Estimating Equipment Operating Costs
Did some searching on the forums but didn't really find what I was looking for.
I'm not looking for your costs to own and operate and what your charge because that does me no good, whats I'm looking for is information on compiling my own numbers of what it costs to own and operate certain machines. Theres a million variables and I understand some of the basics but I'm trying to fine tune them a little. The 2 areas that get gray for me are dump trucks and CTL's. Mainly because the variables of how much they get used change so much. Can anyone recommend a web site or good book on the matter?
Really looking for a resource that compares CTLs against each other as well. Seems like everyone owns one now, we used one for quite awhile but have stayed with a rubber tired bobcat for the long run due to the lower operating costs. Yet everyone owns them and most guys trade them off religiously and get another one so thay have to be making money, right? Just trying to figure out the numbers on them to justify owning one or staying with a rubber tired machine.
Any insight is appreciated
I have a spread sheet or two I picked up from constructionequipment.com before it was sold that may help a little. They are kinda enteresting to plug the numbers into. I may even have the acompanying articles to go with them ( not certain of that though ).
I would just post them, but that is probably some sort of copy right thing and I don't wanna end up in the dog house here.
Shoot me a PM with an email adreess and I'll email them to you. Give me a day or two after the PM to respond I don't always swing by here daily ( sorry HEF I'll try to do better ).
I know what your asking and I've asked it for years and your right there's a lot of variables. I'm new to this as well and first generation and I'll tell you what I think and remember its only my opinion. First you can sit down and figure all your costs anyway you want and compile as much data as you'd like but it doesn't mean much until you've used the equipment and know how many hours your going to average per year per machine so unitl then its just a guess.
I've sat across the desk from a few bankers and they asked me the same question and I guess I put the ball in their corner and asked them to take their best guess just like they wanted me to because it was only a guess. As far as not getting many answeres to your question its because nobody can really answer it for you. I'm not trying to give you a runaround but its true.
I've bought a dozer in the past and I budgeted for 400 hours per year on that machine and figured cost accordingly, some years it gets 300 and last year not 50 but last year I had another that got 700 where I'd normally budget 200 and figure cost accordingly. To sum it up my budget didn't mean anything and nothing came out but in the end I did turn a profit. I gave up on figuring cost like your trying to do and over the years I've developed my own system, I go about it backwards so I'll try to explain it somewhat. I have data over the years and know about how much I can spend on equipment and updates and I use that number to plug in how much I can buy and make payments on. I first got started by buying used and one piece at a time. I have used peter to pay paul kinda mentality. Once I had one machine paid for I pooled the income off that to buy the next and then I had two earning income to buy the third and so on until I've got what I have today. I expanded gradually offering more services one at a time and some machines paid their way and others didn't.
Take for example the first excavator I ever bought I had budgeted for five years and maybe extend it to seven, I borrowed the money and plunged into something I'd never done in my life after spending a year debating it, after four months I had made enough off it to pay the loan off and put a downpayment on a dozer, I almost fell over, so did my lender, I have also on the other hand bought a piece of equipment and figured 3 years to payoff and its been 6 and another 3 to go at the rate I'm going. On that machine I use income from others to make the payments and as my banker put it some times you win some times you lose but my wins are outweighing the losses.
As far as cost on a truck, thats a necessary evil, I've never got that to pencil out ever, my costs on that are so speratic that I gave it up years ago and just bite the bullet and absorb it in the business. My costs per mile are outrageous and my yearly costs are unthinkable but without it I can't move equipment and materials and I need those to keep my machines running and work going. I charge a delivery fee for hauling my machines to jobsites and a per ton basis for rock delivered and a per hour fee for using it on the jobsite like hauling out debris or dirt from one area to another. I've never made a dime off my trucks and never will, you have to use them daily and all day long to make them pay and thats not the line of work I do, I keep machines running and the trucks provide support, I view then like a shovel or logchain or anything else you really don't charge for but need. I know I didn't help you at all and I'm sorry but if you get an answer let me know how you do it and when you have the required data and figure the amount you should charge who will pay that ever and hire you.
