How do you go about figuring out your hourly cost for equipment such as chipper and chipper truck? I understand for the most part figuring out labour cost, gear cost ect, but trucks and chippers are more dynamic..
Equipment Hourly Cost
- Thread starter minifly3
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Simple: "fixed cost" + "Operating cost"
Example numbers in blue
Fixed cost:
1) How much does it cost to own the equipment (purchase, interest, insurance, taxes, etc...) Let's say $20,000 just for kicks
2) How many years do you want to depreciate the equipment? I'd go with 3-5. Maybe 7 if you buy something in great shape that you will not use heavily. We'll go with 5 years
3) How many hours per year do you expect to use it? (40 hour week = 2080 hours per year (I know...who only works 40 hour weeks...but then again, who works every day for 52 weeks...and what piece of equipment is running all day on every job?)...just use this for a point of reference). 500 hours per year makes math easy
So now, Cost/Years gives you how many dollars you need to collect each year. Divided by hours per year. That all looks like this:
20000/5 = 4000 divide that by 500 means that you need $8 per hour in fixed costs
On to Operating cost:
This is fuel, lube, scheduled maintenance, repairs.
Let's say the equipment will use:
$5 of fuel per hour
$1000 in scheduled maintenance per year ($2 per hour)
$750 in repairs per year ($1.50 per hour)
For a total operating cost of $8.50 per hour.
Add in the fixed cost, and you are at $16.50 per hour
Add in the labor of running it (and taxes, worker's comp, benefits, supervisors, etc...) and you have what is called a "Machine Rate"
Example numbers in blue
Fixed cost:
1) How much does it cost to own the equipment (purchase, interest, insurance, taxes, etc...) Let's say $20,000 just for kicks
2) How many years do you want to depreciate the equipment? I'd go with 3-5. Maybe 7 if you buy something in great shape that you will not use heavily. We'll go with 5 years
3) How many hours per year do you expect to use it? (40 hour week = 2080 hours per year (I know...who only works 40 hour weeks...but then again, who works every day for 52 weeks...and what piece of equipment is running all day on every job?)...just use this for a point of reference). 500 hours per year makes math easy
So now, Cost/Years gives you how many dollars you need to collect each year. Divided by hours per year. That all looks like this:
20000/5 = 4000 divide that by 500 means that you need $8 per hour in fixed costs
On to Operating cost:
This is fuel, lube, scheduled maintenance, repairs.
Let's say the equipment will use:
$5 of fuel per hour
$1000 in scheduled maintenance per year ($2 per hour)
$750 in repairs per year ($1.50 per hour)
For a total operating cost of $8.50 per hour.
Add in the fixed cost, and you are at $16.50 per hour
Add in the labor of running it (and taxes, worker's comp, benefits, supervisors, etc...) and you have what is called a "Machine Rate"
sgreanbeans
Treeaculterologist
Don't forget insurance in that, that is if you cover it.
Pelorus
Uva uvam vivendo varia fit
If your fully depreciated equipment is still worth something (residual value) at the end of the depreciation schedule, what you sell it for is subject to some kind of tax called depreciation recapture. (Like when you retire and sell off all your worn out junk). I think I learned that staying in a Holliday Inn Express once, along with learning how to run a nuclear reactor.
2treeornot2tree
Dont cry, just do it
The formula is good, but at some point you need to replace the equipment, So i use new equipment values. My chipper has been payed off since the day i bought it for $5,300, but i charge $50 a hour for it because a new one is gonna cost me $47,000, and I am gonna have to replace it sometime.
Yeah...the original formula ONLY covers cost, no profit figured in there. I think you can either see that as your time is the profit, or you can increase what you charge for the equipment and that will be part of the profit...whichever you do is simpyl shifting numbers on paper for your own accounting purposes.
For replacement, there are 3 simple options I'd cosider:
1) New equipment is taken out of the company profits...where those profits come from is again determined by internal accounting (see above).
2) If you hold onto the original piece beyond the time you depreciate it, every day you run it is profit and it would be wise to keep that money in savings to replace the machine (I am talking about your own depreciation...might do something different on taxes). So if you depreciate it in 3 years, and hold it for 6, you will have doubled your cash on that machine - plus profits from the same (minus taxes through depreciation recapture mentioned by Pelorus if that applies).
3) Like 2treeornot2tree said, you add to the hourly rate of the equipment the cost for replacement/upgrade. So, if you wanted to plan to buy a new 45,000 piece of equipment with the formula above, you'd add 45000/5 (years) to get $9000 divided by the 500 hours to get another $18 per hour. Then when you are running the new machine, all of the fixed cost is going towards replacement...unless you plan to upgrade again you just used the price you paid as the base for the fixed cost.
Bottom line: when you buy with cash, you are free to put the profit you make into growing your own business instead of the bank's.
For replacement, there are 3 simple options I'd cosider:
1) New equipment is taken out of the company profits...where those profits come from is again determined by internal accounting (see above).
2) If you hold onto the original piece beyond the time you depreciate it, every day you run it is profit and it would be wise to keep that money in savings to replace the machine (I am talking about your own depreciation...might do something different on taxes). So if you depreciate it in 3 years, and hold it for 6, you will have doubled your cash on that machine - plus profits from the same (minus taxes through depreciation recapture mentioned by Pelorus if that applies).
3) Like 2treeornot2tree said, you add to the hourly rate of the equipment the cost for replacement/upgrade. So, if you wanted to plan to buy a new 45,000 piece of equipment with the formula above, you'd add 45000/5 (years) to get $9000 divided by the 500 hours to get another $18 per hour. Then when you are running the new machine, all of the fixed cost is going towards replacement...unless you plan to upgrade again you just used the price you paid as the base for the fixed cost.
Bottom line: when you buy with cash, you are free to put the profit you make into growing your own business instead of the bank's.
Dutch295
ArboristSite Member
$1 per horse power has worked well for me over the years (selling price / not counting operator); 50% applied to cost. There are definitely exceptions to this loose rule; example: there is no way in heck I'm going to let a customer have an alpine magnum for as little as 17 bucks per hour. You're getting mileage on vehicles so I've never applied it toward them. If I can't pay myself back or the bank back in two years or less then my business doesn't need the equipment.
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