Being a fleet owner-operator is a very fulfilling job and, at the same time, one filled with many challenges. Among the greatest challenges you have to face along your business journey is dealing with fleet owner-operator expenses.
Sooner or later, you’ll come to realize that you can’t just tally up how much money you’re making; you also have to calculate, down to the last cent, how much money you’re spending. Keep in mind, the expenses of owning and operating a fleet can skyrocket if left unchecked.
However, no matter how chaotic and scary these fleet costs may seem at first, they are actually your lodestar; that is, if you are willing to put two and two together and work them out. So, if you are to succeed in this endeavor, you must develop a detailed budget with financial management and act upon it.
To that end, we have compiled a list of some necessary expenses for you to consider, when creating your annual financial plan for fleet owner-operator expenses.
Understanding fleet owner-operator expenses
As it happens with every business, there are several expenses that burden an owner-operator. Understanding fleet owner-operator expenses — and figuring out how to minimize them — is key to the health of your company. It’s important to realize that you, alone, are responsible for your success; and if you have employees, you are responsible for their success, too.
According to Mike Antich, editor-publisher of Automotive Fleet magazine and fleet expert:
It’s estimated that an average fleet wastes between 5% and 10% of its annual budgeted dollars. […] if a fleet manager wants to minimize waste, you need to pay attention to the details of vehicle management and put into practice the saying: “If you watch the pennies, the dollars will take care of themselves.”
The first step when budgeting, is to detect which of your expenses stay the same every month and which vary. In other words, you have to figure out which costs are fixed and which are variable. By doing so, you will gain valuable insights into what you can do to improve your revenue.
Mapping out your fixed and variable costs
So, fixed costs and variable costs, what’s the big deal about them, you might wonder; we hear you dear fleet owner-operator, and we say to thee:
Mapping out your fixed and variable costs will help you separate the wheat from the chaff. Taking it a step further, by breaking down both these costs, you can determine an action plan. Unless you know which expenses constitute an investment and which a misplacing, you will guesswork your business to its doom. Fleet owner-operator expenses are no joke.
Let’s take things from the start; what can your fixed expenses reveal? Well, once you add up all your fixed costs, you’ll know what gets your company going from day to day. Based on this fact, you can determine which of those expenses you can reduce. And, as a result, client-wise, you can size up a job offer to see if it can be lucrative for your business or not.
Similarly, by keeping track of your variable costs, you will know how much you — and your employees — spend on the road. Thus, you can outline a plan to reduce them, or even get rid of some of them. Here are some examples of fleet owner-operator expenses to draw from.
Fixed costs examples
As we’ve already mentioned, fixed costs make up the type of fleet owner-operator expenses that (usually) remain constant for a specific period of time; say, monthly or/and annually. To help clear things out, these costs may be:
1. Vehicle purchase/lease payments
If you have recently purchased or leased a fleet vehicle, you will have a recurring payment that you must fulfill; after all, your fleet company is dependent on operating this vehicle.
2. Vehicle depreciation
From a vehicle management perspective, depreciation is a major part of your fixed fleet owner-operator expenses. It goes without saying, striking a deal at the right time can be profitable for your business. To wit, picking a vehicle that has a low depreciation rate; maybe, a used vehicle that’s a couple of years old, tops. And it doesn’t stop here; you have to continue calculating its depreciation hit, throughout the time you use it. A rule of thumb is to take good care of it and maintain it properly; and, of course, you should know when it is the right time to de-fleet it.
3. Vehicle insurance premiums.
There are all sorts of commercial vehicle insurance, with different extensions. Remember, keeping a record for mileage and driver safety will help you calculate your insurance rates and keep them as low as possible.
4. Employees’ wages
If you have other drivers in your fleet, their salary must be calculated in your financial plan.
5. Health insurance
Again, if it’s more than just you, you must offer health coverage for your fleet employees. With this purpose in mind, a group plan would be ideal for a small or medium fleet business like yours; it would work wonders for your fleet owner-operator expenses.
6. Taxes and Rates
Luckily, your fleet business may benefit from tax laws; you can deduct up to 100% of the purchase price, depending on the vehicle type. Even if this doesn’t apply to you, there are ways to minimize fleet tax liabilities. But, if you are moving your vehicle(s) around different States, you must know the sales tax policies applied by them.
7. Annual licenses and permits
Depending on the laws in your State, you may — among other things — need:
- annual business licenses,
- renewal fees,
- transport permits,
- vehicle inspections, and
- registration fees
8. Office space
If you have an office, you must include its operating costs in your fixed expenses. Those may be:
- rent,
- office supplies, and
- bills (electricity, water, phone).
Make your research regarding local business license requirements, or regulations regarding operations of business in a residence; the latter, in case you use part of your home as your office.
