One of the most important, if not the most important, aspects of operating a profitable business is knowing what to charge. Many factors go into properly estimating a project such as: Labor Costs, Material Costs, Equipment Costs, Trucking Costs, and more. In this article we will discuss how to properly calculate an hourly rate that can be charged for your equipment pieces.
To derive an hourly cost for your equipment, there are several inputs into the calculation. This takes into account the purchase price of the equipment, the eventual sale price, usage time, and yearly insurance/maintenance costs. With this you can accurately calculate how much to charge per hour when running your equipment to not lose money and, by adding a markup, how much to charge to clear a profit on that equipment.
In the calculation we are going to look at the Initial Purchase Price and Subtract the Future Sale Price. This gives us the projected hard costs for the equipment.
Next we are going to look at the Operating Costs. We will look at the projected yearly Insurance Cost and Maintenance Cost. We will multiply these by the expected lifespan of the equipment to get Total Lifetime Operating Costs.
Lastly, we will estimate the amount of time in operating hours that piece of equipment will be utilized over its lifetime with you. This will help us calculate an hourly rate.
(Purchase Price – Sale Price) + (Yearly Operating Costs x Years in Service) / Total Operating Hours = Hourly Rate
Example:
| Purchase Price of Equipment | $ 350,000.00 |
| Resell Value of Equipment | $ 125,000.00 |
| Net Hard Cost ($350,000 – $125,000) | $225,000 |
| Hours in Use per Month | 80 Hours |
| Months in Use per Year | 6 Months / Year |
| Years in Use | 5 Years |
| Total Hourly Lifespan (80*6*5) | 2400 Hours |
| Yearly Insurance Cost | $1,000.00 |
| Yearly Maintenance Cost | $1,000.00 |
| Total Yearly Operating Costs (Ins + Maint) | $2,000.00 |
| Total Life Span Operating Costs (Total Yearly Cost * Years in Use) | $10,000.00 |
| Hourly Rate for Equipment (Hard Cost+Total Lifespan Operating Cost divided by Total Hourly Lifespan) | $97.92 |
$97.92 is the minimum you will need to charge to cover the costs you will incur for owning and operating that piece of equipment. To ensure you make money while running that equipment, decide on a profit markup you would like to apply to that cost to meet the profit margin you desire.
If you want to charge a 25% profit markup then the Total Hourly Rate would be: 97.92 * 1.25 = $122.40 per hour.
Now that you have an accurate hourly rate, you can input that into Bitumio which will auto-calculate equipment costs for you. This will produce more accurate Proposals and standardize the way your estimators are calculating Proposals ensuring you always stay in the black. Just the way we like our accounting and roads.
For a useful Calculator to help price your equipment, use this: https://bitumio.com/equipment-pricing-calculator/
