Quick answer
Total cost of ownership (TCO) is everything a vehicle costs your business from purchase to sale: the price less resale value, finance costs, fuel or energy, servicing, tyres, repairs, registration, insurance and downtime. Comparing vehicles on TCO over the period you'll keep them — rather than on purchase price or repayment — shows which one is genuinely cheaper for your work.
Key points
- TCO = purchase price minus resale value, plus finance costs and every running cost.
- Compare vehicles over the same period and kilometres you'll actually use them.
- Downtime is a real cost — a vehicle off the road stops it earning.
- Get real quotes for insurance and finance rather than guessing.
- Your accountant can add the tax effects; compare the cash costs first.
Two utes sit side by side at the dealer. One is noticeably cheaper. It’s tempting to stop there — but the price on the windscreen is only one line of what that ute will cost your business over the next five years. Fuel, tyres, servicing, insurance, registration, repairs, the days it spends in the workshop and what it’s worth when you sell it can easily add up to more than the purchase price.
Fleet managers compare vehicles on total cost of ownership, or TCO. It’s not complicated, and it’s the single best way to stop a “cheap” vehicle becoming an expensive one.
What goes into total cost of ownership?
TCO is everything the vehicle costs from the day you buy it to the day you sell it:
| Cost line | What to include |
|---|---|
| Depreciation | Purchase price (including on-roads and fit-out) minus expected resale value |
| Finance costs | Interest and fees from a real quote, over the term |
| Fuel or energy | At your actual kilometres and driving conditions |
| Servicing | Scheduled services at the intervals your kilometres require |
| Tyres | Replacements over the period, at your usage |
| Repairs | Unplanned repairs, especially after warranty |
| Registration | Annual, for the vehicle class in your state |
| Insurance | A real quote for the vehicle and its use |
| Downtime | Lost work or hire costs while the vehicle is off the road |
| Other | Tolls, parking, telematics, cleaning, signage |
Add them up over the period you’ll own the vehicle and you have its TCO. Divide by the kilometres it will travel and you have a cost per kilometre — the most useful number for comparing vehicles.
Step 1: fix the period and the kilometres
Compare vehicles over the same period and the same kilometres — the period you’ll actually keep them and the distance they’ll actually cover. A van you’ll run for five years doing high kilometres has a very different TCO from the same van doing light suburban work. If you haven’t decided how long you’ll keep the vehicle, our guide to setting a fleet replacement cycle helps.
Step 2: estimate depreciation honestly
Depreciation — the gap between what you pay and what you sell for — is usually the biggest single cost. Estimate resale value by looking at what similar vehicles of the age and kilometres you’ll sell at are fetching now. Then shave a bit off. Hard-worked vehicles, high kilometres, specialised fit-outs and less popular models all resell for less than the average.
This matters for finance too. If you plan to use a balloon, a realistic resale estimate tells you whether the trade-in is likely to cover it. See balloon payments explained.
Step 3: use real finance numbers
Don’t guess an interest rate. Every vehicle finance deal is priced on the business, the vehicle and the structure, so a guessed rate tells you very little. Instead, use the total finance charges from a written quote — interest plus fees over the term. Our fleet cost planner has an optional field for exactly that, and shows the total outlay including your deposit.
If you don’t have a quote yet, enquire in about 60 seconds and a specialist can give you real numbers for the vehicle you’re comparing.
Step 4: fuel or energy at your kilometres
Fuel is the running cost that varies most between models. The government’s Green Vehicle Guide lets you compare models’ official fuel consumption and energy use. Remember official figures are measured in standard test conditions; real-world use — heavy loads, towing, stop-start driving, air-conditioning — usually uses more. Apply the same adjustment to every vehicle you’re comparing so the comparison stays fair.
For electric vehicles, compare electricity at the rate you’ll actually pay — depot, home or public charging — and factor in any charging equipment. See electric fleet vehicle finance.
Step 5: servicing, tyres and repairs
- Servicing: many manufacturers publish capped-price service schedules. Use the intervals your kilometres require, not the minimum.
