Most guys running a machine are charging an hourly rate they made up. They heard a number at the dealership, or they took what the guy down the road charges and knocked ten dollars off it. That is not a rate. That is a guess with a dollar sign in front of it.
The frustrating part is that the real number is not hard to work out. It is only ever skipped because the first step requires admitting something uncomfortable, which is that the machine is costing money right now, while nobody is sitting in it.
The Belief That Has to Go First
The machine does not cost you money when it is running. It costs you money when it is sitting.
The payment does not know whether you dug today. Neither does the insurance. Neither does the personal property tax, and that one is worth naming on its own, because it is the thing that about got Checkered Flag when it first started out. It was not planned for. It was a major blow.
The machine costs money in the winter. It costs money in the yard on a Sunday. Once you see that, your hourly rate stops being a fee you choose and becomes a recovery problem: a fixed pile of money that leaves the account every year whether you work or not, and a finite number of billable hours to get it back through.
Owning Cost: Before It Turns a Track
Write these down for a full year, for one machine.
The payment. Insurance on it. Personal property tax. Storage, if you pay for it. Interest.
Add them up. That is your owning cost, and you have not moved a foot of dirt yet. Most owner-operators have never written that single figure down, which is why the rate that has to recover it was never built from anything.
Operating Cost: While It Runs
Fuel. Filters and fluids. Undercarriage. Tires, if you are on rubber. Cutting edges, teeth, pins and bushings. Hoses. And the unplanned repair, which is not unplanned at all. It just has not happened yet.
Undercarriage is the one that surprises people, and on a tracked machine it is the big quiet cost. It wears every hour, whether you are digging or just tramming across a lot to get out of somebody else's way. Price it as an hourly consumable, because that is exactly what it is. Take the cost of a set and divide it by the hours a set gives you in your ground. That number belongs in every hour you bill.
The repair line is the one people leave at zero because nothing has broken yet. Put a figure there anyway. Over a year of work something always comes off that machine, and the year it does not is the year you build a cushion for the year it does.
The Truck and the Trailer Are Part of the Machine
Nobody wants to hear this one, and it is the line that most often explains why a busy operator is not making money.
The machine cannot get to work by itself. The truck payment, the trailer, the plates, the fuel to move it, and the hour of a man's day it takes to load and unload are part of what it costs to put that machine on a job. If you are not carrying them somewhere, either inside the rate or as a separate mobilization line, you are carrying them in your own pocket.
The Hours Nobody Bills
This is where the calculation usually goes wrong, and it goes wrong in the direction that makes you cheap.
Moves. Idle time. The half day you sat because the plumber was not done. The morning you spent fixing something in the yard.
If you are working on your equipment you are not running your equipment, and you are losing money. It is a direct path down the toilet, and both ends of it hurt. You are paying a man to stand there, and the hour that was going to pay for him is gone.
So when you work out your billable hours for the year, do not use the calendar. Two thousand hours is not your number. Use what you actually billed last year, off your own invoices. Most owners guess high by a long way, and guessing high on hours is arithmetically identical to guessing low on the rate.
The Arithmetic
Owning cost for the year, plus operating cost for the year, plus the share of overhead that machine has to carry, divided by the billable hours you honestly expect.
That is your cost per hour. Not your rate. Your cost.
Your rate is that number plus the margin you have decided you work to. And when the answer looks high, sit with it rather than shaving it. Do not soften your rate because it sounds high. The whole reason the exercise is worth doing is that yours is probably too low and you have never proved it either way.
Two Rules That Come Out of the Same Maths
Buy the machine in the winter. A rule made a long time ago at Checkered Flag and never broken. If I can afford a machine in the winter, then I can afford it in the summer. So every time a new machine got bought, it had to be when the weather was bad. Summer money lies to you. Winter money tells you the truth about what you can carry, because winter is the only month of the year when the cost of that machine is visible with nothing coming in to hide it behind.
The machine is your reputation, and that is a cost too. To some people a bent panel is just paint, and the machine still functions. It does not, because that is your image. If you show up at the next job with a beat up machine, that customer is going to think this man does not take care of his equipment, and wonder whether he is going to do quality work for me. You have to keep up with your equipment, it has got to look good, and it cannot get destroyed, even though a bent panel does not affect the way the machine runs.
That second rule is also a walk-away rule. When we are doing paths it is going to be two machines wide. If there are limbs raking down the side of a three hundred thousand dollar machine, we are not doing it. That is a job you walk away from. We are not going to destroy our machine in order to make the customer happy.
Frequently Asked Questions
How do I calculate machine cost per hour?
Annual owning cost plus annual operating cost plus that machine's share of overhead, divided by the hours you honestly billed last year. That is cost. Rate is cost plus margin.
How many billable hours should I use?
Whatever you actually billed last year, off your own invoices. Moves, idle time, waiting on another trade and shop time all come out. Guessing high on hours is the same error as guessing low on your rate.
Should the truck and trailer be in the machine rate?
They have to be somewhere. The machine cannot get to work by itself. Put them in the rate or in a mobilization line, or you are paying for them yourself.
Two Ways to Use This
If you run your own machine, anywhere in the country, the free Bid Worksheet on this site is a blank one-page structure for pricing a dirt job, from scope to the final number. It is free, it takes one step to get, and there is no call to book and no sales page in the middle of it.
If you are a homeowner, a builder or a general contractor in Jefferson County or the greater St. Louis metro and you would rather somebody who has been doing this since 1998 worked the number out for you, that is the day job. Checkered Flag Excavation, De Soto and Festus, Missouri. Call 636-586-1794.
Jay Voisey owns Checkered Flag Excavation, Inc., founded 1998, with locations in De Soto and Festus, Missouri. He is a licensed septic installer and septic inspector, a St. Louis County licensed Master Drainlayer, an approved St. Louis County land disturbance special inspector,. Checkered Flag is WBE certified and holds a BuildZoom score of 92, the top third of 23,328 licensed Missouri contractors.