Every machine carries two costs. Owning cost runs whether the machine works or not: the loan, the lost value, the insurance. Operating cost runs only when the engine does: fuel, filters, tires, repairs.
Split them correctly and one number per machine answers three questions: what to charge a job for an hour of that machine, whether renting would be cheaper, and when to sell. This guide walks through the formulas with a wheel loader, then covers where the numbers come from and the mistakes that bend them.
The two halves of the number
Owning cost is the cost of having the machine available:
- Depreciation: the value it loses while you own it
- Interest: the cost of the money tied up in it, borrowed or not
- Insurance, property tax and licensing
- Storage and yard costs, if you allocate them
Operating cost is the cost of running it:
- Fuel
- Lubricants, filters and fluids
- Tires or undercarriage
- Repairs and maintenance, parts and labor
- Wear parts: bucket teeth, edges, blades
- Operator wages, if your company includes them (many keep labor separate; pick one rule and use it everywhere)
The formulas
Depreciation per hour = (delivered price minus expected resale value) ÷ total hours you expect to own it
Average investment ≈ (delivered price + expected resale value) ÷ 2
Interest per year = average investment × your cost of capital
Owning cost per hour = (annual depreciation + interest + insurance and taxes + storage) ÷ hours per year
Operating cost per hour = fuel + lube and filters + tires or undercarriage + repairs + wear parts, each per hour
The delivered price includes freight, setup and any attachments bought with the machine. The cost of capital is the rate your controller uses: the loan rate, or the return the company expects from money it could put elsewhere.
Example: one wheel loader
These are round numbers for illustration, not market figures. Use your own.
- Delivered price: $300,000
- Expected resale after 5 years: $100,000
- Hours per year: 1,600, so 8,000 hours over 5 years
- Cost of capital: 6%
- Insurance and property tax: $3,200 a year
Owning cost per hour
| Item | Math | Per hour |
|---|---|---|
| Depreciation | (300,000 minus 100,000) ÷ 8,000 | $25.00 |
| Interest | (300,000 + 100,000) ÷ 2 = 200,000 × 6% = 12,000 a year ÷ 1,600 | $7.50 |
| Insurance and tax | 3,200 ÷ 1,600 | $2.00 |
| Owning total | $34.50 |
Operating cost per hour
| Item | Math | Per hour |
|---|---|---|
| Fuel | 5 gallons an hour × $4.00 | $20.00 |
| Lube, filters, fluids | from service records | $3.00 |
| Tires | $24,000 set ÷ 4,000 hours of life | $6.00 |
| Repairs | repair reserve for this age | $10.00 |
| Wear parts | teeth and edges | $1.50 |
| Operating total | $40.50 |
Owning and operating cost: $75.00 per hour, before the operator.
That is the figure to compare with a rental rate, to build an internal rate for job costing, and to track year over year as the machine ages.
Look at how the $75 breaks down. Depreciation ($25) and fuel ($20) together are 60% of it, and interest adds another $7.50. Two of those three move with how many hours the machine works in a year, and the third moves with how much of its running time is spent idling. That tells you where management attention pays: keep the machine busy, and keep it from burning fuel standing still. Tires, filters and wear parts matter, but they are rarely where the big money hides.
Why utilization moves the number
Owning cost is a yearly cost spread over the hours worked. In the example, the loader’s owning cost is about $55,200 a year: $40,000 depreciation, $12,000 interest and $3,200 insurance.
Run that loader 1,600 hours and owning cost is $34.50 an hour. Run it 800 hours and owning cost becomes 55,200 ÷ 800 = $69.00 an hour, and the total climbs to $109.50. Fewer hours usually mean a better resale value, which softens that a little, but the direction holds. Idle iron makes every working hour expensive.
This is why owning and operating cost and utilization belong on the same page. Our guide to calculating equipment utilization rate covers the other half.
Idle hours are operating cost too
An idling machine burns fuel and runs up the hour meter without moving material. Both land in operating cost.
