Tips for Optimizing Your Work Truck Fleet Budget

Creating a fleet budget is no small task. It's a comprehensive process that determines operational expenses and capital expenditures based on operating parameters and vehicle replacement rates. Proper budgeting is essential for aligning your fleet's operations with overall business objectives.

As Ed Powell, director of consulting services, Holman, said, "We typically recommend that your fleet budget align with and support your overall business objectives. It is important to consider any fundamental shifts or significant changes to your business that may be on the horizon when developing your fleet budget."

Understanding the factors contributing to the total cost of ownership (TCO) and strategically planning to meet operational and financial goals are crucial in budgeting.

Find out more about the critical role of technology in fleet budgeting, the importance of expecting the unexpected, and practical advice from industry experts to help you create an effective and resilient fleet budget.

Creating a Commercial Fleet Budget

Budgeting requires understanding various factors contributing to the total cost of ownership (TCO) and strategic planning to ensure that all operational and financial goals are met.

"Fleet managers should certainly consider the total cost of ownership (TCO) and not just the payments and related maintenance costs," said Jim Lager, executive vice president of sales and rental for Penske Truck Leasing.

Consider the acquisition and long-term costs of a fleet vehicle.

"The best way to do this is by looking at TCO, including maintenance, fuel, insurance, and depreciation," said Joe Voors, director of client partnerships for Mike Albert Fleet Solutions.

Brian Hickok, strategic business advisor for Element Fleet Management, echoes this sentiment.

"At Element, when we advise our clients, we review several factors to support effective budget planning. We evaluate everything from when to replace vehicles; we compare the impact of leasing vs. owning; we consider what financing options are available; we assess the total spend; and we review how asset downtime could affect costs," he said.

Fleet managers can start the budgeting process by identifying the business goals you want to meet and what your company may look like, both short- and long-term.

"Do you need to acquire additional vehicles to support the growth of your business, or conversely, will shifts in your operating dynamic present an opportunity to streamline your fleet? You'll also want to consider what is truly important to your business and how fleet can support those priorities. For example, if customer service is paramount, you may need more vehicles and will need to prioritize uptime. Therefore, you'll need to budget accordingly with those priorities in mind," said Powell of Holman.

Fleet operators should also consider how the budget should be allocated.

"Within your overall fleet budget, do you need to break it down by region, specific location, line of business, department, etc.? Also, determine what assumptions must be included in your budget forecast – capital cost inflation, maintenance expense increases, vehicle replacement rates, etc. Determining how far into the future you're forecasting is also helpful. Are you planning for the next year or the next five years?" said Powell of Holman.

Chuck Davis, director of sales for PacLease, noted that understanding your fleet is key to forecasting ongoing fixed and operational costs and gives confidence in your budgeting process.

"To do this, first break up the fleet into similar groups. There is no static system for this process as it depends on operational and fleet variation for each company," Davis recommended.

Some common groupings include year, model, local, short-haul, regional haul, and over-the-road, or they can be as specific as water or crane trucks.

"Each of these groups has different components and operational requirements, resulting in different maintenance cycles for both regular wear components and major components," Davis added. "Establishing a measurement of the remaining useful life for each component and understanding the wear rate, along with the cost of parts and labor, will enable you to budget for maintenance and determine when it will occur."

But what about when such a significant portion of fleet spend can be variable? Some of the measures Hickok recommended fleet managers consider when creating a budget include: 

• Identifying and understanding pain points;
• Setting clear goals and objectives.
• Reviewing annual spending patterns to identify trends and changes.
• Assessing, evaluating, analyzing, and executing what asset types across different classifications (i.e., light-, medium-, and heavy-duty) fit best as a whole.
• Forecasting fuel spend.
• Planning for unexpected costs, including changes to business operations that may impact the number of vehicles required and/or the mileage driven.
• Monitoring the impact of driver downtime on operations.

Next, don't forget about maintenance. Voors recommended fleets implement a preventive maintenance program to help control the unexpected when possible.

"Monitoring vehicle diagnostics that could lead to breakdowns and downtime can help you control the unexpected. Also, control fuel costs. By analyzing how often drivers stop to fuel up, you can use fuel cards to control costs and even cycle out vehicles with poor fuel efficiency," Voors said.

According to Lawrence Liu, senior fleet consultant at Merchants Fleet, a few additional key factors fleet managers need to consider when creating a budget should also include anticipated growth in units on the road, replacement timing, anticipated changes in use case/vehicle types, and mix within the fleet, and forecasted future fuel prices.

Expecting the Unexpected

When managing a fleet, it is crucial to expect the unexpected. Planning for unforeseen circumstances ensures you aren’t caught off guard in an emergency.

"Always budget for some unknown maintenance, as unexpected failures can happen earlier than expected," advised Davis of PacLease.

Voors of Mike Albert Fleet Solutions agreed, recommending that fleets "create an emergency fund for accidents, weather, or other unexpected events. This ensures you have the money set aside and ready to go without removing funds from elsewhere in the business."

One way to effectively plan for unexpected events is to look at historical data.

"Using historical costs, adjust for the rise in parts and labor costs, which has been much higher than inflation over the last five years. Another important data point is fleet age, which can dramatically impact operational costs. For instance, if you were to replace a portion of your fleet and subsequently lower the average age from four to three years old, you should expect a decrease in maintenance costs," said Lager of Penske Truck Leasing.

