarterly increase to estimate your next quarter’s spending.

It’s also important to think about any upcoming changes to your business. For example, if you plan to purchase a new vehicle or expand the distance your fleet operates, you’ll need to estimate costs for that.

Step 3: Set clear KPIs

Monitoring a handful of key performance indicators (KPIs) is key to tracking changes in your fleet over time. Commonly used KPIs include:

• Cost per mile: This is your fleet’s TCO over a given time period divided by the total number of miles your fleet has driven over the same period. The lower the cost per mile, the more efficient your fleet is.
• Fleet utilisation rate: This measures the percentage of time your vehicles spend being driven or are in use by employees. A higher fleet utilisation rate is generally better since it means your vehicles are doing more for your business.
• Fuel efficiency: This is the number of miles your fleet has driven divided by the total number of litres of fuel it has consumed. Higher fuel efficiency is better since it means lower fuel costs for your business.

Step 4: Allocate for unexpected costs

Unfortunately, breakdowns and collisions can happen, and your business needs to be prepared for these unexpected costs. It’s a good idea to add 5%–10% to your total fleet budget as a rainy-day fund. Set this money aside in a savings account and only use it to pay for emergency fleet costs.

Step 5: Review and revise quarterly

Fleet costs change over time, so it’s important to keep your budget up to date. Review your budget on a quarterly basis, taking into account new data from the most recent quarter. When conducting this review, be sure to think ahead about whether the upcoming quarter will involve any major changes to your fleet, like a new vehicle or a big repair bill.

6 Strategies to Reduce Fleet Costs

While you can’t eliminate fleet costs, you can reduce them significantly through smart fleet management practices. Here are six proven strategies to help you reduce fleet costs.

1. Adopt preventative maintenance

Preventative maintenance is an approach that involves scheduling vehicle service before something breaks, rather than waiting until there’s a problem. It typically involves inspecting vehicles monthly or quarterly and sticking to a regular, predetermined schedule for routine maintenance, like oil changes, and tyre and brake replacement.

Preventative maintenance can be very effective at reducing unnecessary costs because it decreases the likelihood of a major breakdown and extends the life of your vehicle. It also puts your business in control of scheduling repairs, so you can take vehicles out of service at a time when business is slower than usual, with less impact on your operations.

2. Use telematics software

Using telematics and GPS tracking software can give you detailed insights into how your fleet vehicles are being used. For example, how much time vehicles spend idling, which wastes fuel, and dangerous driver behaviours like speeding, which increase the risk of a costly accident. Having the data that telematics software provides is key to making informed decisions about new fleet policies.

Another benefit to telematics is that it lets you monitor when employees are using fleet vehicles for personal purposes. Restricting personal use of fleet vehicles can help your business save significantly on fuel and maintenance costs.

3. Switch to fuel cards

Adopting fuel cards for your fleet lets you track how much petrol each vehicle and driver uses. This information is incredibly useful because it can help you identify whether certain drivers use more fuel than others, which could be addressed through driver training.

You can also use fuel consumption data to incentivise fuel-efficient driving behaviours. For example, consider offering a monthly bonus to drivers who achieve the highest fuel efficiency or who meet efficiency benchmarks.

4. Implement driver training

Fast or unsafe driving can be a drag on your fleet. It increases the risk of an expensive collision as well as putting unnecessary wear and tear on your vehicles, reducing their lifespan. It’s also usually less fuel-efficient.

Implementing a driver training programme can help educate drivers about good habits and reinforce that your company cares about road safety. These programmes work best when paired with telematics software so that you can identify specific dangerous drivers or driving practices to focus on.

5. Right-size your fleet

Each vehicle in your fleet has costs associated with it, even when it’s not being driven, like insurance and financing costs. So, it’s important to make sure your business has only the vehicles it needs and none that it doesn’t.

Determine which vehicles have a low utilisation rate, meaning they aren’t used much. Strongly consider whether these vehicles are redundant or necessary, and sell them if your business no longer needs them.

6. Conduct lifecycle planning

Vehicles’ maintenance costs go up as they age, and it’s generally more cost-efficient for businesses to replace fleet vehicles sooner rather than later.

Lifecycle planning is an approach that involves evaluating at what age to replace each of your fleet’s vehicles and ensuring replacements are staggered over time. This is important so your company is never short on vehicles and doesn’t need to make multiple new purchases in one go.

Best Tech Tools for Budgeting and Efficiency

Software tools can make a huge difference in managing your fleet budget and improving operational efficiency. Here are several of the top fleet software tools to consider.

Fleet management software

Fleet management software is designed to help you track fleet costs, report data from telematics devices, and keep your fleet vehicles and drivers in compliance. They’re often all-in-one platforms that also help you manage maintenance schedules, fuel cards, and vehicle lifecycles.

Examples of fleet management platforms include Samsara, Simply Fleet, and Verizon Connect.

Fuel card platforms

Fuel card platforms are typically included at no extra cost when you sign up for a fleet fuel card. They help you analyse data from your fuel cards, like fuel expenses and efficiency.

Examples of fuel card platforms include Fuelmate and WEX.

Maintenance scheduling tools

Maintenance scheduling software is designed to help you implement a preventative maintenance regime and stick to it. It creates schedules to help you rotate vehicles out of service for maintenance, work orders so mechanics know what needs to be done on each vehicle, and integrations with third-party auto parts suppliers.

Examples of maintenance scheduling tools include TranSend and Fleetio.

Route optimisation software

Route optimisation software helps you optimise drivers’ routes to minimise driving time and maximise fuel efficiency. It can be very effective at decreasing vehicle wear and tear and reducing fuel costs, especially for delivery or logistics businesses that need to visit a lot of different places each day.

Examples of route optimisation software include FarEye and Routific.