What a mile really costs
A 250 mile trip in a 30 mpg car costs about $28 of fuel each way. The true cost of those miles is closer to $130, and the difference is entirely made up of things nobody hands over money for on the day.
That gap is why mileage reimbursement rates look so generous, and why they usually are not.
Fuel is about a fifth
Take 12,000 miles a year in a 30 mpg car at $3.40 a gallon, with $1,400 of insurance, $500 of servicing, $300 of tyres and $2,800 of depreciation. Fuel is $1,360 and everything else is $5,000. The total is $6,360 a year, or 53 cents a mile.
Fuel is twenty-one per cent of that. Pricing a journey at the pump understates it by about 4.7 times, which is a large enough error to change decisions about whether to drive at all.
Depreciation is usually the biggest single line and the easiest to forget, precisely because nobody writes a cheque for it. It is real money — the difference between what the vehicle was worth a year ago and what it is worth now — and on a newer car it can exceed everything else combined.
12,000 miles a year, 30 mpg at $3.40
Fuel $1,360
Insurance $1,400
Servicing $500
Tyres $300
Depreciation $2,800
Total $6,360 a year = $0.53 a mile (fuel is 21%)
Work it out: Cost Per Mile Calculator →
Fixed costs still divide by distance
The counter-intuitive part is that driving less makes each mile more expensive. Insurance costs the same whether you cover 6,000 miles or 20,000, so the fewer miles you drive, the more of that fixed cost each one carries.
That means a cost-per-mile figure is specific to an annual mileage and cannot be lifted from one situation to another. Somebody doing 20,000 miles a year has a genuinely lower cost per mile than somebody doing 6,000 in the same car, even though the cheaper-per-mile driver is spending far more in total.
It also means the marginal cost of one extra journey is much lower than the average cost per mile — it is roughly fuel, plus wear. The average figure is the right one for deciding whether to own the car; the marginal one is right for deciding whether to make a particular trip.
What a mileage rate is actually for
A published mileage rate is designed to cover the full cost of the miles rather than the fuel, which is why it looks so far above what a tank costs. It is meant to include the wear, the servicing, the tyres and the share of depreciation those miles caused.
Whether it does depends on the vehicle. On an efficient older car a standard rate is comfortably profitable; on a thirsty new one it can fall short, because depreciation on a new vehicle is much steeper than the average the rate assumes.
Worth knowing either way, because the rate is a flat figure applied to a very wide range of vehicles, and the person driving the outlier is the one who should be checking.
Work it out: Mileage Reimbursement Calculator →
Out-of-pocket and total are different questions
For a specific journey there are two honest answers. What comes out of your pocket on the day — 500 miles there and back is $56.67 of fuel, plus $32 of tolls and parking, so $88.67, or $22.17 each between four people. And what the miles actually cost, which is two to three times the fuel figure alone.
Both are correct and they answer different things. Splitting a trip four ways properly uses the out-of-pocket number; deciding whether the trip is worth making at all uses the full one.
Time deserves the same treatment. 420 miles at a 62 mph average with a twenty minute break every two hours is 7 hours 46 minutes door to door — 6:46 of driving and an hour stopped, for an overall average of 54 mph. That average, not the speed limit, is what an arrival time should be built on.
Work it out: Trip Cost Calculator →
Questions
What does a mile really cost to drive?
Around 53 cents in a typical 30 mpg car doing 12,000 miles a year, of which fuel is only about 21 per cent. Insurance, servicing, tyres and depreciation are the rest.
Why is fuel such a small part of it?
Because depreciation, insurance and servicing are larger and none of them are paid at the pump. Depreciation in particular is usually the biggest single line and the easiest to forget.
Does driving less make each mile cheaper?
No — more expensive. Insurance and depreciation barely change with distance, so covering fewer miles means each one carries more of the fixed cost.
Is a standard mileage rate generous?
It is designed to cover the full cost of the miles, not the fuel. On an efficient older car it is comfortably profitable; on a thirsty new one, where depreciation is steep, it can fall short.
How should I split the cost of a trip?
By out-of-pocket cost — fuel, tolls and parking — which is what people actually hand over. The full cost of the miles is the right figure for deciding whether to make the journey, not for splitting it.
Why does a journey take longer than the distance suggests?
Because average speed is well below the limit once junctions, towns and traffic are counted, and because breaks are real time. 420 miles at a 62 mph average with breaks is nearly eight hours door to door.