Voors underscored the value of historical data and regular adjustments.

"First, you should tap into historical data (accident frequency, repairs performed, problem vehicles) to analyze past occurrences. With the risks and data, you can allocate part of your overall fleet budget to the emergency fund. Most fleets portion out 10-15%, but every fleet is different, and you may want to add to it based on your fleet's personal experiences and needs. Plan to adjust your fund every quarter if needed, especially if your fleet expands or insurance deductibles change," he recommended.

For a more straightforward approach, Voors suggested, "a simple approach to budgeting for an emergency fund is to use your current budget and apply a CPI factor to predict next year's budget."

Beyond immediate budgeting, it is also beneficial to project future expenses and plan accordingly.

"Typically, the best way to prepare for unforeseen expenses is to account for them in your regular operating expenses based on the historical trends of your fleet. Your fleet management provider can also help you account for other factors, such as the age of your assets and how macroeconomic trends influence operating costs to predict and budget for these unforeseen expenses more accurately," said Powell of Holman.

He added, "We often advise fleet operators to embrace a macro approach to planning and budget allocation. Rather than simply planning for the year ahead, if you can forecast three to five years out, you'll have greater financial flexibility to adjust to unforeseen challenges or have capital available to take advantage of cost-savings opportunities that may arise."

Technology can also play a significant role in fleet budgeting.

"Technology, especially connected fleet solutions like telematics, plays a pivotal role in fleet budgeting processes, helping businesses streamline their operations and make informed financial decisions based on data-driven insights," said Hickok of Element Fleet Management.

Liu of Merchants Fleet offers insights into different budgeting strategies.

"A properly prepared budget/forecast includes repair costs derived from expected cost curves for vehicles based on their current age and expected utilization over the forecast period. Another option to create budget certainty is to leverage a full-service maintenance service, which charges maintenance and repair to the fleet at a flat monthly rate. This eliminates the unpredictability of these costs but typically comes at a premium from a cost perspective," Liu said.

Finally, Voors advised fleet managers to take a proactive approach.

"Accidents and general vehicle repairs can stop a fleet in its tracks, meaning your budget must include an emergency fund for the potential of the unknown. Customizing dashboard options to track driver behaviors along with monitoring operational metrics ensures budget stability and readiness for unexpected events, contributing to overall financial health and risk mitigation," he said.

The Role of Tech in Fleet Budgeting

Incorporating technology into fleet budgeting processes led to significant cost savings and operational efficiencies. Telematics, fleet management software, and other technological tools provided valuable insights that allowed fleet managers to be proactive rather than reactive.

There are multifaceted benefits of telematics and data.

"Telematics and data could create notable cost savings by providing insight into maintenance, fuel, routing, and more," said Voors of Mike Albert Fleet Solutions. "With real-time data and access to vehicles and drivers, you could proactively alert drivers to repairs, lower fuel usage, prevent accidents through driver monitoring—which lowered the insurance cost—and determine when a vehicle should be repaired rather than replaced. With the data at hand, you could be more proactive rather than reactive when it came to budgeting and following the bottom line."

Technology can also provide essential visibility into a fleet's actual costs and operational status.

"Technology provided several positive benefits. For starters, it provided visibility of a fleet's actual costs. It also allowed for real-time visibility of how a vehicle was operating," said Lager of Penske Truck Leasing.

Davis of PacLease emphasized the importance of quality data and meaningful automation in creating a robust budgeting and operational plan.

"Quality data and meaningful automation were key to establishing a first-rate budgeting and operational plan. Systems were continuously improving by integrating connected trucks, over-the-air updates to avoid unnecessary visits to the shop, and predictive analytics to minimize unplanned downtime. This quickly became a competitive advantage in the market for top users," he explained.

Liu of Merchants Fleet underscored the foundational role of fleet management software in budget creation.

"Fleet management software was the underpinning of all aspects of budget creation. Historical trends around accident and maintenance spend should be leveraged along with historical fuel economy," he explained.

Additionally, Liu pointed out the benefits of telematics: "If telematics was already in place for a fleet, having accurate odometers and miles driven was a tremendous help in the budgeting process. The insights provided and actions taken from that technology could change the inputs into a budget process if there were an expectation that a given initiative derived from telematics would change things like miles driven, MPG, accident rates, etc."

Technology offers a comprehensive perspective in fleet management, enabling more accurate forecasting of expenses and providing critical insights into various cost factors.

"The value of technology in fleet management simply could not be overstated, and that sentiment certainly extends to fleet budgeting. The more information and insight you have, the more accurately you can forecast expenses," said Powell of Holman.

He added, "Whether it is telematics data, maintenance expenses, fuel costs, lease details, utilization rates, driver behavior information, etc., it all helps to paint a holistic view of your fleet's performance. This data also helps highlight the variables influencing your expenses and allows you to forecast your fleet's operating cash flow accurately. With that information, you could budget much more effectively to avoid peaks and valleys within your budget."

Moreover, Powell stressed the importance of aggregating and utilizing all available fleet data for a comprehensive analysis of operating costs.

"It is critical that you aggregated your entire range of fleet data to ensure you have an accurate and comprehensive analysis of your operating costs. Additionally, this data needs to be actionable to drive meaningful business improvements. Hollow data or the inability to enact change makes the information virtually useless," he added.