Nearly every fleet that comes to us with an excess mileage problem made the same decision at signing: they bought the band that made the monthly payment look best, not the band their routes actually supported. It is an easy mistake, because the cost of getting it wrong does not arrive for three years.
Here is the arithmetic, using our sample half ton cargo van. At 15,000 miles a year the residual sits at 54 percent of a $42,800 MSRP, which is $23,112. Move to the 20,000 mile band and the residual drops three points to 51 percent, or $21,828. That $1,284 of extra depreciation spread over 36 months is about $36 a month, plus a couple of dollars of rent charge. Call it $38.
What the wrong band costs at turn in
Now suppose you bought the 15,000 band and your vans actually run 22,000 miles a year. Over 36 months that is 21,000 excess miles. At the cargo van rate of 18 cents a mile, the bill at turn in is $3,780 per vehicle.
The band upgrade you declined would have cost about $1,368 over the same 36 months. You saved $1,368 and paid $3,780. On a fourteen van fleet, that is a $33,768 difference, and it arrives in a single invoice in the month you are least expecting it.
The break-even is easier than it looks
The rule of thumb: divide the cost of the band upgrade over the term by the excess rate, and you get the number of extra miles at which the upgrade pays for itself.
For the example above, $1,368 divided by $0.18 is 7,600 miles. The gap between the 15,000 and 20,000 bands is 5,000 miles a year, or 15,000 miles over the term. Because 15,000 is comfortably more than 7,600, the upgrade wins as soon as you believe you will use most of the band. The comparator on our lease calculator does this for every class and every band pair.
Get the route data first
If you have telematics, you already have the answer: pull twelve months of odometer readings per vehicle, not an average across the fleet. Averages hide the two vans doing 30,000 while six do 11,000, and you pay excess per vehicle, not per fleet.
If you do not have telematics, use fuel card data. Gallons times your observed miles per gallon gets you within a few percent, which is close enough to choose a band.
- Pull odometer or fuel data per vehicle, never fleet-averaged
- Add 8 percent for the growth you are planning and will not admit to
- Price the band upgrade over the full term, not per month
- Remember that under-mileage is never refunded, so do not overbuy either
One more thing worth knowing: you can change the band once, mid term, at any point before the final six months. We re-sheet the payment from that month forward and there is no fee for the change. If your routes shift after the first year, say so rather than banking the excess.
All figures here are sample figures for a demonstration site. The method is the part worth keeping.
