Total Cost of Ownership (TCO): what really does go into the equation?

Total cost of ownership, or TCO, is an extremely popular abbreviation among fleet managers as it encompasses what is considered to be the whole life cost of a vehicle. But despite being so, only very few companies consider all the aspects that comprise the TCO and tend to focus largely on the tip of the iceberg.

According to recent research by Fleet Operations reported by Fleet News, only one in ten companies currently take the entirety of TCO into account when procuring vehicles; and according to some evidence, the cause may be a simple lack of awareness of how easily TCO can be calculated.

According to another source, LeasePlan, say ‘Total Cost of Ownership’ and most people think fuel costs, maintenance costs and taxes. The fact is, there are surely other costs that are not foremost in people’s minds that, at the end of the day, still significantly add to the total costs of owning and operating a vehicle.

So, which fleet costs are relevant to the equations, and therefore to the calculation of your TCO?

• Price of the vehicle itself: do you own the vehicle or lease it? Have you had conversions done to it?

• Taxes linked with vehicles: these are based on vehicle category, emission type, specific model

• Emission charges: whether they apply and whether you have a vehicle that is incurring these particular expenses—polluting vehicles are often taxed more than others

• Changing demands on your business: this can make you prefer a certain type of vehicle over another

• Depreciation: happens over time, mainly due to wear and tear

• Fuel consumption: to be considered from the point of view of fuel purchase or also vehicle purchase

• Fleet maintenance: might make you opt to choose for in-house maintenance or contracted outside of the business

• Management fees and compliance: what is your chosen solution with regards to keeping vehicles fully compliant and in saving related costs?

• Insurance: a legal imperative of course, plus anything that might occur which raises premiums

Do you think there is anything we have missed out? And what would be the helpful solution that integrates all these different aspects and enables us to complete the equation? The challenge for businesses today is integrating all costs in one place in order to make accurate TCO estimates and detect all the hidden costs that contribute to the vehicle’s whole life costs.

Modern fleet management software enables fleets to exactly calculate their TCOs and act on the basis of really accurate data. If you want to know more, get in touch with our team.