Episode 152: You Can’t Manage Costs You Can’t See: Billing Fleet Services the Right Way

This is the Fleet Success Show dedicated to helping you and your fleet succeed using the experience of fleet professionals and Hall of Fame fleet legends. The show that explores how the pillars of stakeholder satisfaction, intentional culture, resource efficiency, and risk management all combine to lead your fleet to success. We're glad you're here. Now let's get into the show. Hey, welcome back for another episode of the Fleet Success Show with your hosts, Josh Turley, Mark Canton.

Hey, everybody. Hey, Josh.

How you doing?

Good. Thanks.

So again, quick intros for anybody just joining us for the first time. Josh Turley, CEO over at RTA. I've been helping design, sell, support, and program, engineer, whatever you want to call it, fleet management systems for over 20 years. This month it's been 20 years.

Oh, that's right.

That's cool, huh? Yeah. Mark, you've been around the industry.

Yeah. Approaching 30 years soon. Fleet manager 20 years and transportation director up in New York City. At Fordham University. Go Rams. And after that, jumped to the fleet management consulting world before landing here.

And again, in consulting, you've seen hundreds of fleets.

Yeah.

And interacted, done a deep dive. I mean, you were head of analytics, so you definitely saw the raw data.

Yeah.

Behind a lot of fleets. And yeah, we've had some good conversations about that. But you and I were talking recently.

Yep.

And there was something as we were talking about it, man, you got fired up. You were just like, yeah, not coming out of your skin, but, you know, You're very passionate about it.

Sure.

I don't remember who we were talking to. It was one of the cities in the area, and they were talking about their billing module and how they set up billing and things like that. And they're running basically a general service fund where it was just kind of a big slush. Everything came out of fleet. They were responsible for their budget.

Right.

And we see that quite a bit.

We do.

But you got really fired up.

Yeah.

About the right way to do billing in fleet.

Yeah.

So for our listeners, what is the right way to do billing in fleet?

Well, you know, and again, I'll tip my cap to Paul Lauria, who certainly kind of led me down the path here of truly appreciating and understanding the importance of this. But you really need to do a proper cost allocation analysis and then, you know, deploy a cost chargeback system that makes sense for the fleet functions and goods that you're providing to folks, right? So cost allocation is just that. It's taking a look at what your fleet costs are and making sure that you're allocating them, let's say to simplify it, putting them in the correct buckets. You can think of a bucket as like a function. What are the things you provide as fleet? You provide the fleet asset, you maybe provide maintenance and repair, you maybe provide fuel. These would all represent different potential cost buckets, right? And so you have to figure out what, what of my costs belong where. And if you don't do that, then whatever you're charging folks, if you're charging folks, which is a fair pausing point, is wrong if you're not doing that and taking the time to do that properly. So what do I mean by that? Right. Everyone kind of knows that, okay, your mechanic salary and benefits, right, goes into mechanic labor. And, and, and shockingly, many folks think, and that's it. And you'll see labor rates out there, $25 an hour, $35 an hour. And, you know, clearly they're treating it as if it's just the salary of their mechanic that goes into repairing those assets. Right. And, you know, let's just use that example. Let's pause and think about that for a second. Right. You know, that mechanic hopefully is operating in a shop, although we have visited fleets where mechanics are not in the shop, but that is the exception. Shade structure in a parking lot. Exactly. But, you know, there's a shop, so that shop has costs, right? Even if the building is— let's say you're in a government and you're not charged for the building, there's still a cost to that, right? Most folks are paying a lease or, you know, paying a loan.

You have to buy the building. You got to— yeah, you got to pay to operate the building.

Right, right. Electricity, electricity.

There's cleaning. Right, exactly.

Yeah, exactly that. So, so this costs, right? So you have the mechanic ready and then you have to give them the building, right? And then you probably have things like, I don't know, a supervisor, service writer, other people who are involved in the shop that are helping the shop to run, who are necessary for the shop to run, therefore necessary for you to get the maintenance and repair services.

Right.

And therefore that time and cost and energy needs to be accounted for in some way because it's not showing up.

If you're billing to a work order, right, the technician's clocking on, they charge their direct hours to the work order. And if you're only charging the, you know, their, their hourly rate, let's say $25, $35 an hour, right? You're ignoring all the admin correct charge that enabled them to even do that job in the first place.

That's right.

The parts clerk, the foreman, the service writer, the fleet manager.

Correct. Right.

So there's a lot of these guys that just kind of their cost is never going to show up on a work order.

Right. Exactly. And so I think there's probably a decent amount of understanding around that, at least at a very high level for labor rates. Not saying Frankly, most fleets don't do it right that I've come across. But certainly the idea that there's more to the labor rate than just the hourly salary. Right. But then—

well, we didn't even talk about the other piece of the hourly salary.

All the benefits.

It's all the benefits.

Yeah.

Like benefits, the time off. Yeah. Like that alone.

Well, that's a great point.

So the 25% just right there.

