Finding your Cost per hour for equipment

[guido]

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, lets discuss this together and see if you can get more out of it.

Next step after you know your costs, we'll get into measuring, time trials, and knowing your costs before you bid a job. Those of you that own Nillson's Labor Time Data Handbook will be ahead of the game.

"Guido"
David M. Famiglietti
Guido's Equipment Pics

[GrassMaster]

reply

Hello Everybody:

This is a Very Good Subject & You got a Good Person Willing to Help You! I Strongly Suggest that You All Take Advantage of this while Guido is Offering to do it? Now Ask Away!

I Will Help Too, I Will Make Sure that this Stays on Topic, Delete - Edit any & All Off Topic Post as Needed, Why? I'm Very Interested in it Too & I want to Learn it!

<i>Special Note To Guido:
There is Another Thing Going on in the Business Section at this Time, I will See How it Goes Here. I Don't Want Conflicts, Going on Between 2 Very Excellent Post. I Want all to See This. I'll Probably Move it Later! Thank You Sir.</i>

<b>Have a Nice Day!
GrassMaster - Admin -Click to PM Me or E-Mail Me!
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[Phil Nilsson]

reply

Click here for a fill in the blanks form:

http://www.pricebreakusa.com/mo1/calculating-e-cost.htm

Phil Nilsson
Nilsson Associates Consultants
Visit Lawn Service & Landscaping Book Store

[George Deason]

reply

While the concept is good, there are too many outside factors involved in calculating the cost to run equip, especially small equp. such as blowers, trimmers, etc..

While the cost per hr. running a different blower may be lower, the production of the Echo 650 is significantly higher. Unless you can factor in productivity of unit the calculations, for the blower at least, are meaningless. Example if I run Sthil BR400's during leaf season, my cost per hr to run the machine may be lower but so would leaf removal production.

If you are bidding large commercials knowing cost per hr of your production Z's & WB's is important. Digging into the 2 cycle stuff is not necessary.

[Scaper-S2k]

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Of course, I agree 100% on what was done in the equation above. And it's great. However, just to add some entertaining thought provoking ideas, I will say this. I personally do not see a huge need to figure costs for such small equipment out to the hour in the way which it was figured. Items like blowers, trimmers, chainsaws, and such. In essence, we would need to do the same for shovels, pruners, and gas cans. Why would I NOT figure these small items out per hour? Well.....

We now know that it costs $1.47 per hour to run a $450 blower. That is truth, But what good is that number? You have men working 8 hours per day, but use the blower 10 minutes per lawn. Will you really track the 10 minutes on each lawn and charge for that 10 minutes of blower use using the $1.47 divided by 6?? Will you be adding in the $0.245 cents to each lawn? Not really. And how many lawns done that day? What if it takes 15 minutes to blow off a lawn (will you add $0.3675 to the bill)? Or one only takes 5 (will you add only $0.123 cents to the bill)?

No, probably not.

<img src=icon_smile.gif border=0 align=middle>It's great to know how much a blower or trimmer costs you per hour...having said that...if you DON'T track exactly, EXACTLY how long you use it EACH TIME and record it, it's nearly a worthless figure is it not??<img src=icon_smile.gif border=0 align=middle>

And I truly doubt anyone tracts their blower time and trimmer time and CHARGES ACCORDINGLY. You may track it, but do you multiply the minutes by the $.0245 cents? Probably not.


And that is figuring the blowers life is approximately 2 years. If it is 4, then those numbers shrink by almost 30%(not 50% because of fuel). Meaning a one hour lawn that takes 10 minutes to blow off will cost you about 16 cents to operate that blower for THAT lawn.

I'm NOT trying to argue here, just saying that these small items per crew may be a bit much to track PER HOUR. We would also have to track the costs of a shovel or grinder, or any other item we purchased. That is a bit much. Larger equipment? Yeh. But a line must be drawn somewhere.