Say the same loader idles 300 hours a year and burns about a gallon an hour at idle. That is $1,200 of fuel at $4.00 a gallon. The 300 hours also count toward every service interval, which adds more than one extra 250-hour service each year, and they count toward the hours a buyer sees at resale. None of it shows up as work on any job. The equipment tracking ROI calculator puts a number on idle time, breakdowns and overdue rentals across a fleet, using your own owning cost per hour, fuel burn and fuel price.
The repair reserve rises with age
Repairs are not flat over a machine’s life. They run low in the early years, often under warranty, then rise as major components reach the end of their life. A single lifetime average undercharges jobs in later years and overcharges them early.
Use a reserve that steps up by hour band, and check it against actual work order costs each year. Then track the cumulative average cost per hour: all owning and operating cost since purchase, divided by all hours since purchase.
| End of year | Cumulative cost per hour |
|---|---|
| 1 | $82 |
| 3 | $74 |
| 5 | $71 |
| 6 | $73 |
| 7 | $77 |
In this example the curve bottoms out around year 5. After that, each extra year raises the average cost of every hour the machine has worked. That turn is the classic signal that the machine has reached its economic life, and the time to price a replacement. Machines rarely fall off a cliff; the cumulative curve shows the turn before the shop feels it.
Where the numbers come from
- Delivered price and resale: purchase records, recent auction results for similar machines, and trade quotes.
- Cost of capital: your controller or CFO, once a year.
- Fuel: fuel tickets or a fuel system that records gallons per machine, checked against fuel used from the engine controller.
- Repairs, parts and labor: work orders, by machine, with internal labor at a loaded rate.
- Tires and undercarriage: purchase records and the hours at which each set was replaced.
- Hours: the engine controller or the manufacturer’s feed, not paper.
Most of this already lives in your accounting system and your shop records. The work is joining it to the right machine and the right hours.
Common mistakes
- Using tax depreciation. Tax schedules follow tax rules, not how a machine loses value in the market. Use economic depreciation for this number, and leave the books to your accountant.
- Paper hours. A wrong hour count bends every per-hour figure at once.
- Leaving out the small items. Freight, attachments, teeth and edges, haul costs between jobs.
- A flat repair reserve for life. It hides the year the machine turns expensive.
- Mixing operator wages in for some machines and not others. Pick one rule.
- Calculating once and never again. Fuel prices, hours and repair costs change every year.
- A fleet average instead of a figure per machine. Two loaders of the same model can differ widely after a few years on different jobs.
One page per machine
Keep the result on one page per machine, updated once a quarter. Put on it:
- Unit number, model, serial number and year
- Delivered price, purchase date and expected resale
- Hours this year, hours since purchase, and idle share
- Owning cost per hour and operating cost per hour, each with its parts
- Repair cost this year against the reserve
- Cumulative average cost per hour, by year
- Internal rate charged to jobs this year
When a superintendent asks why the rate went up, or the owner asks why the shop wants a new loader, the page answers before the meeting does.
Turning the number into decisions
- Internal rates. Charge jobs the owning and operating cost per hour, plus whatever markup your company policy sets. Now job costs reflect the machine actually used.
- Rent or own. Compare owning cost per hour with a rental rate per hour for the same class. Our rent or own decision rule works through it.
- Replace. When the cumulative average stops falling and starts rising, price the replacement.
- Right-size. Machines whose owning cost per worked hour sits far above their class are candidates to move, sell or swap for rentals.
Where Gytix fits
Utilization and cost analytics joins engine hours to purchase, fuel and work order costs and shows owning and operating cost per hour for every machine, updated as the hours come in. Owning and operating cost per hour is part of the Shop plan.
If you want the whole fleet worked through at once, the fleet right-sizing audit builds these numbers for every machine, flags the ones past their economic life or below benchmark, and is priced as one fixed fee for up to 150 machines.
