The Equipment Cost per Hour is a critical part of the construction equipment world. Every owner and operator of construction equipment should have a strong grasp on the usage of costs per hour, as well as how to calculate them.
How is Equipment Cost per Hour Calculated?
The overall formula for it is the following:
Cost per Hour = (Total Ownership Costs + Total Operating Costs) / Equipment Usage
To illustrate an example, let’s assume the following for a common Bobcat skid steer:
- Total Ownership Costs: $50,000
- Total Operating Costs: $25,000
- Equipment Usage: 1,000 hours
Cost per Hour = ($50,000 + $25,000) / 1,000
Cost per Hour = $75.00 per hour
Note – this should generally be all total costs and usage up to the point of the calculation.
How are Equipment Costs per Hour Used and Why are They Important?
They are used throughout the construction organization. By department, here’s a look at how they are used:
- Estimation: when estimating projects, the equipment cost portion requires an organizational standard for the equipment cost per hour. It should represent actual cost performance from the owned fleet.
- Equipment Management: often in support of estimation, equipment management creates the cost per hour to identify the organizational standard for an acceptable cost per hour. When renting equipment, for example, the cost per hour is a determinant in when using a rented vs owned asset.
- Operations: a customer of other internal teams, operations most often directly uses an equipment cost per hour when getting reimbursed for owned equipment usage in force account situations, with the project owner.
Is there a Source of Benchmark Equipment Costs?
There are several trusted sources for Equipment Costs per Hour:
- EquipmentWatch: a leading equipment data and intelligence business, their benchmark cost per hour product is known as the Rental Rate Blue Book.
- FEMA: the federal organization, they have created a FEMA Rate database, for common assets used in emergency situations. It is free, but much less extensive than the EquipmentWatch solution.
- US Army Corps of Engineers: another federal resource, the free Corps of Engineers Equipment Rate database is used for extra work reimbursement on civil projects overseen by the Corps.
How Manufacturers Use Cost per Hour
As important as it is, cost per hour is one of the most misunderstood, miscalculated and misrepresented aspects of the construction equipment world. Specifically, many manufacturers use marketing superlatives to brag that their machines have the “lowest cost to own”. But rarely is this truly used accurately (they often are really referring to operating costs, instead). Beware the use of cost per hour marketing terms when buying construction equipment.
Find out more about ownership costs and operating costs.