CALCULATE EQUIPMENT COSTS

The best method for budgeting equipment (or any item) is to review historical data as a point of reference and then make the appropriate adjustments for the budget period you are developing. However, this isn't always possible. If you're in a start-up situation or if your historical data is unavailable, inaccurate or not properly formatted, you must make educated calculations (guesstimates).

CALCULATING EQUIPMENT COST PER HOUR (CPH)

There are two reasons for calculating the CPH for a piece of equipment:

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• To calculate budget projections for direct equipment and general and administrative (G&A) overhead vehicle costs.

• To calculate the amount of direct equipment costs to include in a job in the bidding process.

To bid your jobs effectively, you must calculate CPH accurately. You won't be doing yourself any favors by cutting corners and just blindly assigning a number to CPH. Here are a few elements you should consider.

• Useful life and meter time

The useful life of trenchers, mowers, etc., consists of projected actual meter time/hours prior to that piece of equipment needing a major overhaul. As a general rule, you should project lifetime hours for gas engines at 100 hours of life per horsepower and diesel engines at 125 hours of life per horsepower. However, cap lifetime hours for equipment as indicated in Table 1 and Table 2

• Seasonality

Consider seasonal use of mowers with your heaviest use in spring, slowing down in summer, picking back up with fall fertilization and ceasing during winter in Northern climates.

• Costs for new vs. used equipment

The CPH will generally be the same for new and used equipment. In essence, purchasing new versus old equipment is not a question of operating savings; it's a question of capital. Can you afford to buy new equipment? Used equipment may be cheaper to purchase, but is usually more expensive to maintain.

• Renting vs. owning equipment

As a general rule, unless you use and bill for a piece of equipment at least 50 percent of the time (20 hours/week), it's not financially practical to own it.

To determine the costs and benefits of leasing, cost-out the leased equipment/vehicles as you would those you might purchase. If the lease-life for the equipment/vehicle is significantly shorter than the normal expected life (should you purchase), adjust the life expectancy to the shorter term. Adjust maintenance and fuel costs to account for the shorter period, as well. Compare the lease CPH to the purchase CPH in order to determine any savings.

This article was adapted from James Huston's new book, How to Price Landscape & Irrigation Projects, due to be released this fall. The author is president of J.R. Huston Enterprises, Inc., which specializes in construction and services management consulting to the Green Industry. For more information on the products and services offered by J.R. Huston Enterprises, call 1-800-451-5588 or e-mail JRHEI at jrhei@jrhuston.biz.

GAS ENGINES
20-25 2,000-2,500
25-30 2,500-3,000
30-40 3,000-4,000
40-50 4,000-5,000
50-100 Cap at 5,000
Over 100 Cap at 7,500

DIESEL ENGINES
20-25 2,500-3,000
25-30 3,000-3,500
30-40 3,500-4,500
40-50 4,500-5,000
50-100 Cap at 7,500
Over 100 Cap at 10,000

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