Yeah. Yeah. Like, like, that's a great point. Real quick, let's pause just super quick because, you know, let's let's just say it was just salary. The minute you calculate time off, how do you even cover the cost of that technician if you're only charging what their hourly rate is? And yet I've had people argue with me and say that's the right way to do it. It's just not, right? Like, you have to— your job is to properly account for the actual costs that are created by providing that service for Fleet, right? And so, you know, you can and you should take that a step further. So like I mentioned, for example, you know, maybe if you have your own in-house shop, so you have that labor, maybe you run your own in-house parts, you know, procurement program, right? Well, okay, most folks will simply charge the cost of that part. Well, what about, well, who ordered the part? Who received the part? Who put the part on the shelf? Who counted the part during cycle counts and annual inventories, right? And who brought the part to the bay or handed it to the mechanic at the parts window. Right. There is a lot more cost. If you are only charging the cost of the part, you're not actually charging the cost for acquiring and issuing the parts of the vehicle. You're actually understating the true parts cost for the asset. Right.

Let alone like maybe the simplest one that you have to pay for all the time is, you know, shipping and tax.

Yeah, well, that's a great one. Yeah.

Unless your taxes are down, but still. Shipping and tax typically.

Right. So, so the, so the right approach is, is to do this kind of a cost analysis— excuse me, allocation analysis, right? Where you say, okay, some of, some of these costs are going to be direct, right? Like you're going to know, you know, maybe you have like supplies that are only used by people in the shop, right? Gloves, safety goggles, that kind of things, things you can't charge to work order. Well, you can take that entire supply cost, allocate it to the shop and say, we got to build that into the labor rate, right? And so many things are going to be direct for whatever these functions you may have are, right? We use parts, fuel, etc. Some things are obviously going to be pass-through. So that actual part itself is a pass-through cost, right? You're putting it straight to that asset, but you need markups, you need the parts markup or the fuel markup because you do have to account for all of that effort, like I said. And if you don't do that, then you're actually understating what the true cost of managing and providing goods and services for the fleet is.

Right.

Right. And people think— many fleet managers think that's a good thing because they think it makes them look good.

I'm coming in under budget.

Yeah, right. And it's actually a bad thing for a multitude of reasons. We'll get into that. But, but yeah, you know, one of, one of, you know, one of them is, you know, if, you know, Paul used to say, you can't manage costs you can't see.

Uh, that's a good one. That's a writer downer, folks. You can't manage costs you can't see, right?

So if you don't have that true visibility on what these costs really are, and you're not providing that visibility to the stakeholders, which are both your customers and the other folks out of it, how are they making good judgments? Okay, they can't make good judgments. I'll give you the one that happens extremely commonly. We've talked about replacement, right? Most fleet managers will, will complain till they're blue in the face how difficult it is, and rightfully so, to get money for replacing assets. Right. Well, think about the way a lifecycle analysis works, right? For those who aren't familiar with it, you're essentially modeling out your costs. Here's your capital costs. They start very high on an annual basis. They get lower and lower because the asset depreciates a little bit less each year than the year before. And then your operating costs, as we've talked about, generally speaking, go up. Okay, if you artificially— I'll use that word, all right— or let's say you understate your operating costs, which is predominantly your maintenance and repair costs, what you're doing is, is you're changing that cost curve. You're pushing it out. You're making it harder to justify replacing assets in your fleet. Much harder. Because if you're finance or your leadership, you're going to say, no, no, no, it's not really costing me that much to maintain the vehicle. Let's, let's, let's keep it.

Because all you're looking at is the direct cost.

Because all you're looking at is that direct cost. And so you're not getting you know, you're not getting true visibility, true transparency on what the cost of the fleet is. And one of the ways I always know when, you know, we do engagement, if you hire me after hearing this podcast, you'll be ready for this, you know, but I'll sit down with you and in our first interview I'll just ask you, well, what does your fleet cost? And I cannot tell you, pretty much 99 times out of 100, I get a blank stare. They have no idea. And then they just start pulling numbers out, right? Their you know whats. So, So that's, you know, that's a piece. If we want transparency, if we want visibility so that we can make good data-driven decisions, and of which the most important data is generally cost-related data, right? You just need this so that you're getting an accurate picture of what the fleet costs. So that's kind of like baseline table stakes. Like you have to be doing that if you're doing it right, okay?

So direct chargeback, you're charging obviously for the direct time the tech spends, charging for the pass-through cost of fuel, parts, et cetera. But then you're also charging, you're making sure to bake into that fully burdened labor rate the cost of the facility, the cost of the admin.

Right, yeah, you might have an asset management fee, a part markup fee, a fuel markup fee. And again, there's different ways to do that. And depending on the situation, you know, I think there's a better way. I'll give you an example. You normally use a percentage for parts, but you might have a cap and a bottom, right? Because when you think about it, at a certain point, no matter how much more expensive the part is, it doesn't take you more time and effort to procure that part, right?

It just happens to be a very expensive part.

Exactly right. So usually there's some, you know, things you want to work through if you want to be very good at it.

And that's something we do in our system. Yes, you can set a markup and set a cap, a min and max.

Exactly.

You could do a percent. Usually when we do shop supply rates, it's usually a percentage of the labor, right? So as you spend more time on a job, there's more labor. The increased odds are that you're going to spend more on hand soap and shop towels and all the other shop supplies that are kind of just they're not going to get charged directly to a vehicle.

