Buy the Best Equipment Based on its Efficiency
Heavy machinery prices continue to rise despite some rough economic times in Canada. It’s enough to make us all go deal seeking for the cheapest option that will just (barely) get the job done.
The thing is… A cheap piece of equipment is a cheap piece of equipment. An old adage says “you get what you pay for.”
Consider the long term operating costs of owning the best equipment. An efficient, low maintenance machine, will quickly add up to huge savings in the long run. You’ll quickly realize that getting the best heavy equipment for your business IS the most affordable option.
Pair a great piece of equipment with a great leasing program that breaks the machine cost into small manageable payments – and you’re singing to the bank.
Not sure to believe me? Let’s break down the operational costs with an example.
What Makes Equipment Efficient?
There are 2 major factors that contribute to equipment efficiency:
- Productivity – the production volume and/or speed at which the equipment works.
- Uptime – the amount of time the equipment is operational and not offline for maintenance.
Evaluating the Numbers with an Example
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Let’s say you’re running a rock quarry. We’ll look at an excavator with a rock breaker attachment.
Assume the following details:
- You earn $1.50 per tonne of rock
- 12 hour work day
- 170 working days annually
Productivity
A cheap excavator can break 585 tonnes @ $1.50 = $877.50 / hour
A good excavator can break 600 tonnes @ $1.50 = $900 / hour
You may think that the hourly rate between the cheap excavator and the good excavator is minimal. If you look at the entire year of operations though, you’ll see a difference in revenue close to $46,000.
This is admittedly a simplified example of productivity.
We all know that there are costs to running the machine such as worker wages. However, those costs are fairly constant whether the machine is running or not (for example, you have to pay your workers whether they are operating the machine or fixing it).
Uptime
No matter what, you will have downtime and maintenance costs.
A cheap excavator is down 15% of the time = 306 hours per year
306 x $877.50 = $268,515 lost revenue
A good excavator is down 10% of the time = 204 hours per year
204 x $900 = $183,600 lost revenue
Now that’s significant! There’s almost an $85,000 difference in lost revenue.
Not too mention that when machines go down, you might incur additional labour, overtime, replacement parts, and delays in your production schedule. All of these things make downtime even more punitive.
Putting Equipment Efficiency Into Perspective
Minimizing down time and improving productivity is clearly important. You can quickly see that spending more on a better piece of equipment could actually increase your profit.
Many companies opt for cheaper equipment simply because they can’t currently afford the high prices of good equipment. It could take a good year or two of efficient operations to make up for the difference in sale price.
This is where Equipment Leasing changes everything.
Instead of a huge up front cost, you’ll break the price tag into manageable payments over 3 – 5 years with equipment leasing. You benefit from a better machine while it increases your revenue from day 1.
You actually start earning more immediately. The additional amount you earn right away often far outweighs the increase in lease payment.
Better Numbers for Leasing Better Equipment
Let’s continue with our example of an excavator in the quarry.
A cheap used excavator costs $60,000
Leased for $1,875 / month (3 years)
A better excavator costs $160,000
Leased for $5,005 / month (3 years)
You might think that’s a big cost difference. But not at all when you consider the boost in monthly revenue you’ll get from the better excavator.
Cheap Excavator:
170 hours @ $877.50 / hour = $149,175 / month
–
15% downtime = $22,376.25 / month
=
$126,799 in revenue per month
Better Excavator:
170 hours @ $900 / hour = $153,000 / month
–
10% downtime = $15,300 / month
=
$137,700 / month
The better excavator earned $10,901 more. That savings easily covered the $5,005 / month lease payment and then some.
In fact, you’d make $5,896 in additional profit per month just because you leased the more expensive machine!
Always Get the Best Because Equipment Price Doesn’t Matter
Now, you might not be running a quarry or even an excavation business. However, you should consider your equipment productivity and uptime costs as it relates to your business.
I’m certain you will arrive at similar results within your own business finances. As soon as the expense to profit difference doesn’t help earn you more, you know you’ve reached the limit of your spending.
To help you figure out what your lease payments could be, go to the Thomcat Leasing website and get a 60 second equipment lease estimate. You’ll love how easy it is to get numbers. It literally takes only seconds, doesn’t require any sign up, and a report is immediately sent straight to your email inbox!