For example my semi and lowboy are paid for and own me nothing but I did a cost on them once and it came to 10 bucks a mile and I charge 100 delivery of a machine and thats in a 30 mile radius or 60 miles round trip or 600 bucks my cost for the few miles I put on it in a year, now if I'd double my miles that would half my cost per mile, either way its not gonna come out and nobody is gonna pay me that much to deliver anything so I absorb the costs in the business. One the other hand I run several dozers and excavators that the operating costs are real low and the hours are high enough and the fact they are paid for that generate enough money every year to cover those costs. There comes a point which you have to have some things and they don't pay, trucks are on that list for me. Thats why most starting out in the business don't have the newest or the fanciest things and it takes years to aquire nice machines and trucks, we do it one step at a time and fumble our way through it and use whatever system that works for us. If you look at several generations who are in the business they have grown it over decades and generations and a base to work off of and those of us that just started in the last decade are somewhat behind and it'll take another 40 years to get to where they are today.
I'd say start small and work your way in a little at a time and test the water, if you find a lender that understands the business then rely on them to help answer those questions with you. I'd avoid listening to salesmen or dealers or worrying about what the competition has and figure what you want and how your gonna get there, your never going to undercut anybody in price and survive or ever have enough equipment and money to do all that there is to be done, foreget about efficiencies and lower operating costs and all the other nice terms, you need to buy or rent or lease something halfway affordable and see what happens from there. No budgeting will do any good if you have no business at all or income to make any payments. Like I told my banker once how do I budget anything if I don't know if my phone will even ring and anybody will hire me at all, so we set it up so I had an out if it totally failed, I bought machines I thought I'd need at auction and if it went bust haul it back to auction and dump them for about what I paid and walk away not losing a lot and workng elsewhere to pay off the differnce on the loan. Just my experience talking so take it for what its worth.
Randy, I know exactly what your saying, I'm just thinking there has to be a way to ball park it. I understand the truck thing, the biggest things I'm looking for is ownership costs, like if a guy buys a truck you should budget some money for upkeep if you checked the truck out good prior to buying it.
For instance over the life of a truck you know its going to need oil changes, brakes, tires, probably a clutch, batteries, etc. Then insurance, then driver, etc. How does a guy know to charge $75.00 an hour for a tandem truck? Because everyone else does?
At some point in my mind you need to know whats profitable and if its not, sub it out cause if your not making money on it consistantly (Key word) then why do it ?
I might get some flack for that because your situation and what you have done is the real world and I totaly understand what your saying. I've been around a struggling dirt business for about 10 years so I know what subsidising one thing to keep the ball rolling is about. There were quite a few things that got subsidised in the day that if we'd cut them out of the business and used the money elsewhere we'd have made more money. (or not done them at all)
One machine I have a hard time figuring out is a compact track loader. I see lots of guys buy them new and trade them off every 1500 hours for another new one, figured it out and it seems like most of them were running $30+ an hour depreciation. Subtract another 10 for fuel and insurance and your at about 40.00 operating costs and guys are billing them out at about 60/hour (Some are finally going to 70 now). (Just thought about it and thats not factoring in interest or finance charges)
Those are the numbers I've come up with but have been looking for some comparison.
Compare this to a rubber tired bobcat we have that has been running about
8/hour owning and maint costs and we can bill out for 60/hour
Take the same 40-50 grand you'd spend on a ctl and you can get a pretty decent used excavator and own it for 5 years or so and really make money.
The reason I ask about the CTL's is i'm open to the fact that I could be missing somthing, and I'd be happy to be corrected, it just seems like for the $22 difference in operating costs I'd give up the convenience of a CTL and use a dozer when a guy needs a dozer and a skidsteer when a guy needs a skid steer.
The main reason I started this thread was to get insight from other contractors, I'm trying to look at things from other points of view, you provided some pretty good insite into the reality of the business Randy. Your right and I can't argue with any of it, just thinking there could be ways of getting the most money out of your investments when it comes to equipment.
At the end of the day numbers don't lie. This summer I bought a road grader and contracts from a guy that was getting out of it. I really scrutinized the numbers and projected my costs and income. Comparing them to actual I was close on some things and off on others, I tended to error on the high side and things are actually a little better than projected. Now I have some base numbers to bid additional work and know when I can justify upgrading machines or profitability if I put an employee in the machine.
Some jobs I use the rental price of a machine for a month and do it at 75% utilization plus the operator fuel and insurance. Other jobs we bid on just the cost of fuel and the operator. Sometimes we take our monthly payment and do 75% utilization plus fuel and the operator. It all depends who your biding against. We dont do T & M all of our jobs are hard bid. If you own the machines outright its easier to do this.