Yeah, exactly. And by the way, an unshameless plug, that's one of the things I love about our program, frankly, is if you're setting— if you set us— if you set up right, you're doing this whether or not you want to do it. Hopefully you're looking at it. But in other words, you are tracking costs directly to assets so you can get that kind of visibility. Right. So I think that's key. You know, you mentioned fleets that are doing this out of a general fund. They're not even charging back for this.

Yeah. So let's talk alternatives.

Right.

So chargeback system, that is our preferred way. It takes a lot of work, though.

Well, that's, that's the perception. Yeah. Yeah, that's the perception. It's a direct chargeback. It takes more work.

So let's talk alternatives and then why somebody wouldn't be doing a direct charge system. Sure. So one of the other alternatives is general service fund, right? This is something we typically see in government fleets. I'll say this in corporate fleets too.

Yeah.

Because they essentially, they treat it like IT.

Yeah.

The IT department is a part of the finance department and it's just a general fund that it's just a service we provide.

Right. Exactly. It's a cost of business.

It's a cost center. It's a cost center. I mean, we treat fleet kind of the same way. It's a cost center of doing business. Right. But to that point, like, we usually don't know what our fleet costs. You might have a top line. Oh, well, this is our budget line item.

Correct.

But we don't understand what's all in that bucket.

Correct.

Why we're over, why we're under. Bingo.

Exactly.

So why, why would somebody pick doing— and just to, I guess, explain for everybody what a general service fund operation typically looks like.

Well, so a general fund normally is just simply the fleet gets a certain amount of dollars allocated to them and that's how much they can spend. And they got to go out and provide all the goods and services for that year.

So that covers procurement, that covers salaries, that covers the technicians, that covers, you know, building expenses for, you know, whatever the utilities are, pretty much everything they need to operate as its own little entity.

Right. And then they have to generally work within that budget. Obviously, you know, major things can happen in life and sometimes they can appeal for more if there's even more available. Right. Or they work with their stakeholder maybe. But generally speaking, they have to live within that budget. And what's kind of what I think is sort of not good about that approach is essentially they're accountable for the budget and they had no input at all into the things that generated the costs. Right. So, you know, let's say the police department wants a new vehicle, an additional or a replacement, or let's say they're there, you know, something happens and someone doesn't take care of the vehicle well and you have a major repair. Right?

Yeah.

The organization, you know, that generated that cost, let's say that department that had the bad driver that went unsupervised, that really beat up that truck that now has all this extra M&R costs onto it, they generated the cost, right? They have no responsibility or accountability for that cost. Fleet has to answer for that cost.

And if there's an overage, then that's coming out of fleet.

It's coming out of fleet.

And fleet's gotta justify that to council, to the board, to, you know, your corporate governance.

Right. And if we're being frank, for any of those of us who've worked in government and, you know, education settings is very similar. You know, the fact of the matter is what normally happens, especially if this is early enough in the year, it's not I'm going to get additional costs or I'm going to— it's going to be, well, you got to figure out what we're not going to spend this year somewhere else.

You got to say no to something.

You're going to say no to something else, right? And sometimes it's a very badly needed thing. A lot of times what it is is some other department that is a good steward, that is taking care of their asset very well, is they're not going to get the thing that they need. right? Um, so I won't lie, that tickles my sense of justice, so to speak, right? Um, but, but I do think that, uh, bigger than that, it also puts fleets into a position. So, so you have one, okay, they're accountable for things they have no control over. That is just not the way to do things. But number two, it puts them into position to essentially be the fleet czar, right? Where they have to be kind of judge and jury about all things fleet.

Who gets what? What kind of vehicle you get.

Right.

And you are, you know, the fleet Gestapo.

Correct. And now we're making soup for you. And just stop. I mean, if just again, just pause there and common sense hopefully is kicking in for some of our listeners right now. Like, what would you want to run any organization like that? Like, that means that now this important big decisions with assets that cost a lot of money are being made purely on politics. Relationships, on something other than good business decisions, right? Good data analysis, etc., right?

Well, and it's frankly, it's entirely up to you now, right? All the pressure is on you to make the right decision.

Yes.

To— and maybe I pressure now from police to say, I really want these vehicles. Well, now you have to be the bad guy and you got to say no, right? You know, fire is asking for this and you're sitting here trying to balance all these competing needs, right? And it does. It turns you into controllers all over the fleet manager instead of being a partner, it turns you into an adversary.

Yeah, that's exactly it. Right. It's— that's exactly it. Right. And you should be, you know, I think fleet organizations should really see themselves as service providers. Right. That's what they are. They provide goods and services. They— their mission should be to help the operational departments fulfill their mission. And instead, like you say, they're kind of adversarial. And in a worst-case scenario, at the minimum, they're referee. Yeah, you know, their mom and dad, you know, it's, it's, it's just not— it, it's not conducive to making efficient use of resources, right? Um, much less, you know, having people have a, a good culture at work, one that's collaborative and cooperative and then those sorts of things. So, uh, and let's be frank, right, like most organizations— and we've talked about this a lot in the world of fleet, and this is true in corporate, not— but certainly it's true in government and education, which is Man, there's just limited resources. Yeah. So everything we should do should be about maximizing those resources, right?

