Figuring your hourly cost of equipment

Discussion in 'Business Operations' started by Guido, Sep 25, 2001.

  1. Guido

    Guido LawnSite Silver Member
    Messages: 2,087

    Pinpointing Your Equipment Costs

    I’ve got asked a lot about this one, so I figured I would throw a little something together to help some of you guys better understand what we mean when we say figuring out your equipment costs.

    This should help a lot when trying to figure out what it’s actually costing you to run a piece of a equipment on your jobsite. I have heard from more than a few people that it took this method for them to figure out that they really were not making as much as they thought they were (or would like to be) off of some jobs once they figured they’re costs.

    This is definitely the extreme scenario. I don’t think everyone needs to get this crazy, but I will just to show you how detailed you can actually get. This is the only way to go for a piece of equipment that is new to your fleet, or that you don’t have prior experience with. For most, you have the experience to know what it costs you per year to maintain them, but if you don’t, it’s not too hard to get a rough figure. It takes some time, and a lot of research, but with all the resources available on the net it moves along pretty smoothly.

    The figures I’m using our pretty rough. As most of you know I’ve been (and will be) overseas for a while, so it’s hard to keep track of a lot of the prices back stateside. Just bear with the numbers and use this only as an example to help you figure your own equipment.

    The piece of equipment I’ll be using for an example is an Echo model PB-650 Backpack Blower. I used Echo because they have an excellent website where you can go in and get parts manuals and operators manuals for most of their equipment made to date, and like I said, the net is basically the only resource available to me for info on American spec equipment and pricing.

    I’ll be using 600 hours as the time of death of this machine. I know, I know, I know…you’ve had yours for 10 years and it has over 50,000 hours on it. That’s fine. I’m still going to use a 600-hour life for this machine for a good reason. I went by the Echo service and maintenance recommendations in their operator’s manual to figure out part of this equation. I noticed that its all very minor scheduled maintenance UNTIL the 600 hour mark. At that time, they recommend that you replace the fuel strainer/filter, all the fuel lines, the spark arrestor, and rebuild or replace the carb. Now, that may be worth the money, but if you figure it until then, you’ll have paid yourself back for the machine by the time you hit 600 hours on it. That means your costs go down some for that piece of equipment because it now only costs you whatever maintenance is needed to keep it going. This means more profit without raising prices! Another good point that can make for a whole new discussion is you really have to think when it comes time to decide about keeping a machine in the field or not. Is it really worth it? Sometimes it definitely is, sometimes it really isn’t. If its costing you the same amount per hour to run as it was when it had under 600 hours on it, you should keep it for parts or sell it and get yourself a new piece. Like I said, that’s a whole different story, so that’s all I’ll say on that.

    Now…. Lets get down to business. Its very simple (because I did all the leg work! J) so there should be no problems following me so far.

    Take the price of the machine, including tax if any and start there. Lets say $450.00.

    Next, you have to figure out how much you probably will end up spending on maintenance over the 600-hour life of the machine. I went by the service chart in the back of the manual to start with. I came up with 2 Air Filter Changes and 2 spark plug changes. I also figured in for a little time to mess around with the machine and to replace a lost or cracked fuel cap, and a little bit more just to be safe. Let’s say you estimate maintenance costs on the blower at $50.00

    Fuel. Some people just include fuel into their general overhead and don’t track it. Some people know where every last drop goes. It’s up to you. I’m going to add it, just to show you how far you can take this. It holds 69 ounces of mixed fuel per tank, and it takes about 1.5 hours to burn up a tank of fuel. So that means you’ll need about 400 tanks of fuel. And at $1.75 a gallon (including oil) you’ll need about $378.00 worth of fuel for the first 600 hours of run time.

    Now, like I said before, I’m not going to sit here and argue with anyone about the price of maintenance or gas/oil mix, etc. It’s just a rough idea to help “paint the big picture”. Lets see how it looks so far.