Your local Caterpillar dealer has a really good spreadsheet that helps analyze operating costs. Very helpful.
I'm not sure I can help you much on the ctl thng, I'm assuming you mean the rubber track skid steer type. They have a small market share and they are high priced to operate from the standpoint of the rubber tracks. I'd go with over the tire tracks on a reagular skid steer before investing in a rubber tracked skid steer unit. As far as trying to figure out how to best invest in equipment that pays, first figure out what equipment compliments each other and can do double duty so to speak that way you get the most bang for the buck and can put more hours on less equipment and what services you can do that with and what need there is for those services. As far as comparing costs and trying to relate it to how it actually works, I've been after that answer for almost a decade and still don't have a good answer so I do like I said in the last post and it works for me.
I don't look at upgrading machines in the same way most do, I look at usefullness and longegevity and once its paid for I keep it to help pay for more machines. If its a good machine and works for my operation I don't worry about trading, the main reason is because I know what I"ve got and over the years I've onwed lemons and money pits and don't want one of those back again. If its looking like its a money pit and needs everything or is constantly broke down then I look to do something differnet and thats about the only reason I trade. Lastly I don't worry about what the competition is charging I worry about my operation and whay I need to keep the doors open and see if people will pay me what I charge. I consentrate on quality work and makng things work and I warrenty my work instead of undercutting anybody or doing it for the same price I looked at where their short coming were and went after that instead. One guy couldn't fix anything if his life depended on it and I took that market away from him, if I don't think it'll work I tell the customer upfront and refuse to do the job, I don't want my name associated with anything that doesn't work. others will do it like the customer wants and if it doesn't work its his problem, so I gained customers just by being honest. I can trouble shoot problems other can't and I go after that market, I always give an honest time when I'll be there and do their work, one guy in the area never has and its always tomorrow but tomorrow never comes. I do little jobs, one of my competition doesn't mess with the little jobs. We are busy so that tells me people like my work and get me. One guy I know from a different area does tiling and is the highest priced guy anywhere and always has been and he's the busiest as well, he once told me to do quality work and people will pay whatever you want just as long as it works and lasts for years and is what they expect and to walk away from anything you don't feel will turn out right in the end as far as quality is concerned. I've found the same thing, I'm busy and when I ask people why they get me one of my customers told me " when you leave it works and you do it like it was your own and you've given me an honest answer to every question I've ever asked" Its not about the biggest and having the newest equipment or the nicest pickups or what have you its about who you are and what kind of work you do and who your customers are.
those are some excellent posts and provide some great insight.
It sounds to me like you are asking about hard and soft costs associated with any particular piece of equipment and how would you go about estimating those costs before you make the purchase.
Probably the best single publication is the Caterpillar Performance manual. They have a high learning curve but once you understand how it works and can use all the variables in formulas and tables, I have found that it can put you within about 15% of your actual costs once get your real world figures. The Cat dealers can email you a PDF or you might be able to get a book.
Steel undercarriage wear rates depend on the material you are operating in and the proficiency of your operator. Multi-terrain or tracked skid steers which run rubber tracks usually damage the components before they wear out so those costs will sky rocket very quickly. From my experience in my area it is pretty common to see $90 to $100 per hour costs on MTLs, especially with poor operators. That's why companies like to trade them so fast.
If you want to try and figure this stuff out on your own then you are starting right by asking here. You should also go down to a dealers parts department and ask questions of the costs of components. How much does a set of tracks cost? How much do filters cost and how often do they have to be replaced? Cutting edges, teeth and possibly power train components should be looked into. For life cycle on engine, hydraulic components and drive trains you will have to ask around. Don't expect to get accurate information on this stuff but you may get enough to figure some ball park estimates and project your costs from that.
hey i'd really like to check out this also if you'd be willing to email me
Originally Posted by Boophoenix
Dynamic (changing) Life Cycle Machine Costing
Ten years ago in 2000, we began a study of how contractors were costing the Owning and Operating Cost of their heavy equipment. We evaluated many costing systems, some were home brew others were developed by others. When someone develops a system, it is often for their purposes, this means that it may not necessarily be for your purposes.