One of the pillars of at least one of the pillars, right? The most of your most two finite resources.

Yeah.

That's money.

Okay. And so let's, let's pause and put that together, right? Make the most out of your two most finite resources. But if you can't see, you can't see the resources, you have no idea what's going on over here with the money. How do you make the most use out of it? Right. Pretty fundamental there. So general fund and having budgets just kind of, you know, having fleet just kind of absorb the budget for the operating units is just— it's a recipe for, you know, poor fleet performance. That's not— and it's not necessarily the fleet's people's fault.

Right. And then you'd have no way to tell because all they do is they control the purse strings, but they don't get to control the activities that drive the purse strings.

Big deal.

And I think that's— if we had one big takeaway from this too, when you think about the benefits of a chargeback system, is all about ownership, right? Right. Is that you are now shifting the ownership and responsibility. So, and some fleet people have a hard time giving up on this. This is the, like, this is my fiefdom, this is my kingdom, right? I am the fleet Gestapo. And I actually like that title.

Yes, very much.

Right. That's the power and the politics of it. But I'll tell you, most people don't really enjoy that piece of it.

Right.

But what we've done is we've robbed police and fire and public recs. And if you're in sanitation, you know, we've, we've robbed the, departments and the operations, right? I'm thinking like if you're a big garbage collection company, you've essentially shifted the burden of responsibility from operations and revenue-generating activities back to fleet as a cost center, right? And now they can't make the changes they— yeah, they lack their autonomy, empowering them, right, to make what the best decisions they need for their operations. And they no longer have a vested interest in the overall success of the company, right? Right. It's all just about their mission, right? And I think that's the big thing. When I see chargeback systems that are run really well, what it's done is it's, it's liberated the department or the company, but it's given those owners more control of their own fleets. Right. So the police fleet now is directly responsible for their fleet. They're responsible for the costs. They're responsible for the maintenance. If they're coming in over budget, it's coming out of their pockets.

Correct.

There's no like, well, I go rob Peter to pay Paul thing, right? I am Peter and Paul.

Right.

Right?

Yeah.

And so it gives them the ownership of like, if you want to make that decision, that's fine, but you have to make the tradeoffs now. And that puts it entirely in my control of— right now I don't have a fleet czar telling me I can't go buy the Dodge Charger.

Correct.

Now I can go buy it, but I'm making a tradeoff instead of, you know, buying that instead of doing something different.

Correct. We might be hiring more people, might be buying new desks. It could be— it doesn't even have to be within the fleet world.

Now, right, you can pull from your entire pool instead of just that one. Because you can make a strategic decision of where does the blood flow need to go.

Right.

Right. We talk about blood all the time.

Right.

Where— but I can make that as a police chief or as, you know, the head of, you know, like a maintenance operation within a garbage company. But I'm making that decision for my operation, not being forced by the fleet Gestapo.

Correct. And that's important because, look, we talk all the time about how, you know, as the fleet management group, right, the fleet manager, your job is to be, you know, the expert on the floor for fleet services. Well, guess what? I don't know a darn thing about running a police department. I mean, I've learned a little bit via fleet and how, you know, shifts work. And I can tell you a little bit from that side. I'm not— don't hire me to tell you how to run a police department. Right. So I want whoever is the best professional, the best, the folks who know the most about doing that to do that.

Who are going to most acutely feel the impacts of their decisions.

Yeah, absolutely.

If my guy, my driver is abusing that vehicle, I am now going to feel the impact of that decision.

Correct. And that's a really important point too, because now you're— and so now, so they have the autonomy and they have the accountability. Yeah. So if they go way over budget, boy, they better have a good reason to explain to city council, let's say, or the board of directors or whoever it is. This is why I went over budget. And, you know, and maybe they'll have a great one and maybe they won't. And then that enables leadership to make the decisions they need to make based on very good, accurate, clear, and transparent information. And data, right? So, and so, and so I think that's super important. And to your point real quick about the good steward with the assets, you know, when you have that general fund or when you have some of the other sort of models that I don't like, you know, another model you might see, for example, is people often use something called a wet lease. Well, they use like an average rate where they'll say, okay, I'm gonna go out and just pick half-ton trucks and, you know, look at all of the costs of all the half-ton trucks divide it by the amount of half-ton trucks for the year. And there I'm just going to charge everybody that and maybe divide that by 12 months and I'm going to charge everybody that.

That's kind of like a third alternative, right? Instead of just doing a general fund, you do a kind of an allocation, right? It's just— but it's not direct chargeback, right? It's kind of— what do you call that— subsidized chargeback. It's an average chargeback.

Well, and that's the thing that I don't think most organizations realize they're doing is they are— when you do that, you are subsidizing, right?

This is a key moment.

This—

yeah, just pay attention to this one.

Yeah. So if we're using average rates and, you know, Josh is, let's say, Josh, what do you want to be? Police department. You're the police department. And, you know, Mark is, you know, let's say human services or something like that. Right. And we have the exact same truck in the same class and so forth. And, and we decided to average by class. Obviously you can do it a multitude of ways. And let's just say your truck and maybe police isn't a good example because you're going to have a law enforcement, let's say public works.

I'm going to abuse the crap out of that vehicle too. So get the bad guys.