    $450.00 Equipment Cost
    $ 50.00 Maintenance Costs
    $378.00 Fuel Cost
    $878.00 Overall Cost for blower over a 600-hour life span

    Take the $878.00 and divide it by 600 (life span in hours) and you get an hourly cost of $1.47 to run this blower. You can get even crazier if you wanted to and go to minutes. It costs about $0.03 a minute to have your blower running.

    The hard part is finding the time to figure this out for all the equipment you have. The easy part is once you have it all figured out, you can pinpoint your costs much better when trying to estimate a job. When I have time to write a little bit more I’ll talk about how easy it is to estimate direct job costs after you have your equipment costs down to a science.

    That’s about all I have for now on this one. If I left anything out on the subject just ask and we’ll try to figure it out.

    I hope this is of help to some of you.
  2. MOW ED

    MOW ED LawnSite Fanatic
    Messages: 5,028

    Thats about the same way I tracked toe cost of operating my Walker with a little higher number at the end. It is a great way to start looking at some of the little things that add up to alot at the end of the year.

    Thanks for bringing that up, I have a few more pieces to figure.
  3. Guido

    Guido LawnSite Silver Member
    Messages: 2,087

    Thats the truth!! It takes a lot more time and work for a more complicated piece of equipment. It needs a lot more maintenance then the small 2 cycle piece I used in my example.

    It definetly serves as a good business reality check. It doesn't look like many were intrested though??

    Maybe my next one will be more popular! :rolleyes:
  4. AltaLawnCare

    AltaLawnCare LawnSite Senior Member
    Messages: 961

    I'm with ya, Guido..

    I've got a sheet somewhere that my dealer gave me with numbers of cost per hour like that. If I can find it, I'll email it to you to compare to.:cool:
  5. gusbuster

    gusbuster LawnSite Bronze Member
    Messages: 1,932

    Good piece guido

    I hate when I have to figure out all my machines, including the 2 trucks I run. Would scare alot of people.
  6. guntruck

    guntruck LawnSite Senior Member
    Messages: 527

    The great GUIDO comes through again!!! Thanks for that great info sir, it was most helpful. I pretty much use the same mehtod, to a point but i love reading the stuff on that subject. You can never learn enough and i cant wait till you chat about direct job costs i think im a little sketchy here so i can sure use the help. Looking forward to it and thx again!!!
  7. Guido

    Guido LawnSite Silver Member
    Messages: 2,087

    Our posts got deleted or lost or whatever during the server change so if you want to start that discussion again please re-post.

    I still couldn't understand that burden cost you were telling me about. It seemed with the hours you were using, it only returned the original equipment cost. I didn't see where you accounted for fuel and maintenance.
  8. Loosestrife

    Loosestrife LawnSite Member
    from PA
    Messages: 80

    The example was a pretty good outline. I think that the repairs/maintenance costs/items may have been a little skinny, but the example gave a good pattern to be followed.

    The one thing that was not accounted for was the salvage value of the equipment at the end of its useful life. When that piece of equipment is retired, it has a value. It could be sold, it could be set aside as a spare, it could be kept as a parts machine, or it could be regulated to the trash bin. In any of these cases, a value has to be entered into the equation for that salvage value, even if the salvage value is zero.

    This may not be a large deal on smaller items, but on a $10,000 piece of equipment, it will affect your numbers.
  9. Guido

    Guido LawnSite Silver Member
    Messages: 2,087

    Your absolutely correct. I just figured once you put that many hours on that blower is was not worth your time to sell. It would be kept as a spare and it would only cost you whatever maintenance and fuel was needed to keep it going.
  10. Henry

    Henry LawnSite Senior Member
    Messages: 548

    How many of you have an hour meter on your backpacks? Raise your hands.

    But seriously, when you say 600 hrs how do you keep track on small items?

    I've been thinking about this stuff for a while but just don't have the time to figure it out.

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