July 25, 2019
The time has come; you need to purchase a new work truck for your company. Maybe the demand for your business has outgrown the capacity of your current work vehicle(s) or maybe you have a vehicle that is on its’ last leg that needs to be replaced. Regardless, a new work vehicle is a big investment and calculating and understanding the return on investment will help you find the right vehicle for your business.
The quickest formula to determine your return on investment would be to take the investment revenue minus the investment cost divided by the investment cost. For work vehicles, you need to project the additional annual revenue and multiply by the vehicle’s expected life (in years). So say the projected annual revenue of the vehicle is $100,000 and the projected life cycle of the vehicle is 5 years, your investment revenue would be $500,000 (annual revenue of $100,000 multiplied by the 5 year life cycle). The investment cost is $50,000. Your ROI would equate to 900 percent.
When you calculate ROI, the general rule of thumb is if the number is positive it would be considered a good return. With work vehicles, there are additional considerations that need to be made to give you a more accurate view of the actual financial impact.
Many times, if you are placing additional vehicles within your work fleet there will be other costs that correlate with those vehicle(s). For instance, putting an additional truck to work will more than likely require hiring an extra technician which increases your wages expense. On the flip side, your vehicle will likely require maintenance, licensing, insurance and consume fuel, which is not factored into the overall investment cost above.
For a more realistic ROI calculation, subtract the additional wage cost from the investment revenue (if the vehicle acquisition will require an additional employee) and add the projected maintenance and fuel costs to the investment cost. Example, we would modify the annual revenue from $100,000 to $70,000 (minus an annual wage expense of $30,000) and change the investment cost from $50,000 to $65,000 (add a maintenance and fuel cost of $15,000). Now, we multiply the $70,000 annual review by the 5 year life cycle and get an investment revenue of $350,000. Your ROI would with these additional considerations would be 400. While 900 is a much better ROI calculation, 400 is more accurate because of the additional costs factored into the equation.