Building More: Charging For Tools And Equipment Part 2

Words: Corey Adams 

1. Upfront/Replacement Cost: This is obvious. Tools and equipment cost money. Not just the cost of the initial purchase, but at some point, you need to replace or update it. This cost is usually a factor of usable hours, or days, in the life expectancy of a piece of equipment. If a piece costs $20,000 and has an effective life of 2,000 hours, then the cost would be $10 per hour. 
2. Maintenance Cost: Almost all tools need maintenance. At some point, they need repair, oil, fresh paint, new belts, or something that typical wear and tear will provide. This varies widely by the piece of equipment but is a real cost that must be accounted for. 
3. Storage/Shop Cost: Here is a hidden cost that most businesses under account for, or miss altogether. Equipment needs storage. When it is not in the field, it needs a home. When it is time to repair the equipment, you need a shop to work on it in. I will agree that many companies put shop expenses in their overhead numbers, but to get extremely accurate with your costs, you need to account for a percentage of your equipment numbers. 
4. Carrying Cost: Most small companies have loans or lines of credit. Especially when talking about large equipment purchases. The interest on those loans is a direct expense to the equipment. Even if the loan is a revolving line of credit, somewhere in your numbers the interest needs accounted for.