Not long ago, we looked at some great ways to start breaking down a fair starting price for used machinery – specifically, agricultural tractors. But if you’re planning to hang onto your purchase for the long haul, how can you determine the true lifetime cost?
Some of the factors that we’ll need to incorporate into the total cost will involve what we’ve look at previously, including salvage costs and taxes, insurance and housing. But beyond those more simple calculated costs, the groupings of expenses below can help you form a more complete picture as to the operating costs of any equipment purchase – be it used or new.
Depreciated Value + Taxes, Insurance & Housing
For more on these two topics, check out our previous post on how to estimate a fair purchase price for used machinery.
Unless you’re fortunate to have enough liquidity in your assets to simply write a check for your new metal, you’ll need to consider financing at least a portion of your purchase. Depending on the availability of credit as determined the overall market, your ability to finance and at what interest rate will vary. However, Iowa State Extension and Outreach recommends anticipating an average interest rate percentage minus the estimated rate of inflation. So, if you anticipate an interest rate of 8%, subtract the anticipated rate of inflation of 3%, giving you an overall estimated interest rate of 5%.
Repairs & Maintenance
These costs will depend largely on the wear and tear that any machinery receives in the field, but the best estimates for anticipating your cost of maintenance will be the past repair records for the equipment you’re looking to replace. However, the tables provided in Iowa State’s research provide an excellent estimation based upon the total number of hours the equipment has been used.
Fuel & Lubrication
The cost of fuel is an ever growing concern. Again, this estimation will vary from machine to machine, but formulas of 0.060 x maximum PTO horsepower for gasoline engines, and 0.044 x maximum PTO horsepower for diesel engines should give you a solid starting point to gauge your average hourly fuel consumption. Take this total an multiply it by your cost per gallon and you’ll now have the estimated dollar amount per hour for fuel.
Total lubrication costs are averaged out to be about 15% of the total fuel costs. So, now that we know our estimated fuel costs, simply take that hourly fuel cost and multiply it by .15 to get your estimated hourly costs for lubrication.
Differences in labor requirements will, again, vary from place to place, but best estimations of labor costs related to machinery upkeep show that labor time generally exceeds field time by about 10-20%. So, simply multiply the anticipated hourly wage of labor times 1.1 or 1.2 to get your labor cost per hour estimate.
Your Total Cost
You can now factor the total cost of any machinery you plan to buy by simply adding up the costs of each per-hour segment that we’ve discussed. Adding up costs of depreciation, TIH, interest, repairs & maintenance, fuel, lubrication and labor will now give you a total per-hour cost of owning your new equipment. Take this times the total number of hours per year you’ll plan to use the equipment and the total number of years you plan to own it and voila! You now can see the total cost, end to end of any equipment purchase you have in the works.
For more information, be sure to check out all of our posts about buying and selling equipment and machinery online.