So your truck is costing us $1,000 a year in maintenance and repair, just for argument's sake, on average. And my truck in human, in human services is only costing $500. Okay. And we get charged our average $750. $750. Well, guess what? There may be really good reason why mine is less expensive. Maybe it's use case, maybe it's whatever else.

You might not be driving it as much as I do.

Driving it. It could be plenty of good reasons. There could also be no good reasons. It could be simply we're better stewards of the trucks than you are. Right. Well, number one, you have no way of knowing. Right. But number two, and you can know if you, if you dig, but if you had proper cost allocation, you would know immediately. It would be visible, clear, and top of page for you. Who's beating up these trucks more? Right.

Yeah.

Okay. But number two, essentially, I am subsidizing your shop. Yes. Because I should only be paying $500 and I'm basically for every truck that we have, I'm giving you $250 a month.

And I'm gladly accepting. Thank you.

Exactly. Now, this is extreme. This is especially interesting in the case where, you know, most government entities have at least one, if not multiple enterprise fund operations. Right. Think of it as like water, water sanitation, correct? Solid waste, common one. Solid waste is a common one, right? Those are the common ones, ones where in some areas you might see it done privately. In some areas the government provides it. Those are often enterprise operations. Right.

And those enterprise funds You know, and think of that as like their revenue generating up there.

Great, great way to say it. Thank you. Yes. So if you know, and again, I'm using broad strokes here, I'm sure that someone out there can do a ton of research and find exceptions to this. But, but you will find that in the overwhelming majority of government organizations, whether it's a municipal government, county, city, state government, even federal government, okay, essentially these enterprise funds have rules and regulations in their charter around how to fund them. And essentially what they will say more often than not is something like, you need to be self-sufficient, you need to collect enough in fees in order to basically run your operation. There are cases where it's you need to be 50% sufficient, right? And the general fund is going to give you 50%, whatever those charter rules are, right? It's required that, that again, that therefore the cost of the fleet is covered by those.

And you have to know the exact cost of the fleet. You do know that it's being covered.

Well, bingo. That's number one. But number two, think about this cross-subsidation thing we just talked about. Yeah, I'm charging average rates. Well, let's say in this case that you were this enterprise fund, right? Now the general fund is paying into the enterprise fund because I'm subsidizing your truck costs and I don't even know it. Yeah, I don't even know it. I've loved sitting in rooms with, you know, government finance people when I can show them mathematically that this is happening and see their faces turn white because they do it. Yeah, they don't know. And they know.

Yeah.

And this can get you in trouble. It can get you in trouble internally, but it can also get you in trouble oftentimes. For example, states have regulations that are on counties and so forth and so on. And you need to manage this.

So it's same thing true if you accept federal money. Oh, that's like a federal grant to go pay for a new transit bus or something along those lines. And then you're using again subsidizing those vehicles and it's mixed like muddied waters. Right now, all of a sudden you're violating the terms of getting that federal grant money.

Right, right. And again, you know, you could say, well, what's the odds they get audited? And I get that. But if you do, they will find this. This is what they're looking for, right? They're trained at that. And, you know, depending on the situation, it could mean everything from giving back the money to penalties to making you ineligible to get those kinds of assets in the future.

So And that could be detrimental. That could be an absolute killer, right?

Especially like in transit. And, you know, some of the folks who maybe require like, you know, some of the, let's say, wheelchair accessibles are oftentimes granted and things like that. Some of the services that are most dependent on these kinds of funding programs are the ones that would get most damage, right? Or the traveling libraries, things like that. Right. So, so that's interesting piece. So you have now you know, you have this visibility piece, right? You have the let's not be a fleet czar. Let's have this accountability piece.

Now, I want to hit that real quick. Like, what do I do if I'm not a fleet czar? Like, what does that look like in a, you know, in a model where we're doing direct chargeback, right? What's my role in deciding what we do as a fleet?

Right, exactly. So, and so to me, this should be, this should be what all fleets are striving for, right? Your role is to be the fleet management expert, right? It's to provide your expertise and advise people on, hey, this is what I think should be going on and what, what should be done. And certainly leadership is going to come to you when police or whoever else comes and says, I really need to replace this vehicle or I really need to upgrade to this kind of vehicle. And they're going to come to you and say, well, do you agree? And you can give your, your based on your knowledge and your experience, whether or not you agree, whether or not you don't agree, etc., what you recommend be done. You know, should we be replacing those police motorcycles in 3 years or should we be keeping them for 5?

Well, you know, you do the math, you do the analysis, correct? And you give your recommendation.

Bingo. City Council doesn't know how to do that. And it's not their job. Right.

And honestly, the police fleet's not going to know how to do that either.

Right.

That's your job.

