How to use the equipment hourly cost calculator
- Enter the purchase price, the resale value at the end of its life, the working life in hours and the hours used per year.
- Enter the yearly interest and insurance percents, fuel use and price, the repair share of depreciation and any operator cost per hour. The percents are examples to replace.
- Read the ownership cost, the operating cost and the total per hour.
- Use the table to see which part is biggest and the year cost for the hours you plan.
Formula
depreciation per hour = (price - resale value) / life hours
interest and insurance per hour = (price + resale value) / 2 x rate / hours per year
repairs per hour = depreciation per hour x repair share
total = ownership (depreciation, interest, insurance) + operating (fuel, repairs, operator)
Interest and insurance use the average investment, which is half the sum of the price and the resale value. Ownership costs are spread over the hours you actually use the machine.
A skid steer
The machine costs $60,000, is expected to resell for $15,000 after 8,000 hours, and runs 600 hours a year. Depreciation is $45,000 / 8,000 = $5.63 an hour. The average investment is $37,500, so 7% interest is $4.38 an hour and 2% insurance is $1.25 an hour. Ownership costs $11.25 an hour.
Fuel is 4 gallons at $4.25, or $17.00 an hour, and repairs at 70% of depreciation are $3.94. Operating cost is $20.94, so the total is $32.19 an hour, or about $19,313 for a year of 600 hours.
Using the hourly rate
An hourly cost lets you price a job, compare renting with owning or decide whether a machine earns its keep. Because ownership cost is spread over hours, a machine used more hours a year has a lower ownership cost per hour, while a machine that sits idle costs more per hour of use.
Choosing your own inputs
The interest, insurance and repair numbers are examples. Use your loan rate or the return you give up, your insurance quote and your repair records. Taxes, financing charges, transport and storage vary widely, so add them to the insurance box if they matter. For related decisions see the Lease vs Buy Equipment Calculator and the Depreciation Calculator.
Assumptions and limits
- Depreciation is straight-line over the working life in hours.
- Interest and insurance are charged on the average of the price and the resale value.
- Fuel, repairs and operator costs are entered per hour and stay constant.
- Taxes, financing terms, idle time and transport are not modeled.
Frequently asked questions
Why use the average investment for interest?
The money tied up falls from the purchase price toward the resale value over the machine's life. The average of the two is a simple stand-in for the money tied up over time.
What should I enter for repairs?
Repairs are often estimated as a share of depreciation. Use your own repair records if you have them. The 70% in the box is only an example.
Does this include the cost of an operator?
Only if you enter an hourly operator cost. Leave it at zero to price the machine on its own.
Can I use it for a vehicle or a rental decision?
Yes, for any machine that you can describe by price, life, hours and per hour costs. Compare the total per hour with a rental rate for the same hours to see which is lower.