This term commonly arises in the context of evaluating an organisation's fleet expenditures, comprising numerous factors that may be overlooked in vehicle procurement decisions. It accounts for the initial acquisition cost, potential resale value, and all intermediary expenses including fuel and maintenance.
The total cost of ownership (TCO) represents one of the most substantial expenses in fleet management. It encapsulates various aspects that require careful measurement and management. Fleet managers must effectively assess TCO components to pinpoint issues and make informed decisions.
How Do You Calculate Total Cost of Ownership?
Total cost of ownership can be calculated using the formula:
TCO = acquisition cost + operating costs + interest costs - resale value / the vehicle’s total mileage.
Why is Total Cost of Ownership Important?
Total cost of ownership plays a vital role in fleet management, influencing decisions across budgeting, planning, vehicle selection, vendor partnerships, the choice between leasing and buying, as well as general asset lifecycle management.
Failure to account for all expenses associated with fleet ownership can precipitate various challenges, such as inadequate funds for maintenance and repairs in the future. In essence, TCO is essential for ensuring the effective financial management of a fleet.
TCO Software from MICHELIN Connected Fleet
Accurate calculation of total cost of ownership (TCO) enhances the precision of a fleet’s financial reporting and provides deeper insights into the individual performance of each vehicle relative to others within the fleet.
A company’s profitability is significantly influenced by its TCO, as it constitutes a substantial portion of the budget and holds potential for generating revenue when leveraged effectively. After all, selecting dependable vehicles that align with operational requirements at the most economical cost is the key to achieving fleet success.
It’s for this reason why we at MICHELIN Connected Fleet have developed fleet management solutions to help you lower your total costs of ownership. Our software tools enable fleet managers to efficiently track vehicle usage, optimise maintenance schedules, monitor fuel consumption in real-time, and analyse data to make informed decisions regarding vehicle performance and replacement cycles.
If you're interested in how we can maximise the overall efficiency and profitability of your fleet operations, then be sure to contact us today for more information.
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