That's your job. Right. And you can show the numbers and everyone can make a good decision. And it may not always be the decision that you recommend, but your job was to empower people to make those good decisions based on that data and that information. Right. And to document, you know, if they do make a decision you agree with, hey, keep that in mind and track that stuff, right? Because normally speaking, what you will find is when you show that you're a good steward of resources, more resources will be given to you, right? And that will grow. So you want to— you definitely want to document your track record there in that regard as a quick side there. So I think that that's really important. And I do think that, frankly, that's part of the reason many fleet folks are scared of direct chargeback. Because to your point, some are stuck on the, the fiefdom piece. But I think another piece is now that I'm charging you for everything, and I think this is actually the bigger piece, by the way. Yeah, probably. Right. And now it's fully burdened. So now, now my labor rate is not going to be $35 and it's going to be $135. Right. And I'm going to charge you a parts markup of, let's say, 15% or 20% or 25%, depending. Hopefully not that high. But, you know, and I'm going to charge you, you know, 7 cents a gallon for every gallon we dispense of fuel from our fuel island, or I'm going to charge you some sort of fee for managing your WEX fuel card program because you call me every 15 minutes because your fuel card's locked. Right. And I know there's admins out there who can relate to that. Right. So, but I'm going to charge you because there's a time and there's an effort and there's a convenience and a benefit that you're getting out of that for doing that. But here's the thing now. Now you got to justify those costs and you got to justify it with performance, with quality performance, right? And you got to be able to show why those costs are worth it. Because the truth of the matter is, if you're fully burdening your labor rate, 9 times out of 10, it is going to appear on paper as more expensive than the Jiffy Lube down the block. Yep. And you're going to get questioned, well, why do I— why don't I just go to the Jiffy Lube?

I'd even argue 10 times out of 10.

Yeah, yeah, right.

You know, but you will get that question. You will get, well, why don't I just outsource this? Why don't I send this to, you know, the Jiffy Lube down the street and start taking it to Walmart and have them do the oil change.

Right. And you need to be able to answer that. And, you know, that's maybe its own podcast. But, you know, part of that is making sure you got customer satisfaction and making sure you can articulate all of the things that you're doing that Jiffy Lube is not going to do. Right. And then, and then secondly, I think by doing this cost allocation, you actually can— and this is one of the things I love about this kind of analysis is I can actually show you what costs are avoidable and not. So for example, the incorrect perception is, is, oh, I can just start using Jiffy Lube and pay $49 instead of $120. And they think that. But the truth of the matter is, is that not all of the costs— if you eliminated the fleet maintenance team tomorrow, not all of the costs of fleet are just going away. Many of those costs are going to get transferred and allocated into other buckets.

And so especially because the number one cost is if you're doing it the right way, you're going to be charging a portion for replacement and you're going to be getting ready to replace that vehicle.

Yeah.

With that chargeback.

That's a major part of the chargeback. Absolutely. Yeah.

So, yeah, it's not going away. Eliminated the oil change, right? You didn't eliminate the need for a safety inspection. Correct. You didn't eliminate the need for a replacement. Right. So there's a lot of that. You didn't eliminate the need for a fleet manager.

Right, exactly. There's still going to be a fleet manager. Someone's got to manage the contract. Someone's got to approve every time someone goes to Jiffy Lube. Should we do that work? Should we not do that work?

Yeah.

Someone's got to be tracking warranty. Should that get it? Like, not to—

maybe by all means, go ahead and take it to Jiffy Lube for the oil change. We're going to be here for everything.

Yeah. And you might, you might find that that's the best way forward for you. You know, one of the arguments— and I don't mean to disparage Jiffy Lube, it's a great company and for what, for what its intended purposes, it does what it's supposed to do. Right.

I want to hear that, James. We're not disparaging Jiffy Lube. One of our listeners.

Right. I want to be clear. But, you know, if we're being honest, it's also— they're not doing the level of PM inspection. You know, you always talk about you know, the more important part of the PM is the inspection, right?

To find things wrong.

Yeah. They're not doing the PM inspection the way that you would do it in your shop. Right. And I'm not knocking them. That's not what you're paying them to do.

No.

Right. So they're not— they're not cheating you. I want to be clear. Right.

They'll look for things wrong.

Yeah.

Obviously, as a business, they're going to look for upsell opportunities, things like that.

Right.

But they're not going to know your vehicles the way that your own fleet would know your vehicles. And frankly, it's a different level of ownership.

It's a different level of—

same reason why you don't want to do a general service fund.

Yeah, exactly.

Don't go to the other side of the pendulum here.

Yeah, exactly. It's a great point.

And so why don't people do this then? You know, is that because now they do have to justify that and they're afraid?

I think that's part of it.

Don't know how to tell their story.

I think that's part of it. I think, frankly, many people are intimidated or maybe they don't know how to do cost allocation and chargeback.

Okay.

I'm surprised at how many people like in finance and accounting don't actually know how to do that.

And that's— that is surprising because that's something they do teach you in school.

Yeah, they should.

There are several accounting courses and running a business. That's something we do every day, right? Like, that's how we run the business. Literally what department it goes to, which GL it goes through, what category it came from. Exactly. That's the only way I understand the different economics of my business so that we can make sure that we're profitable.

Yeah, exactly. And so a lot of times the ownership exists elsewhere and they say these are the rates they give me and so I use them, right? If they do have a chargeback system, I would encourage fleet managers to not accept that, right? To go in, you can download ABC Cost Modeling templates offline, and they're all great, right? Obviously I have my opinions about the best way to do it, but you don't need the best way to do it to start, right? Just start, right? Get there. V1 is better than V not something.

Don't let perfect be the enemy of done.

