Every fleet owner wants to maintain the lowest possible Cost Per Kilometre (CPK), but achieving this can be challenging. What do you do when your CPK exceeds the limit that you’ve set on a specific vehicle?
This post will show you where to look when your CPK is above the norm, helping you reduce or minimise the impact on your overall fleet costs.
What is the Cost per Kilometre (CPK)?
CPK cost per kilometre (a.k.a. cost per mile or hour), refers to total fleet costs divided by kilometres travelled. This is an important number as it is the easiest metric to obtain the true running costs of your fleet.
It is best practice to include these elements in your total fleet costs:
Fixed Costs
- Asset purchase costs for the period (this can be depreciation, lease costs or your finance costs)
- Software fees (e.g. tracking)
- Insurance premiums
- License and COF fees
- Permit costs
- Additional hardware and accessories (which can depreciate over a specific period)
Variable Costs
- Maintenance expenses
- Tyre expenses
- Accident expenses
- Toll expenses
- Fuel expenses
- Other expenses, such as once-off or irregular costs like overnight costs for a trip
When you review your CPK, it is essential to break down each category and not merely look at the global CPK alone. Doing so gives you a better understanding of each item’s impact on your fleet costs. It can help you to identify other concerns such as theft, fraud and abuse in your business.
How to Bring Down Excessive CPK
Once you have a clear picture of what contributes to your CPK—and you’ve ruled out irregularities—here’s what you can do to tackle excessive CPK.
Typically, excessive CPK is caused by high or low utilisation.
High Utilisation
If your vehicle is relatively old and doing high mileage, it will probably run with a high CPK. The vehicles’ variable costs are likely becoming expensive with many large-part overhauls or replacements.
In these instances, it is advisable to either rotate the vehicle onto a low mileage route or consider disposing of the asset.
Rotating a vehicle to a low mileage route only delays the inevitable need to dispose of the asset. Still, it allows you to sweat the asset for longer to derive some additional revenue before getting rid of it.
You should always compare the opportunity cost of sweating the asset versus selling it at a higher price earlier.
A new high-mileage vehicle that is out of warranty or service plan with failing components (while still under finance) will have a high CPK.
When mileage is above the market norm, the resale value deteriorates drastically. So, be sure to adjust the depreciation accordingly.
Low Utilisation
Generally, a relatively new vehicle with low mileage and a high CPK is not used enough compared to its fixed monthly costs. This could mean the vehicle is too expensive for its application.
Consider allocating the vehicle to a more appropriate route where utilisation will balance out high costs.
Pro Fleet Cost Maintenance Tip. Keep under-utilised vehicles as backup for ad-hoc, long-distance trips or rotate them with over-utilised vehicles on high-mileage routes.
Comparing the revenue on under-utilised vehicles is imperative to ensure that costs are covered by the route to which each is assigned. If not, it could be more cost-effective to dispose of the asset. Better yet, look for additional business to utilise the asset better and grow your company.
A vehicle with high CPK and low utilisation indicates that the vehicle is off the road frequently or for long periods. Often, this is due to neglect, be it accidents or fleet controllers not managing out-of-operation vehicles.
High (or poor) maintenance can indicate that the vehicle is due to be sold. Specialised software like FleetIT can help you implement timely preventative maintenance and avoid missing services. FleetIT also allows you to manage vehicles that are off the road for long periods and eliminate risks.
Ensuring Effective Asset Utilisation
Considering over- and under-utilisation helps select a fit-for-purpose model and determine the optimal time to rotate assets. This ensures effective utilisation of your assets while maintaining a healthy resale price.
There are times when a more expensive, higher-quality asset is ideal. The CPK will run high with very few variable costs (due to service or maintenance plans and minimal time off the road).
FleetIT’s core function is centred on simplifying CPK management for fleet owners and managers so they can manage fleet costs better. Vehicle data is broken down and analysed, triggering built-in automated alerts that highlight potentially high CPK assets fleet before they negatively impact your business.
See FleetIT’s simplified fleet management software in action.
