When it comes to your fleet business, one of the most important numbers you should track is the average cost per mile (CPM). Why is this important? Well, knowing that number helps you determine how healthy your company is, after all. Also, you can decide upon what per-mile-rate to charge a customer, and find out your return on investment (ROI); that is to say, among other things.
Without a doubt, finding out your average cost-per-mile, will help you manage your fleet costs effectively; which is probably one of the most complex tasks you’ll have to perform as a fleet owner. Good news is, in the long run, it will make your business more profitable; thus, successful.
A thing to always remember, before calculating your cost per mile, is to diligently keep tabs on your monthly expenses. In other words, you must know what your fleet business’ fixed and variable costs are; based on these costs, you’ll be able to calculate your average cost per mile correctly. Let’s go through them in more detail.
Keep tabs on your fixed and variable costs
1. Your monthly total and per mile fixed costs
As we’ve already mentioned, your monthly expenses are divided into fixed and variable costs. The first step is to calculate your fixed costs; in general, fixed costs are expenses that don’t change in the course of a month. To clarify, typical fixed costs for a fleet company include:
- Fleet Vehicle lease/purchase payments
- Fleet Vehicle depreciation
- Insurance premiums
- Employees’ wages
- Health insurance
- Licenses and permits
- Office operating costs
- Fleet parking (that is, if you pay monthly rent for parking space)
- Accounting fees
Start by calculating the sum of these parts, in order to gain a clear picture of your total monthly fixed costs. Then, determine the total cost per mile for your monthly fixed costs. To do that, divide each of them with the miles driven that month, to know your individual costs per mile; finally, add them all together to get your total fixed costs per mile for the month.
2. Your monthly total and per mile variable costs
The next step is to calculate your variable costs. Unlike your fixed costs, these costs vary every month, since they depend on the size and usage of your fleet. Put another way, variable expenses include day-to-day costs that keep your fleet operating. To highlight, the more you use your fleet, the higher these costs get. In particular, they usually include, although not limited to:
- Service, maintenance and repairs
- Downtime/lost work-hours
- Travel expenses (meals, lodging, parking, etc.)
As with fixed costs, after calculating the sum of these parts, determine the cost per mile for each accordingly. In the end, add them together to get your total variable costs per mile for the month.
However, there is one important thing to keep in mind. Since, fixed costs don’t change, your fixed costs per mile gets lower as your fleet vehicle’s mileage increases. In contrast with variable costs per mile, which tend to stay the same no matter what your vehicle’s mileage is.
There you go! You’ve just done most of the work. Now, let’s get down to your fleet’s average cost per mile.
Calculate your average cost per mile
Once your monthly fixed costs per mile and variable costs per mile have been calculated, add these two summed costs together. What do you get? In short, the monthly average cost per mile you pay to operate a vehicle; hence every cent above your monthly average cost per mile, becomes your monthly gain. Consequently, you can define what you’ll charge per mile in order to be profitable.
In addition, if you have more than one fleet vehicle, calculate the average cost per mile for each one; and then, calculate their sum. Thereafter, divide this sum by the total number of vehicles; in order to get the monthly average cost per mile for your whole fleet. By adding those monthly costs, you’ll also know your fleet’s annual average cost per mile. Equally importantly, after doing this for a year or so, you may also get a good idea how the monthly average cost per mile varies based on seasons or specific months.
How can Fleet Management Software help?
Managing your fleet company’s finances is a tricky process. Too much data to handle and constant fluctuations in costs can cause you to omit important information from your analysis. Especially, when you do your calculations manually; or, in all truthfulness, even with the help of spreadsheets.
Optimizing your fleet cost management with a sound fleet management platform, will allow you to track and analyze your expenses; literally, at a click of a button.
Making the most of the data such a tool offers, you can create custom reports to determine how much you spend; and, where exactly you spend it. All the more so, regarding your variable costs, which are, undoubtedly, more… ‘slippery’.
Veturilo is designed to put an end to all these hassles that trouble a fleet owner or manager! So, how can Veturilo help? To outline a few main key features, it can:
- Collect important data. That is to say, for your entire fleet, in a single place.
- Keep track of your trips and mileage.
- Report possible problems. Whenever there’s a change in your vehicle’s status, whatever that might be, you’ll instantly receive real-time alerts.
- Offer instant feedback, if/when a vehicle has been towed.
- Monitor driver behavior that may be costing you money (hard braking, abrupt acceleration, etc.)
- Notify you if/ when a vehicle’s OBD II device is removed.
- Track your vehicles’ locations.
- Export your fleet’s trip logs in full detail, compliant with the IRS guidelines, so that you can forward an Excel file to your accountant, for tax deductions.
Get control over your costs. Streamline your management. Make your life easy — starting today!
Working towards the average cost per mile
A rule of thumb in business — let alone in fleet business — is paying attention to how much you’re spending; as well as how much you’re making, of course. For this reason, thorough bookkeeping is imperative.
Remember, calculate your fixed costs first, such as car insurance and permits; then, your variable costs, like fuel and maintenance. By keeping an eye on your fleet expenses, you can make your business much more profitable.
You know what they say: knowledge is power. In your case, knowing your average cost per mile, means you automatically know where you stand; therefore, you can be competitive, and negotiate a good, honest and viable fee for a job. In the final analysis, fleet management software — like Veturilo — can help you greatly in this endeavor. So, start measuring what you treasure and, soon, your fleet business will be a cut above the rest!