The Hidden Costs of Heavy Equipment Ownership

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When you search online right now, one of the top-selling pieces of heavy-duty equipment is the compact track loader (CTL). They are highly valued for their versatility and ability to navigate tight spaces and unfriendly terrain. Their continuous rubber tracks help to evenly distribute the machine’s weight, allowing it to operate on soft, muddy, and uneven ground that would be a challenge for other machines. The hydraulic system with a quick-coupler feature also allows for the use of a variety of front-mounted attachments—whether it’s a digging bucket, auger, grappler, snow blower, or even a pallet fork—making it an all-star for construction, landscaping, and agricultural applications. 

If you own a CTL, or you are planning on purchasing one, you’ll likely be able to contract plenty of work for it. But are you factoring in all the associated expenses for it when submitting job quotes? 

While a compact track loader is one prime example, we’re taking a look at the total cost of heavy equipment ownership to help make sure you’re not short-changing yourself. And that’s not just factoring in the expense of the equipment, the operator’s wage, and variables such as fuel consumption. This means taking into account the hidden costs that affect the equipment’s total value on the job site—so you can accurately submit fair contract bids, maintain healthy profit margins, and avoid financial losses. 

Raising the Bar on Your Bottom Line

Many business owners and financial managers use what is known as the Owning and Operation Cost Formula (O&O) to find the cost per hour when using heavy-duty equipment. The formula takes annual ownership costs plus annual operating costs, divided by the total number of hours you use the machine.  

Sounds simple enough, right? But what needs to be factored into the equation to make sure you’re getting an accurate assessment? Here are some of the elements you need to keep in mind when calculating your annual costs. 

Calculating Annual Ownership Costs

• Depreciation. New heavy-duty equipment loses value very quickly, so be sure to add that to your overall equation. For the most part, depreciation can be calculated by subtracting the estimated resale value of your machine from the purchase price, then dividing by the years of planned ownership. As an example, if you purchase a new CTL for $80,000 and plan to sell it for $40,000 in five years, your depreciation costs are going to be around $8,000 per year. Note: This is strictly an example to show where hidden operating costs occur. For a more accurate assessment on this and all other examples of machinery, it is recommended that you seek the assistance of a certified public accountant. 
• Loan Interest. If you financed the purchase of your equipment through a loan, don’t forget to take into account the interest you’ll be paying annually in addition to the actual cost of the machine.
• Insurance. You’ll not only want to insure the value of your heavy-duty equipment from physical damage, but you’ll also want to protect it from theft and vandalism, and property damage and injury. In fact, some general contractors or project owners will require you to provide proof of insurance before they will let you on their job site.
• Taxes. State municipalities often levy local sales taxes and annual personal property taxes on heavy-duty equipment kept in their jurisdictions.
• Storage. This includes fees for keeping your equipment on someone else’s property or in a protected structure, and the pro-rated cost of the facility or lot where you park it if you own the property. 

Calculating Annual Operating Costs

Now that you have a better idea of what your fixed costs are, let’s take a look at what contributes to the variable operating costs of your machinery. These expenses are going to fluctuate based on how much you use your machine. 

• Fuel. The cost of fuel while the vehicle is in use is calculated as the average number of gallons burned per hour multiplied by the current price of gasoline or diesel. If you have an electric machine, don’t forget to include the cost of charging the batteries. 
• Maintenance. To keep your heavy-duty equipment in its best shape and maintain its resale value over time, you’ll want to follow the routine maintenance suggested by the manufacturer. This can include changing filters and fluids, and greasing parts. 
• Repairs. It’s a good idea to factor in an estimated annual budget for unexpected breakdowns and overhauls. This includes how long the equipment is out of service. 
• Operation. If you’re paying someone else to operate your equipment for you, be sure to include their labor costs, which include wages, taxes, and any benefits you supply. Even if you run the equipment yourself, you should include the cost of what you would earn in wages for the work that is being done. 

Run the Numbers

Once you have all of these numbers and a total sum, you can more accurately assess what the cost per hour is to operate the machine when hiring out your services. If you add up all of the ownership costs and the operating costs, then divide by the estimated hours of usage per year, you’ll find a good starting point with your budget.

As an example, if your total annual costs are $50,000 and you estimate the annual hours of usage at around 500, your operating cost per hour is about $100. If you’re including a 20% markup for profit, your average operating cost per hour for the use of your heavy-duty equipment would be around $120 per hour. 

Barrett Baker

Barrett Baker is a freelance writer with more than 40 years of writing experience. He has worked with the U.S. Department of Energy, Ford Motor Company, General Motors, and a variety of advertising and marketing firms throughout his career. In his spare time, he enjoys photography, cooking, and working with animal rescues.

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