The Importance of Understanding a True Total Cost of Ownership

Total Cost of Ownership (TCO) is a breakdown of the ‘true’ cost of your business fleet including several factors that many may not think to consider when purchasing their vehicles, such as hidden costs, which include service, maintenance, repair (SMR), fuel, and disposal costs.

 

TCO expenses are often the main reason your outgoings can reach concerning levels that impact your cashflow. SMR costs generally increase significantly on vehicles over 3 years old, which is further compounded with vehicles that consistently do high mileages.

Understanding a vehicle’s TCO helps you to reliably analyse the various components, so any potential problems are identified early and proactively accounted for.

Why is Total Cost of Ownership important?

By understanding a vehicle’s TCO, you can accurately compare your available fleet acquisition options to determine the method for your business, based on mileage, renewal cycle, disposal income, and running costs.

• Decision Making: Business can see the full-picture cost of a vehicle to make more informed decisions.
  
  
• Manage Expenses: Businesses can accurately budget for hidden costs.
  
  
• Return on Investment (ROI): Businesses can better assess the ROI of a vehicle, to select vehicles that will maximise fleet value.
  
  
• Risk Management: Businesses can better identify potential risks, such as unsuitable vehicles.

Calculating the Total Cost of Ownership of a vehicle.

Total cost of ownership can generally be broken down into two sections: Finance and In-life costs. Fleet acquisition decisions should not be made in isolation but rather integrated into overarching business goals and future projections.

• Finance covers the cost and method of funding the vehicles.
  
  
• In-life costs include the running cost of that vehicle, such as fuel, service, maintenance and repair costs and any low emission zone charges it may incur.

A vehicle’s TCO can be calculated using this formula:

        (Initial Costs + Operating Costs) ÷ total mileage over a vehicle’s lifespan.

Commonly forgotten fleet challenges you should plan for

When it comes to vehicle ownership and budgeting for maintenance, many Total Cost of Ownership (TCO) calculations tend to overlook key fleet challenges that consistently show up:

• Unplanned defects and associated Vehicle Off Road (VOR) time.
  
  
• The handling of any breakdowns, including recovery, and sourcing of a replacement vehicle, often done using expensive short term hire solutions.
  
  
• Higher propensity for major component failure on vehicles aged 3 years or older and out of warranty. In December 2024 alone, the average age of a fleet van entering a workshop was 3.39 years.

The average dealer lead booking time in 2024 was approximately 14 days, meaning two weeks without your owned van while waiting for repair parts to arrive, followed by an additional week for repairs to be completed - impacting your business and finances in multiple ways.

Simplify your Fleet TCO with Northgate Vehicle Hire

Hire with the 'Rental Company of the Year' (WhatVan? Awards 2025) for flexible and long-term hire options, giving you access to a premium range of vehicles without the financial or administrative burden of ownership.

Northgate hire options come with service, maintenance and 24/7 breakdown included as standard meaning everything is wrapped up into one simple regular payment. Simply choose your ideal vehicle, add optional features, and enjoy a complete hire package keeping your fleet in top condition with no hidden costs.

We offer tailored solutions for new ICE, Hybrid and Electric Vehicles to suit your business needs and simplify fleet management with clear, predictable payments.

*https://www.thetimes.com/money-mentor/cars/is-it-cheaper-to-run-electric-car-uk#Are-electric-cars-cheaper-to-run?