Why fuel alone underestimates the cost
Fuel is the cost you see every week, but it is often less than half of the total. Depreciation, insurance and maintenance can make the actual cost per mile several times the fuel figure, so a service call quoted with only fuel in mind may lose money on the drive alone.
Costs also behave differently with distance. Fuel rises with every mile, while insurance barely changes. Your per-mile cost therefore falls as annual mileage grows. That means a low-mileage vehicle can be surprisingly expensive per mile.
The formulas
Annual fuel
Fuel = Total miles ÷ Miles per gallon × Fuel price
Total annual cost
Total = Fuel + Insurance + Maintenance + Depreciation + Other
Cost per mile
Cost per mile = Total ÷ Total miles
Worked example
A contractor drives 15,000 miles a year, 6,000 of them for work, in a 25 mpg vehicle. This illustration assumes fuel at $3.50 a gallon, $1,400 for insurance, $900 for maintenance, $3,000 of depreciation and $300 of other costs.
- Fuel: 15,000 ÷ 25 × $3.50 = $2,100.00, or $0.140 a mile.
- Total: $7,700.00 a year.
- Cost per mile: $7,700 ÷ 15,000 = $0.513.
- Business miles: 6,000 × $0.513 = about $3,080.00.
Fuel looks like 14 cents a mile, but the true cost is more than three times that.
Using your cost per mile
- Set a trip charge. Multiply the round-trip distance by your cost per mile, then add the value of the driving time.
- Decide your service area. Work out the point at which a distant job stops being worthwhile.
- Compare vehicles. Run the numbers on a current and a proposed vehicle to compare them by mile, not just by purchase price.
- Compare with a reimbursement rate. If a client pays a per-mile rate, you can see whether it covers your true cost.
Frequently asked questions
Is this the same as the standard mileage rate?
No. Government mileage rates are set by tax authorities and updated periodically. This calculator measures your own actual costs. Check your tax authority or an accountant for current rates and rules.
How do I estimate depreciation?
A simple approach is to take what you paid, subtract the vehicle's likely resale value, and divide by the number of years you plan to keep it. Used-car listings can suggest a resale value.
What about an electric vehicle?
Enter the equivalent values. For example, use your cost per kilowatt-hour as the "fuel price" and miles per kilowatt-hour as "miles per gallon". The math works the same way.
Should I include loan interest?
For a complete picture, yes. Add the yearly interest to "Registration, parking and other". Loan principal is already reflected by depreciation, so do not add that as well.