&lt;&lt;Don't Fear the Green!&gt;&gt;

[srlawnservice]

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Guido,

Great topic. Must be us military folks that love tracking data! Hey, gotta justify every penny.

I like your metrics, but I'm gonna pitch in here for the smaller guy like myself. My data isn't near as accurate as yours but it's a little simpler to gather.

Using microsoft excel or microsoft money, you simply categorize expenditures. As an example (for mowing only), the weedeater, mower, blower, etc would be categorized under EQUIPMENT. Trimmer line, fuel, filters, plugs, etc is categorized under CONSUMMABLES.

Both of the above are categorized under LAWN SERVICE for expenditures. Any work done with this equipment is categorized under LAWN SERVICE as well for income. What you come up with after a period of time (say 1-3 years) is a ratio of what it takes to make X amount of dollars spending X amount of money. I'm small but lets say I made 10K but I have spent 2K. Then my ratio is 80/20. That also doesn't include tax breaks, insurance, etc. I don't figure in auto costs because with the tax break I figure it's a wash. So far after two years I'm at about 82/15. I'm hoping by the end of next year to get between 87/13 and 92/8. It's a solo op.

Also, as a general rule, on average, we figure for every property serviced, we are spending 1.50 - 2.00 dollars to do the job. That's the same regardless of property size.

Not as accurate as yours, but it's metrics and a game of averages.

RL

[Scaper-S2k]

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Mr. Deason, you are totally incorrect. It has NOTHING to do with how productive the machine is.....NOTHING. Productivity has NOTHING to do with your THAT Machines Cost Per Hour figure. NOTHING. Whether you figure costs on a 36" or 52" mower, the machine isn't going to cost less per hour simply because you get more done with it!!

Productivity DOES NOT come into this picture at all. It's cost divided by hours USED....NOT hours SAVED!!

&lt;&lt;Don't Fear the Green!&gt;&gt;

Edited by - Scaper-S2k on Sep 05 2002 9:46:46 PM

[Phil Nilsson]

reply

Here's another reason for tracking <b>hours of use on machines</b> ... if you take a "uniform" amount of depreciation on P&L or tax return ... like you paid $500 for a machine and straight lined it depreciation wise at $100 a year for 5 years ... on your P&L but noticed that it was stored in your shop unused ... (or got little use or too much use beyond the straight writeoff) you overstated expenses on the P&L and understated profits, understated net worth of bizz because the machine is a total 100% value (unused) so the best way to depreciate a machine is (not) a "paper entry" ... the tax or accounting method but the (use) method ... hence the reason for the fill in the blanks form. Think of it as a truck with miles being put on with let's say an "end life" of 200,000 miles.

Take a closer look at this form:

http://www.pricebreakusa.com/mo1/calculating-e-cost.htm

Phil Nilsson
Nilsson Associates Consultants
Visit Lawn Service & Landscaping Book Store




Edited by - Phil Nilsson on Sep 05 2002 10:02:02 PM

[Scaper-S2k]

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I would agree, but let's figure it out for a daily basis for 'x' number of months (or divide THAT daily basis by 8 hours). That my friend will give you the same thing, but SOOO much easier to actually tract. Wouldn't you agree....On small items of course.

&lt;&lt;Don't Fear the Green!&gt;&gt;

[Phil Nilsson]

reply

Let's not and say we did ... lots of laughs!

The absolute best way to cost anything in the bizz (because the bizz sells time) and that time is usually (not always) accompanied by a machine, is to calculate the <b>cost of time</b> ... the time costs of labor, direct expenses and an average overhead per hour (based on production for the year estimates) for (all potential) equipment within a total fleet ... then break it down into logical operating units like .... this is the equipment set up for a mowing day, a landscaping day, an irrigation day, a lawn application day and having those combinations automatically gives you the best and closest cost possible based on (use). This way you don't over or under depreciate anything. If you know total production hours for any period of time (actual time incurred) ... you know costs "matched" as it relates to that "hunk" of time. Accounting theory says to match revenue and expense to the "time frame" in which those events occured.

