How to Calculate Equipment Cost-Per-Hour (And Why It Matters)
Learn the complete formula for calculating your heavy equipment's true cost-per-hour, including fuel, maintenance, depreciation, and hidden expenses that eat into your profits.
Quick Answer: What's My Equipment Really Costing Me?
Most contractors underestimate by 30-50%. Here’s the real formula:
| Cost Category | Typical Range |
|---|---|
| Fuel | $6-15/hr |
| Maintenance | $3-8/hr |
| Depreciation | $4-10/hr |
| Insurance/Finance | $8-15/hr |
| Total Break-Even | $25-50/hr |
You’re not making money until you bill above your break-even cost. Keep reading for the complete calculation.
Understanding your equipment’s true cost-per-hour is the difference between running a profitable operation and bleeding money without knowing it. Most contractors drastically underestimate what it actually costs to run their machines—and that miscalculation shows up in bids that don’t cover expenses.
The Core Cost-Per-Hour Formula
Cost Per Hour = (Total Operating Costs) ÷ (Total Hours Operated)
Simple, right? But the devil is in the details. Here’s what “Total Operating Costs” actually includes:
1. Fuel Costs
This one seems obvious, but many operators track it wrong.
You need actual gallons consumed (not tank fill-ups), current fuel price (update regularly), and idle vs. work time (idling burns 0.8-1.5 gal/hr on most machines).
Fuel Cost Example
Typical skid steer operation
Consumption: 2.5 gal/hr
Fuel Price: $3.50/gal
2. Maintenance Costs
This includes both scheduled maintenance and unexpected repairs:
- Oil changes, filters, greasing
- Track/tire replacement
- Hydraulic fluid and filters
- Annual/semi-annual service costs
- Unexpected breakdowns
Track maintenance costs over 12-24 months minimum to get an accurate average. New machines will have lower costs; older machines spike significantly.
Maintenance Cost Example
Annual maintenance tracking
Annual Maintenance: $4,200
Annual Hours: 1,000
3. Depreciation
Your machine loses value every hour it runs. There are two ways to calculate this:
Straight-Line Method
(Purchase Price - Salvage Value) ÷ Expected Total Hours
Depreciation Example
Straight-line calculation
Purchase Price: $65,000
Salvage Value: $15,000
Expected Hours: 10,000
($65,000 - $15,000) ÷ 10,000 hours
Actual Market Method
Track what similar machines with similar hours sell for. This is more accurate but requires market research.
4. Insurance and Registration
Don’t forget the fixed costs that apply regardless of usage:
- Equipment insurance premiums
- Registration fees
- Any permits required
5. Financing Costs
If you’re making payments:
- Monthly payment amounts
- Interest costs
- Opportunity cost of capital tied up
6. Storage and Transport
Often overlooked:
- Trailer costs and maintenance
- Storage facility rent
- Transport time and fuel to job sites
The Complete Picture
Let’s add it up for our example skid steer running 1,000 hours/year:
| Cost Category | Hourly Rate |
|---|---|
| Fuel | $8.75 |
| Maintenance | $4.20 |
| Depreciation | $5.00 |
| Insurance | $2.40 |
| Financing | $10.20 |
| Storage/Transport | $1.50 |
| Total Break-Even | $32.05/hr |
That’s your break-even cost. You’re not making money until you bill above this rate. Every hour billed at $30 loses you $2.05.
Common Mistakes
Do This
- Track actual engine hours
- Update calculations annually
- Include attachment costs
- Factor in realistic downtime
Avoid This
- Ignoring idle time
- Using old cost data
- Forgetting attachment wear
- Assuming 100% uptime
1. Ignoring Idle Time
Your machine burns fuel and depreciates even when idling. Track actual engine hours, not just “work” hours.
2. Not Updating for Age
A 5-year-old machine costs significantly more per hour than a new one. Recalculate annually.
3. Forgetting Attachments
Buckets, grapples, and other attachments have their own depreciation and maintenance costs.
4. Underestimating Downtime
When your machine is broken, you’re still paying storage, insurance, and financing. Factor in realistic downtime.
The Bottom Line
Knowing your true cost-per-hour lets you:
Ditch the Spreadsheets
FieldFix automatically tracks every expense, calculates real-time cost-per-hour, and shows you which machines are costing you money.
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Start tracking today. Your future profitability depends on it.
