Buying the machine is a gut call
A machine you own can't be billed for a week it doesn't move, but the payment is still due every month.
Ownership swaps a variable cost for a fixed one. That is a good trade when the machine works enough hours to beat the rental rate and a bad one when it does not, and the difference is decided by utilization rather than by preference. Most owners buy on the monthly payment, which is the one number that says nothing about whether the machine earns.
Three moves, in order
What CFOS does about it
Equipment daily rates are built from what the machine costs to own, and that rate is charged to the job each day it's on a daily. That gives you the ownership cost per day and the days it worked. You compare it to the rental rate, and the 13 week forecast shows whether the down payment fits.
Who owns this: Owner and estimator.
At $3M, one machine bought on its payment can stay idle most of a winter. Work out the hourly cost of owning it and compare it to what you rented last year. At $20M, review utilization by machine each quarter before the next purchase.
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Step 02: Equipment cost basis
A correct internal rate per machine covering ownership, maintenance, fuel, and transport, charged to the projects that used it.
Other problems step 02 solves
Other things that go wrong
What owners ask
Should a contractor buy or rent equipment?
A machine you own can't be billed for a week it doesn't move, but the payment is still due every month. Ownership swaps a variable cost for a fixed one. That is a good trade when the machine works enough hours to beat the rental rate and a bad one when it does not, and the difference is decided by utilization rather than by preference. Most owners buy on the monthly payment, which is the one number that says nothing about whether the machine earns.
Which part of the system fixes this?
The step is number 02, equipment cost basis. A correct internal rate per machine covering ownership, maintenance, fuel, and transport, charged to the projects that used it. It's drawn from chapter 2 of CONTROL: C.F.O.S. Construction Financial Operating System.
Is this normal for my trade?
Across the 48 trades that publish a figure, net profit at $1M to $5M averages 7% before taxes. If you're well under that and this page describes your month, the two are usually the same story. The published average tells you where the pack is, and your own job costing tells you where you are, which is the number that pays payroll.
Where do I start?
Work out the real hourly cost of owning it, with ownership, maintenance, insurance and the hours you expect to meter.
Can I fix this without touching anything else?
You can try, and it doesn't hold. Step 02 depends on step 01, job cost structure. Install it ahead of that and it produces numbers the field won't trust, which is worse than the problem you started with.
Wrote CONTROL, the 8 step system behind these figures. More about the author.