Marketing machine costs

I want to show you how to combine the machine cost with the cost of an operator, and how you might market this combination to your clients. The total cost per hour (TCPH) for a skid-steer in this example is $40. Editor’s Note: You can see the worksheets for these scenarios by visiting bit.ly/lawnwebextras.

How it works in the field.

First, we calculate how much to charge for a day for this package (see my MS Excel worksheet “180.0 skid-steer with operator”). The costs for this scenario are as follows:

• The operator makes $25 an hour and works a 10-man-hour day and a 50-man-hour week.
• Overtime adds 10% to this figure or $2.50.
• We apply a 10% risk factor to the hourly rate or another $2.50.
• Total cost per man-hour is $30 (30 + 2.50 + 2.50).
• Labor burden (FICA, FUTA, SUTA, payroll taxes, insurances for workers’ compensation and liability, paid time off, etc.) adds 25% to this cost or $7.50.
• The F-350 truck to haul the machine costs $15 per hour or $120 per day.
• The general and administrative (G&A) overhead cost per man-hour is $18-. We use a unit cost per man-hour of $18 because applying G&A overhead as a percent isn’t as accurate.
• We desire a 20% net profit margin (NPM) for this package. A 20% margin is equivalent to a 25% markup. You calculate the 20% margin by dividing the break-even point (BEP) by one minus the desired NPM (1 - .20 = .8).

Next, we add up all of the costs:

• 8 MHrs on site + 2 MHrs mobilization @ $30 per man-hour totals: $300
• To this we add the 25% labor burden or $7.50 per man-hour: $75
• 8 hours of machine time @ $40 per hour totals: $320
• 8 hours of truck time @ $15 per hour totals: $120
• The total direct costs (TDC) are: $815
• Next, we add the G&A overhead cost at $18 per man-hour: $180
• This gives us our BEP: $995
• We then add a 20% margin to the BEP ($995 ÷ (1.0 - .2)) = ($995 ÷ .8) = $249 (To achieve your 20% NPM you could also multiply the BEP by .25)
• Our price to our customer is calculated to be: $1,244
• I’d round this up to a day rate of $1,250 per day

Marketing equipment costs to your customer.

To achieve your 20% net profit margin, you would want to charge $1,250 for such a day. For jobs of shorter duration, you could charge $125 per hour ($1,250 ÷ 10) to include on-site and mobilization time, a percent of the day by the daily rate (.5 x $1,250 = $625) or a mobilization charge plus an hourly rate for any hours worked on site. I prefer the hourly rate for hours worked on site added to the mobilization rate. It would work out as follows:

• In our scenario, it takes roughly two man-hours to mobilize the machine to and from the jobsite with the F-350 truck. With G&A overhead and a 20% NPM, this charge would be roughly $176. (See the MS Excel worksheet “180.0 Skid steer with operator (mobilization charge”). I’d round this up to $180.
• The on-site machine and operator time with G&A overhead and 20% NPM costs out to be roughly $138.13 per hour (See the MS Excel worksheet “180.0 Skid steer with operator hourly rate.xls”) I’d round this up to $140 per hour.
• Our 10-hour day costs out as follows:
• $140.00 per hour x 8 hours: $1,120
• Add to this the mobilization charge: $180
• The total for the day is $1,300
• You would charge the hourly rate plus the mobilization charge for jobs of shorter duration. For instance:
• Two hours on site would price out to: $180 + (2 x 140) = $180 + 280 = $460
• Four hours on site (a half-day) would price out to: $180 + (4 x 140) = $180 = 560 =$740

Conclusion.

Charging customers a mobilization fee plus an hourly rate for any hours used is an easy way to market such a package. The key is to understand how to calculate both charges in order to cover your G&A overhead costs and to achieve your net profit margin goal.

Contact Jim Huston at jhuston@giemedia.com