Exactly. And every time you do it, it'll get better and better and you'll get more sophisticated and more detailed and track it and right. And then set up like if you have our system, but I'm sure if you have other systems as well, you know, set up the system to make sure you're tracking those costs. So even if your organization is not let— not yet allowing you to do chargeback the way I'm suggesting, know what it would have been. And at the end of the year, you can now go to leadership and say, hey, just want you to know, this is how it appears on our books because of the way we chargeback. And this is what it really is. If that doesn't matter to you, that's okay. And then you just keep tracking it because it'll arm you in the long run. You'll have a lot of data and information to tell a lot of stories when you need to. But in the meantime, right, you have, you have a basis from which, you know, you can kind of begin to go down a path. So I think that's, I think that's a piece of it. I do think a big piece of it is that, is that I think people think it's going to be harder than it really is. And to your point, I think that, I think budgeting people are scared of it because I think they perceive how, how do I budget for direct chargeback? I don't know what M&R and that's kind of the attitude.

A little more random. It's a little more— it's actually based on actual activity and activity is sometimes tough to predict.

Correct. Now, and ironically, you know what the answer to that is? And again, I'll— this is maybe the Paul Lauria Love episode, but I'll tip my, my cap to him again.

Is we love you, Paul Lauria.

You know, the irony of that is, in a nutshell, the way you do it is exactly how they're doing it to set up their existing chargeback when they do all those average all-in rates, right? Like, in the end, you need to gather all of the costs, figure out where they belong, and then make some, you know, reasonable assumptions about, you know, let's say increases, things that people do in budgeting all the time. Right. Well, 3% increase. Right. And, but if you know, actually it's easier to budget if you do direct chargeback because then you know exactly what costs went to each vehicle and you can actually have a much clearer picture of what it's probably going to cost the police department next year based on their last 2, 3 years historicals. Right. So to be honest with you, it can all be done in a single workbook. It's not really, it's a big spreadsheet, but it's not a complicated spreadsheet, right? It's simple math. It's addition and subtraction and maybe multiplying by a few decimal points, right? Percentages. And it's something most people, if they tried and they could probably at the very least make major moves towards the goal, let's say, if not perfect it, do pretty well. And obviously, yeah.

So next steps for somebody that's looking at doing this online, there's guides for ABC costing, right? Or, you know, doing your own chargeback system design. What else could they go do? Well, I, you know, I throw a plug for us.

Yeah, but, but you really should—

don't have the time. You can bring in a consultant.

Bring in a consultant. Yeah, I, I encourage people to do that, you know, because they can— you got it. You got your shop to run and What if they're, if they're a good consultant that you hire, hopefully hiring us because I'm pretty confident we are. But, you know, we can go in and we know exactly what to look for. We know exactly what questions to ask. We know which budget lines to scrutinize because they tend to get conflated. I'll give you a very common example. Many organizations pay parts and sublet services out of the exact same budget line, right? So how much did you spend in parts this year, Mr. Finance Person? No idea, right? They only know what they did in both, right? And so we know where to dig deeper, where not to. Maybe, maybe the juice isn't worth the squeeze and so forth and so on. And probably can put something together for you fairly quickly, very straightforward that you can be again using immediately where, you know, if you got your day job and you got all the other fires you're putting out every day, all your own, it's, it's, it's gonna be a bit tougher for you to—

it's kind of like building the extension on the side of the house, right? You could do it yourself. You can, there's videos online. There's a, you know, it's absolutely something everybody could do on their own.

Right.

but it's going to take you anywhere from 6 to 12 times as long.

Right.

And something else is going to have to not get done so you can do it.

Right.

Whereas, you know, I think— I don't remember who it was. We were talking to Bradley about this, but you mentioned, well, you know, if you bring in a consultant, you can still focus on your day-to-day job.

Right.

And they're going to come in, do it faster, they're going to do it better.

Right.

And frankly, you're going to get better results out of it.

Yeah.

Without any of the stress that you would have to try to figure out and how to do it your own, especially if you've never done it before.

Right.

I know when I endeavor on a new project and I'm having to figure it out the first time, I mean, heck, even setting up podcast equipment, right? Just to bring it home here is like all this research. And I got sucked into a vortex and I'm sitting here reading articles and doing all this stuff. I take hours to learn about something that like, it's not my job, right? And now we've got it all set up and I'm like, yeah, awesome. I'm now a somewhat pseudo photography expert. What's that going to do for me in the run?

Right, right.

Maybe it enables me to go do it in the long run and, you know, do it again next year and do it again the year after that. But for fleet managers, it does mean like you're not spending that time doing something else, right? You need to do. And we all know you're super busy, right? Your hair's on fire, the shop's on fire, you're constantly dealing with emergencies. Yeah, but I think that's the power of having someone come in that has done it before, right? Just they come in, they knock it out and it's quick.

Well, and to be clear, it doesn't need to be forever, right? Like, you know, some fleet managers have this muscle. But very few of them started with it. Right, right. They moved to a fleet where this was happening already. Or maybe a consultant comes in, builds you your first model.

Yeah.

And then over time you tweak it and you update it every year. Yes, correct.

To you learning how to write, how to use the tool instead of how to invent a tool.