Phil Nilsson
Nilsson Associates Consultants
Visit Lawn Service & Landscaping Book Store

[srlawnservice]

reply

Accounting theory says to match revenue and expense to the "time frame" in which those events occured.

Phil,

Trying to learn here....is this not what I'm doing with the percentage over time theory?

Also, I disagree with you (for the first time) on the equipment that sits unused and is still valued at 100 percent. If you drive a new car off the lot, it immediately depreciates. Is not the same true with lawn equipment. I would say the straightline method is the easiest. If I buy something for 300 dollars it should depreciate 100 dollars/yr for three years. At that point it is basically worth nothing for resale for tax purposes. If I sell it for 200 then any tax breaks received over the past three years would be recouped by the federal government on the profit made through sales. On the contrary, if it lasted three years then I would be making profit on a piece of equipment that for tax purposes was worth nothing.

RL

[Scaper-S2k]

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I will 100% agree that in theory the only TRUE way to figure costs and CHARGE for those costs is to actually time each use. And charge according to those times!

But, like I said, who here is gonna REALLY time how many minutes they use the blower and multiply that by 16 cents and USE that number when pricing THAT lawn??? No One!

It's great to figure per hour costs for a blower, but unless you actually track the each minute and charge it, that number does no good.

Can you imagine, I mean, if doing it for a blower, you have to do it for the shovels and even the pruner you have hanging off your belt!!!

We would ALL go insane...or more insane!!<img src=icon_smile_wink.gif border=0 align=middle>

How 'bout this, figure approximately what they (all small equipment under $500 for that crew) will be used for on average for a lawn.

At roughly 9 months of use (for us)....600 hour life span (which I think is low). That's about 2 seasons. Or about 360 days worked.

Comes to about $2.44 per day (if it only lasted 600 hours). Then, just make it simple and divide that by 8 hours......30 cents. No need then to actually track the minutes used, yet you have the same figure in the end!

Dig it?

&lt;&lt;Don't Fear the Green!&gt;&gt;

[Phil Nilsson]

reply

The car off the lot is a decrease in "market value appeal " but still has a high "use" value with only 3 miles on the speedometer. Most depreciation methods is done for convenience but for high value items like jet aircraft or the depletion of a diamond mine ... the use ... or used up portion is used. The reason I like the use method is because the green bizz is very equip oriented with most companies having about $30,000 invested for every $100,000 in sales per year. Figure the depr on a trailer over 10 years when most of them will last maybe 20 or even 30 years in actual use by just replacing the wheel bearings, and welding on it once in a while, maybe a new floor. Some items go "up" in value as time goes by but depr says they go "down" ... like antiques or a 1967 Mustang Red Convertible fully restored worth many times original price ... straight lined into the junk heap until ...


P.S. Don't feel you have to agree with me about anything because Scaper never does and I like to argue with him ... LOL
Phil Nilsson
Nilsson Associates Consultants
Visit Lawn Service & Landscaping Book Store

Edited by - Phil Nilsson on Sep 05 2002 10:46:49 PM

[Scaper-S2k]

reply

Actualy Phil, that last post was out there in 'No Where Mans Land'!!

First it was "time based"...now you are talking about jet liners and "use based".....

Okay, don't tell me you use a jet liner for scapin'!!<img src=icon_smile_shock.gif border=0 align=middle>

I'll hold strong on what I said.

Phil....I do believe we are actually AGREEING on this, are we not??

I think I am just going about it in an easier trackable way...but still basing it on time (which is what you would do with our equipment).

Wow, I think we agree!!

&lt;&lt;Don't Fear the Green!&gt;&gt;

[Scaper-S2k]

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Hey Phil, are you gonna explain anything about Mr. Deasons 'ideas' for costing equipment and productivity?

Hint? Read what I said about it first??

P.S. Do you like my use of the question marks?? I do?

&lt;&lt;Don't Fear the Green!&gt;&gt;