How to Calculate Total Cost of Ownership

How to Calculate Total Cost of Ownership
How to Calculate Total Cost of Ownership
Author: Small Business Expert | June 30, 2020 | Topic: Used Equipment

How to Calculate Total Cost of Ownership for Heavy Equipment

When you operate a construction fleet, expenses can have a major impact on your business decisions. Every piece of equipment you own costs time and money, meaning it’s important to find ways to make the most of its service lifespan.

With enough skill and experience (or with the help of a reliable dealer), you can learn how to calculate the total cost of ownership for your heavy equipment. This will help you make smarter purchase decisions, make more accurate investment predictions and determine costs vs. gains over time.

Factors to Consider in Ownership Cost Calculations

Calculating heavy machinery ownership costs requires you to consider several factors. While you probably already know that heavy equipment purchase price plays a part, this is only one of many elements to take into account when calculating overall expenses. Some of the other potential costs to keep in mind include:

  • Maintenance: Inspections, oil changes, cleanings and other preventive maintenance strategies are all essential for keeping your equipment going. Upholding a regular maintenance schedule can reduce other expenses, such as emergency repairs.
  • Replacements and repairs: Most types of machinery inevitably need repairs and replacement parts, even if they’re built to last. User efficiency and the quality of your equipment will determine long-term repair costs.
  • Fuel expenses: The cost of fuel is a factor in ownership expenses that can be easy to forget. You may be able to keep this cost to a minimum with strong employee and fleet management tactics.
  • Operating hours: How long has your equipment lasted? For how many hours a day did you use it? These are important questions to keep in mind as you calculate costs. For instance, a piece of equipment that you rely on for eight to 10 years will probably earn you a better ROI than a machine that you only use for a year.
  • Financing, insurance and taxes: Purchase prices often come with other expenses like financing interest and taxes. Yearly insurance costs will also factor into your calculations.
  • Resale value: Equipment depreciates in value over time, although it tends to hold its value better after it's been used. The total cost of ownership will include the difference in what your equipment is worth should you decide to trade or resell it in the future.

The Easiest Way to Calculate Total Cost of Ownership

If you’re confident enough to do the math on your own, you’ll need to add the purchase price of the machine to any yearly maintenance, repair, tax, insurance, interest and fuel costs. Once you’ve added up all these factors, subtract the resale price and divide the number by the total operating hours — this will provide an estimate of the hourly cost of your machine.

It’s usually easiest to do this with a piece of equipment you’ve owned for a long time, as you already have all these records available. Through years of experience, you may even be able to do these calculations when you first buy a machine to predict its long-term value.

A faster way to add up expenses is to use a heavy equipment total cost of ownership calculator. You can find these online, and although accuracy can vary, it’s easy to punch in numbers for a quick answer. If you want to make earlier predictions about your investment, we recommend talking to your dealer for more accurate estimates.

Visit a Dealer Near You Today

Your local Cat® dealer can help you calculate the total cost of ownership for your heavy equipment. Reach out today for pricing information or more details about your equipment’s current value.