Yeah. We don't want dependency on like, you know, we, we would be, I think, failing you. Consultants would be failing you if their goal is to make it so that you always have to come back for them every time.

Isn't that like the typical consultant model?

That, that, that is. But that's not the world we live in, right? Like, sorry. So if that's what's happening to you, then maybe think twice about the consultant that you hired. But in our world, that's not what we want. We want to develop it for you the first time. We'll certainly come back as much as you need us to. But the goal would be to develop a tool for you that you can then use and bring forward and either use yourself or maybe your fleet management analyst can do it, or maybe someone from finance and accounting can help you with it. Right. But it becomes something that you can build on and essentially make your own. To your point, you know, a lot of folks, when they're building that extension, they realize, man, I can't do this. And some folks will then, you know, call the custom home remodeling company and they'll build everything for them. Right. But some will say, all right, I'm going to call Dormer King and we're going to just, you know, get the dormers up and the end of— and we're going to, you know, get the— what you call the sheetrock and so forth and so on. And they build the bulk of it. And you get to sit there watching it and you learn. Right. And you see how this came and maybe even pull a little bit of apart just so you can see how they put it together. Right. That's the kind of thing that I think is probably the healthiest way forward for this, right? And so I do encourage that. And again, it'll be fascinating. And the— man, I'm gonna get into a whole nother podcast. You're gonna have to stop me here, right? But the implications of this go on forever from this model, okay? How many technicians do I need? Is my cost competitive with the outside world, right? How many VUs, how many AEUs do I have, right? Is does it match with the technicians that I have?

Because what's my cost per—

what's my cost per AEU, right? You know, am I, am I spending the right— if I'm spending $5,000 per AEU per year, like, holy crap, that means something is wrong with my maintenance and repair program. And there's a lot of opportunity for me to go improve it. Right. And so folks are looking for a benchmark. You know, you're talking about $2,000, $2,100 now after all the inflation. So, you know, there's like, you can— there's so much that can be gleaned from— I mean, we build a cost model. The team will tell you we build a cost model then. And I just look at that cost model all day and I, I, I, it's like, it's like being able to read inside someone's soul for a fleet, right? There's just so much that it tells you. I know where you're struggling. I know where I know exactly to do this. I know which technicians are productive, which ones aren't, where you're having problems. I know where you need training. You know, hey, you guys are really good at this. You're not really good at that. So as you, as you build sort of, as you get a little more sophisticated in your cost modeling, the things that you can glean from it in really in just a few minutes are just so powerful. I think it's probably, I think it's probably the best. I think it's probably the number one diagnostic tool for diagnosing fleet performance and identifying opportunities for improvement. So if you're doing it yourself and you're redoing it every year, my God, you are very likely to be among the top fleets and probably winning 100 Best Fleets and, you know, all of those kinds of things.

Yeah.

So yeah, there's a reason that the average labor rate for the 100 Best Fleets is dramatically higher than the average labor rate for the industry, right? It's because these folks are generally doing this stuff a little bit better.

Yeah. Yeah. So bottom line, look at switching to, you know, a direct chargeback system.

Yes.

If you need help setting it up, you know, we're here to help you. There's plenty of resources online, but you know, obviously tap the experts. It's what we're here for.

Yep.

You know, and get, get out of the fleet czar, get out of the fleet Gestapo mode. Yeah, I think the, you know, we were talking about it when we were talking with this customer. And if you're running a general service fund, you're essentially, you know, you're the mom.

Yeah.

And you've got a kid in a candy store.

Exactly.

And all they keep— Mom can have this. Mom can have that. No, no, no, no. Right. And you don't need to be the chief no officer.

Right.

You know, you can, you can come around and actually be an advisor and be like, well, I don't think that's the best idea.

Right.

You know, maybe we should have some dinner first, Tommy. Right. But you go through and you can really enable and empower your fleets to make the best decisions for their missions, right, their use case. And they're going to take some ownership in making sure that they're better stewards of those assets, especially when you start getting them competing with each other.

Right.

Hey, your cost per AU is this and your cost per AU is this, you know, and get them really trying to improve their own numbers because they actually have ownership of it now.

Yeah.

So it's definitely, you know, if you haven't looked into it, look into it. If you want to have more information, email us podcast@rtfleet.com. If you really like being a general fund fleet manager and you think Mark's totally off his rocker, tell us why. Yeah, email us. We'd love to hear it. Love to hear your examples. You know, we promise not to blast you too bad. Yeah, but we'll have a good discussion about it. I enjoy that. Yeah. But yeah, if you want any assistance with that, also podcast@rtfleet.com. You go to fleetconsulting.com and go check us out there if you want to learn more about our consulting services and What these guys do, brilliant. I will tell you, they're all super brilliant. I feel super privileged to work with them every day. Ah, Philly, do some amazing, amazing stuff helping fleet managers truly succeed and get on top of their costs. So with that, we're going to sign off and we will see you next time.

Take care, everybody.

We hope you enjoyed the show. If you'd like to help support the podcast, please share it with others, post about it on LinkedIn, or leave a review. Want to learn more about our fleet management software Fleet 360? Check us out at rtafleet.com. If you want to learn more about having your fleet evaluated by our consulting team, go to fleetconsulting.com.