Total Cost of Ownership: what is it and how to manage TCO for smaller fleets?

Staying ahead of costs is no easy task, particularly for those managing smaller fleets. With the increasing complexities of vehicles and ever-changing regulations, one critical aspect often takes centre stage: Total Cost of Ownership (TCO).

Understanding TCO is not just about pinching pennies; it's about gaining a comprehensive view of your fleet operations and making strategic decisions which impact your bottom line. This is even more crucial for smaller fleets, where optimising each vehicle's performance can bring about substantial savings and efficiencies.

This article unpacks the concept of TCO, highlighting why it's essential and how it can work in favour of smaller fleets.

What is TCO?

TCO is a comprehensive evaluation of all the costs associated with owning and operating vehicles over their entire lifecycle. It's a holistic approach which accounts for everything from acquisition costs to maintenance, fuel, insurance, taxes, driver costs, and administrative overheads, as well as any potential returns if/when the vehicle is sold.

Why is TCO significant?

It's simple – by considering the full range of costs, not just the initial purchase or leasing price, those responsible for a fleet can make informed decisions which helps lead them towards optimised efficiency, reduced expenses, and maximised profitability. TCO gives you the complete picture, enabling a smarter fleet strategy and well-informed management decisions.

The largest slice of the TCO pie is usually associated with the vehicle's cost, either measured as owned vehicle depreciation (the difference between purchase cost and amount recouped at resale), or as the total lease cost over time. Fuel and maintenance come next, followed by a sum of other costs such as insurance, interest, fleet management fees, and vehicle licensing.

But it's not just about tallying up costs; it's also about exploring opportunities for cost efficiencies. For instance, the rise of electric vehicles (EVs) and plug-in hybrid cars (PHEVs) now present companies with more significant options to reduce their TCO by lowering their fuel and maintenance costs.

In essence, a TCO approach is about finding balance – striking the right harmony between operational necessities, cost efficiencies, and the sustainability of your fleet.