Business Management: Equipment Cost Per Hour

To know exactly where the money comes from, a business needs to have an in-depth understanding of every profitable aspect surrounding it.

In this section of the Business Management Resource Guide, Lawn & Landscape magazine compiled six charts for comprehending business costs, tracking equipment costs per hour and non-productive labor time costs, identifying the productivity of granular applications, keeping a daily checklist and inventory and estimating landscape construction. The information provided came from green industry organizations, contractors and consultants, including the Associated Landscape Contractors of America, Herndon, Va.; Smith Huston, Inc., Orange, Calif.; and Jon and Vicky Cundiff, Turf’s Up Lawn Service, Lee’s Summit, Mo. These forms can be copied and tailored to fit any green industry company.

EQUIPMENT COSTS PER HOUR CALCULATIONS. It isn’t enough to ensure that ample equipment is available and maintained for use in the field. A business must monitor its equipment use to make sure it is paying for itself. The key to doing this correctly is to be sure that estimation of equipment is accurate and utilization of equipment generates enough sales dollars to cover its costs.

There are two reasons for calculating equipment CPHs: First, to calculate budget projections for direct equipment and overhead vehicle costs. Second, to calculate the amount of direct equipment costs to include in a job in the bidding process.

To do this, costs must be determined accurately, the correct amount of these costs to jobs must be allocated and the business must complete and bill enough work/jobs in the field to cover all of its equipment costs for the year.

An example on this chart uses a ½-ton pickup truck. Acquisition CPH is determined by taking the purchase price [actual purchase price ($13,500) + interest ($3,240) – salvage value ($4,500) = $12,240] divided by lifetime hours (8,320) to get $1.47.

Maintenance CPH (total projected costs) is determined by anticipated lifetime maintenance insurance and license costs [insurance (four years at $750 per year average) + license fees (four years at $150 per year average) + lube, oil and filters every 3,000 miles (33 x $25) + brake jobs (2 at $350) + clutch jobs (2 at $430) + tune-ups (3 at $155) + smog certification (3 at $50) + tires (two sets at $300) + miscellaneous (batteries, mirrors, belts, windshields at $1,000) + one blown engine for every three vehicles average ($2,400 / 3 = $800) = $9,000] divided by lifetime hours ($9,000 / 8,320 = $1.08).

Fuel and oil CPH for automobiles and trucks under 2-ton GVW can be figured by using one of two methods:

• Method one uses total miles used per useful life or per year.

a. Total miles driven per year: 18,000

b. Divide by miles per gallon (15): 18,000/15 = 1,200 gallons/year

c. Convert gallons to dollars at $1.23/gallon: 1,200 x $1.23 = $1,476 per year

d. Divide $1,476 by hours per year (2,080): $1,476/2,080 = $.71 per year

e. Notes:

1. You can use useful life hours (8,320) and respective miles (72,000) for the above example, as well.

2. If vehicle is used only part of the season, reduce hours accordingly but increase number of lifetime years for vehicle.

• Method two uses the number of fillups per month (or week)

a. Determine number of fillups per month: 5

b. Multiply tank size by approximate number of gallons per fillup: 5 fillups x 20 gallons = 100 gallons/month

c. Multiply by average price per gallon (e.g., $1.23): 100 x $1.23 = $123

d. Divide total costs by hours per month or week (e.g., 173 hours per month): $123/173 = $.71

Total CPH is determined by adding the acquisition CPH, the maintenance CPH and the fuel and oil CPH, giving the total costs per hour for a half-ton pickup truck [$1.47 = $1.08 = $.71 = $3.26 (round to $3.25)]. The CPH is only the projected cost for the vehicle and is not the price charged to the customer, because it has not yet been marked up for overhead and profit.

Equipment Cost Per Hour (CPH) Calculations

Piece of Equipment:
Pick-up 1/2 ton

Use:
owner