9. Professional accountant/ tax preparer services
Well, trying to figure out your fleet business financials is hard. Chances are, you’re going to need a professional to help you out. To this end, an accountant will easily set up and monitor all your financial processes. In addition, a tax preparer will make sure that you get every possible deduction and tax returns; in the long run, you will save money and avoid some major headaches. What more could you ask for in managing your fleet owner-operator expenses?
10. Software subscription
Using technology — such as vehicle management software (FMS) — to optimize your business operations can be a great asset. There is a misconception that such software can be pricey. Contrariwise, with a little research, you can find great software that is affordable; or even offered at a special introductory price. Save yourself some time, check out our very own value for money FMS, Veturilo 😉.
Variable costs examples
Variable costs are exclusively related to your vehicle’s operation and any need that derives from operating it. These fleet owner-operator expenses may be:
1. Fuel
Without a doubt, gas can be one of your largest fleet owner-operator expenses; thus, accurately calculating your fuel costs must be in your top priorities. Calculating your vehicle’s average cost per mile will certainly shed light on this cost.
2. Changing tires
Indeed, a costly necessity! The price for a new tire varies, depending on the type and size of the tire, as well as the vehicle’s make and model. According to the National Highway Safety Administration, it is recommended to replace your tires every 6 to 10 years. Or, before you hit the maximum mileage specified by the manufacturer.
3. Service, maintenance, and repair (SMR)
Every now and then, your vehicle needs a bit of TLC; no matter how attentive and economical a driver you are. Note that, on average, maintenance can be around 10% of your total fleet owner-operator expenses.
4. Vehicle downtime / breakdown
When calculating downtime costs, you have to include, among others, spare parts, oil/lubricants and other fluids, repair fees and, of course, man-hours lost. That’s like a black hole for your fleet owner-operator expenses.
5. Idling time
Keeping idling low, can help you reduce fuel and maintenance costs; not to mention, it will extend your vehicle’s lifespan. At any rate, it is highly recommended that you invest in coaching your drivers on reducing idle time to minimum.
6. Accidents, tickets, fines
Monitoring and assessing your employees’ driving behavior is critical. Tickets and fines are very costly. But it’s not just them; you have to think about the risk of a serious accident occurring. In this regard, you must be proactive. By using fleet telematics, you can detect dangerous driving behaviors before it’s too late. Besides, bad driving behavior can irreparably damage your reputation and take its toll on your fleet owner-operator expenses.
7. Travel expenses
If you are doing long-haul driving, you will have extra expenses that you might not have thought through; such as meals and accommodation. However, as a fleet owner-operator, you get tax deduction ‘Per Diem’. This means, the IRS allows you to deduct a percentage of these business-related costs, for every day you’re on the road. With this in mind, always save the receipts that can account for tax deduction.
8. Tolls
Tolls may be something you need to include in your fleet owner-operator expenses budget, depending on where you drive across the country. Namely, you can look into EZ passes, or other related programs, if a discount applies in your case.
9. Parking
An expense often omitted, but parking may cost your fleet company a lot of money if you don’t keep tabs on it.
10. Cost-per-mile
Knowing each of your vehicle’s cost-per-mile will help you track down your spending patterns; at the same time, you can identify all the expenses you can cut down on. Besides, every mile you can erase from your odometer will add dollars to your bottom line; and taking them off of your fleet owner-operator expenses.
The importance of Fleet Management Software
A fleet owner-operator’s effort to reduce the expenses of their company is an everyday struggle. And, if you are to be effective in managing a healthy fleet, it’s crucial to understand all the factors that add up to your budget spent.
Having the right tools to optimize your operations and make decisions based on actual data, is paramount. Fleet management software is, by far, such a tool. By utilizing the information it offers via real-time alerts and automated — or not — in-depth reports, you can take immediate action to drive-down fleet owner-operator expenses.
TL;DR on fleet owner-operator expenses
At the end of the day, reducing costs is a primary goal for any business. If we are to speak about effective vehicle management, it is critical to carefully calculate your fleet costs; not just the sum, but each cost separately. It’s the only way to understand where you’re going, hence rectify the way you operate your business.
A smart way to start rectifying, and optimizing for performance and effectiveness, is to monitor fuel consumption and maintenance needs; for, a healthy fleet is a cheaper fleet to run. In addition, keeping your crew’s driving behavior in check, will greatly reduce unnecessary costs, such as the aforementioned; plus, you are more likely to prevent accidents and avoid paying costly traffic tickets.Thankfully, technology can greatly contribute to analyzing your fleet owner-operator expenses down to the slightest details; thus, it can help you reduce them wherever — and whenever — possible. With the emergence of vehicle management technologies, saving money for your fleet business, nowadays, is easier than ever. Fitting the bill, Veturilo will help you manage your fleet easily and affordably; anytime, anywhere!