- Tyres: commercial vehicles that carry loads, tow or do stop-start work wear tyres faster. Ask your tyre supplier what life to expect.
- Repairs: under warranty these are mostly covered. After warranty, budget for them — this is where older used vehicles can cost more than expected.
Step 6: registration and insurance
Registration varies by state and vehicle class, and heavier vehicles generally cost more to register. Insurance varies widely by model, use, drivers and location. Get actual quotes for each vehicle you’re comparing — insurance differences between similar vehicles can be surprising.
Step 7: put a price on downtime
Downtime is the cost most people leave out. If a tradie’s ute is in the workshop for three days, the business loses three days of work — or pays for a hire vehicle. If a refrigerated van fails mid-route, the business may lose the load too. Estimate how many days each vehicle is likely to be off the road per year at different ages, and multiply by what a day off the road costs your business.
Downtime is a big reason fleets replace vehicles before they’re worn out: newer vehicles spend less time in the workshop.
A worked example (illustrative)
A small electrical business compares two dual cab utes for the same job, over five years and the same kilometres. Ute A costs less to buy. Ute B costs more but uses less fuel, has longer service intervals and a stronger resale history.
When the owner adds up every line — depreciation, the finance charges from two real quotes, fuel at their actual kilometres, servicing, tyres, registration, insurance quotes and an allowance for downtime — the gap narrows sharply. Once Ute B’s higher resale value is included, the two end up close, with Ute B slightly ahead per kilometre. The owner chooses Ute B for its lower running costs and better reliability.
Your result will depend on your own numbers. The lesson is that the purchase price alone pointed the wrong way.
What about tax?
Tax can change the comparison, depending on the vehicle and the finance structure. For example, the ATO treats vehicles designed to carry a load of one tonne or more differently from cars, and applies a cost limit when calculating depreciation on cars. business.gov.au notes you may be able to claim GST credits on a vehicle bought or leased for business if you’re registered for GST.
Compare the cash costs first, then ask your accountant to layer in the tax effects for your business. That way you’re comparing like with like.
Build a simple TCO sheet for your fleet
You don’t need fleet software. A spreadsheet with one row per vehicle and one column per cost line is enough. Update it each quarter with actual costs, and you’ll quickly see which vehicles — and which models — are costing more than they should. It also gives you everything you need when it’s time to replace: our new vs used vehicles page helps you decide what to buy next.
Common TCO traps
- Comparing different periods. One vehicle over three years and another over five tells you nothing.
- Optimistic resale values. Use conservative figures, especially for hard-worked vehicles.
- Forgetting the fit-out. Canopies, shelving and signage are part of the purchase price.
- Ignoring downtime. It’s real money, even if it never appears on an invoice.
Ready to compare real numbers?
The most accurate TCO uses real finance figures, not guesses. If you’re comparing vehicles now, tell us what you’re looking at and we’ll help with the finance side. There’s no credit check when you enquire — your credit file stays exactly as it is — and your details go to one specialist rather than a queue of lenders all chasing the same deal. A real person will call to get you the numbers you need. Please fill in the form carefully, including the vehicles you’re comparing, so we can come back with figures you can use.
Frequently asked questions
What is total cost of ownership for a vehicle?
It's the full cost of owning and running a vehicle over the time you keep it: depreciation (purchase price less resale value), finance costs, fuel or energy, servicing, tyres, repairs, registration, insurance and the cost of downtime.
Why compare TCO instead of price?
A cheaper vehicle can cost more overall if it uses more fuel, needs more repairs or resells for less. TCO shows the true cost over the time you'll own it.
How do I estimate resale value?
Look at what similar vehicles of the age and kilometres you'll sell at are fetching now, then be conservative. Hard-worked and specialised vehicles usually resell for less.
Should I include finance costs in TCO?
Yes. Use the finance charges from a real quote — interest and fees over the term — rather than guessing a rate. A balloon changes the total, so include it in the comparison.
Do tax deductions change the comparison?
They can, depending on the vehicle and structure. Compare the cash costs first, then ask your accountant how GST credits, depreciation and other tax effects apply.