We looked at a wide variety of costing systems. A few of these were:
- The Caterpillar Method (over approx. 40 years)
- Many other manufacturers' systems
- Federal Agencies like The U.S. Army Corps of Engineers
- State Agencies Like California DOT
- Published Costing Books
- Internet based costing Services
- Agricultural Machine costing programs
- Printed books back to the 1930's
- Aircraft costing studies
Without a doubt CAT had the best system. In fact they pioneered heavy equipment costing back in the early 1970's. Never-the-less our study identified 35+ short comings in the CAT system. Considering the age of their system and the fact it was designed for an owner with a Pencil, Paper and calculator, it was quite good in comparison.
The CAT engineers that designed the system did not have a powerful computer sitting on their desktop like you do today. The CAT O & O system has remained basically unchanged except of some minor updates though 2001. Much of what made the CAT system good was mysteriously deleted in 2001. The user was instructed to talk to their dealer about repair cost.
This in itself, is not a bad idea. However, if you have a mixed fleet, good luck. If you want to do your own repair and maintenance, good luck, as maintenance contracts can be purchased for low time and aged machines (Although some dealers will take your fleet as is.) I do not want you to think that CAT was entirely self-serving by the deletion of this data. I believe that it had a lot to do with the fact that old system was a manual system and this made the repair cost data difficult to prove. In one market they were too high and in another too low. Dealers complained. To matters worse, competitors would use these numbers against CAT! If I faced this situation, I might have made the same decision that CAT did.
As you get into machine costing keep in mind that some manufacturers may believe that it is not in their best interest spend the time and money to collect costing data you need. Also, to open their books to you, may cost them sales and scare off customers, (if they knew the real cost of machinery) and expose them to competitors who do not calculate the same way they count. Fear is a great motivator.
Back to some history. We began to develop a heavy equipment costing system. Initially, we tried working with spreadsheets but quickly found that they would not do what was necessary. Yes, spreadsheets could cost part of a machine's cost but they just will not provide the whole picture. They just are not suited for the job. Why do think people buy millions of Accounting software packages form QuickBooks etc.? If spreadsheets are not suited for good accounting why would you think they are good for machine costing? We found out that they just will not provide the speed, flexibility, variability, reporting and error elimination that is necessary for costing. It takes a sophisticated database with a simple to use custom interface.
I know a lot of people use spreadsheets. I do not criticize anyone for trying to cost with a spreadsheet. This is where companies often start but also quickly learn the weaknesses of spreadsheets. They are certainly better then pricing your equipment by matching a local rental house. (Your cost is your cost, a rental house may price based on their cost. Their cost has nothing to do with you.)
If I could categorize what made the original CAT system good was the focus on what today we call Dynamic (changing) Life Cycle Owing and Operating Cost. I don't want to focus too much on spreadsheets but as soon as you use one for costing, you loose the "Dynamic" part of costing. Costing one machine, for one work type and geology is one thing. Costing a mixed group of machines, is entirely another thing.
We have a free basic costing system at www,DecisiveCost.com
You can also visit our group on Facebook called Heavy Equipment Best Owning and Operating Practices. (I am not trying to steal Maintenance Equipment Fourms.com users)
Silveroddo, I re-read your post and I see that I did not focus on dump trucks and CTL. This is an area which we also work. Heavy Equipment costing is very different from Trucks. With Trucks there are at least three different cost numbers you need:
- Annual Average Dynamic (changing) Life Cycle cost Cost per Mile or Kilometer
- Specific Trip Costing
- Other costs such as Cost per Ton or Kilo
You are correct about the many different variables in Truck Costing. If you need help, send me a private message.
The army corps of engineers ep1110-8-1 has a formula for figuring out your own operating and ownership costs.
Does the Army Corps or Engineers formula provide accurate cost info?
Davian is correct. The US Army Corps of Engineers has been publishing cost information for many years. It is available two ways. One as a published Cost per hour for a machine. Two as a formula to allow you to calculate your cost on a machine for yourself using their formula.
Originally Posted by davian
Their method of costing is unique to them and the purposes for which it was constructed. As with all predetermined cost publications. It does not give you accurate costs per hour for your machines. Our studies have shown that it may be off by as much as 200% on some projects. In general, it tends to underestimate your true cost rather than overestimate costs.
If you would like to know why this is true, Post a reply on HEF and ask why. Their are better ways to calculate Owning and Operating costs per hour.
Last edited by DanRooks; 10-19-2010 at 07:39 AM.
I used this recently, and found it to be really accurate for what we were already using. It was good for us to see that we had all our ends covered and that we weren't out of line either.
Originally Posted by davian