How to calculate your machine's cost per hour

A job is won or lost on equipment cost, and almost nobody calculates it: people compare purchase prices and decide. The method below is the owning and operating cost method Komatsu publishes in its specifications and application handbook, and it works for any machine of any brand. It separates two costs that are paid in very different ways — owning the machine and running it — and brings them to a single figure: dollars per hour. With that figure you price a job, compare buying against renting, and choose between two machines without being led by the sticker.

1. Two costs, not one: owning it and running it

The owning cost is paid even when the machine is parked: depreciation plus the interest, insurance and taxes on the money invested. The operating cost only runs when it works: fuel, lubricants and filters, tyres, repairs, wear parts and the operator. The sum of the two, divided by the hours worked, is the cost per hour. That is why utilisation matters so much: a machine that works half the planned hours carries twice the owning cost in every hour.

2. Depreciation: not what you pay, but what you lose

You do not lose the whole machine: at the end of its life with you it is still worth something. What depreciates is the delivered price minus the resale value, spread over the hours you will work it. A US$ 100,000 machine resold for US$ 25,000 after four years, working 2,000 hours a year, depreciates US$ 75,000 over 8,000 hours: US$ 9.38 per hour. On wheeled equipment the value of the tyres is deducted from the price before depreciating, because they wear out long before the machine and are counted separately. Resale value is the input that moves this number most, and it is exactly the one almost nobody asks about when buying.

3. Interest, insurance and taxes: tied-up money costs too

The money put into the machine pays interest if it is borrowed and stops earning if it is your own; it is also insured and taxed. But it is not tied up at the same value the whole time: it falls each year as the machine depreciates. So it is calculated on the average investment, with a factor that depends on the years (n) and the resale ratio (r): factor = 1 − (n − 1) × (1 − r) ÷ 2n. With four years and 25 % resale the factor is 0.72. If interest, insurance and taxes add up to 15 % a year: US$ 100,000 × 0.72 × 0.15 ÷ 2,000 hours = US$ 5.39 per hour.

4. Fuel: the largest line in operating cost

Hourly consumption multiplied by the local price of diesel. Consumption is not a fixed number for the model: manufacturers publish it for three conditions — light, medium and heavy — depending on how much time the machine spends at full load, and the gap between them is large. Measuring it in your own operation is the most accurate. A 20-tonne excavator in medium conditions runs around 12.5 litres per hour; with diesel at US$ 1.10 a litre that is US$ 13.75 per hour. And part of it depends on how it is operated: one unnecessary hour of idling a day on that same machine is close to a thousand litres a year.

5. Lubricants, filters, tyres and repairs

Lubricants: litres per change divided by the change interval, times the local price. Filters: their price over their interval; as a quick estimate, about half of what lubricants cost, and more in dusty ground. Tyres: the price of the set divided by its life in hours, which varies enormously with the surface. Repairs: they start low and rise with the hours, so they are averaged over the machine's whole life — setting aside today what will be paid later. It is the item that depends most on the job, the operator and the maintenance, and the hardest to estimate without history: that is why you ask the dealer, who has the model's data in similar applications. If the machine consumes fast-wear parts — ripper points, grader cutting edges — they are added separately.

6. The full example: US$ 37 per hour

With the assumptions above — a US$ 100,000 tracked machine, four years, 2,000 hours a year, 25 % resale —: depreciation US$ 9.38, plus interest, insurance and taxes US$ 5.39, give US$ 14.77 of owning cost. Operating: fuel US$ 13.75, lubricants and filters US$ 0.39, repairs US$ 3.30 and operator US$ 5.00, US$ 22.44 in total. Sum: US$ 37.21 per hour. These are example figures; yours come from your prices and your application. What matters is the proportion: depreciation — the only thing the purchase price moves directly — is barely a quarter. Fuel alone weighs more than that.

7. Why the cheaper machine can cost more

Run the same calculation for a machine that is 10 % cheaper — US$ 90,000 — resells after four years for 15 % of its price instead of 25 %, and burns 15 % more fuel. Its depreciation is US$ 9.56 per hour: more than the expensive machine's, because it loses a larger share of its value. It saves a little on interest, but fuel rises to US$ 15.81. Result: US$ 38.66 per hour against US$ 37.21. The one that cost US$ 10,000 less ends up costing over US$ 11,000 more across its 8,000 hours. This is not a brand argument: it is arithmetic, and it changes with your numbers. So before comparing stickers, the two questions to ask any seller are what it resells for and how much it burns in an application like yours.

8. From cost per hour to cost per tonne

Cost per hour still does not tell you whether the machine is profitable: you need what it produces. Dividing the cost per hour by the hourly output gives the cost per cubic metre or per tonne, which is the number a job is priced with. A US$ 40-per-hour machine that moves 200 tonnes costs US$ 0.20 per tonne; a US$ 35 one that moves 140 costs US$ 0.25. The more expensive per hour is the cheaper per tonne. And in a fleet the calculation gets harder, because each machine's output depends on the others: one truck too many queues, one too few leaves the excavator waiting. That is what a fleet study solves.

Frequently asked questions

How much does an excavator cost per hour?

It depends on your price, your hours per year, diesel and the application, but it is calculated the same way: owning (depreciation plus interest, insurance and taxes) plus operating (fuel, lubricants and filters, repairs and operator). In this guide's example, a US$ 100,000 tracked machine working 2,000 hours a year comes to US$ 37.21 per hour, and fuel is the largest item.

What weighs more in cost per hour: the machine's price or fuel?

Usually fuel. In the example, depreciation is 25 % of the cost per hour and fuel is 37 %. That is why a cheaper machine that burns more, or resells worse, can end up costing more per hour than a more expensive one.

Why does it matter how many hours a year the machine works?

Because interest, insurance and taxes are paid per year, whether it works or not. Spread over 2,000 hours they weigh half what they do over 1,000. An under-used machine is expensive even if it was bought cheap — and it is why, for few hours a year, renting usually beats buying.

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