Plant Cost Calculator: Own, Finance or Hire
Owning and operating cost per hour, and the hours a year at which owning beats hire.
Work out what a machine costs you per working hour to own and run, using the Caterpillar owning-and-operating method, then compare it with dry hire and see the utilisation at which buying pays. The defaults are a new 20 t excavator; replace them with your own quotes.
- Own: cost per working hour, excl fuelR 577.80vs dry hire at R 355.00/h · Dry hire is cheaper at 1 200 h a year
- Break-even utilisationAbove this, owning beats dry hire6 438 h a year
- Owning cost per hourdepreciation R 143.15 + interest R 119.56 + insurance R 11.12R 273.84
- Operating cost per hourupkeep R 196.10 + fuel R 395.90 + operator R 107.86R 699.86
- Finance instalmentR 1 572 500 over 60 months, before feesR 33 994 a month
Method: Caterpillar Performance Handbook 49, section 25. Interest and insurance are charged on the average annual investment [P(N+1) + S(N-1)] / 2N; depreciation is (price - resale) / total hours. Before tax. Dry hire includes the operator but not diesel, so both sides exclude fuel. For the after-tax comparison of cash, instalment sale, lease and hire, use the Excel workbook in the guide. Not financial or tax advice.
A worked example
With the calculator’s starting values (delivered price excl vat: 1850000 R; resale value after the period: 35 % of price; years you will keep it: 7 years; working hours a year: 1200 h; interest rate: 10.75 % p.a.; insurance: 1 % a year; upkeep (maintenance, repairs, wear): 10.6 % of price per 1 000 h; fuel use: 13.6 L/h; diesel price: 29.11 R/L; operator, loaded: 107.86 R/h; dry hire rate (operator included): 355 R/h; finance deposit: 15 %; finance term: 60 months), it returns:
- Own: cost per working hour, excl fuel: R 577.80 (vs dry hire at R 355.00/h · Dry hire is cheaper at 1 200 h a year)
- Break-even utilisation: 6 438 h a year (Above this, owning beats dry hire)
- Owning cost per hour: R 273.84 (depreciation R 143.15 + interest R 119.56 + insurance R 11.12)
- Operating cost per hour: R 699.86 (upkeep R 196.10 + fuel R 395.90 + operator R 107.86)
- Finance instalment: R 33 994 a month (R 1 572 500 over 60 months, before fees)
How the cost per hour is built
The calculator follows the Caterpillar owning-and-operating method. Owning cost is fixed: depreciation is the price less the resale value, spread over every hour you will own the machine; interest and insurance are charged on the average annual investment, which allows for the value falling over the years. Operating cost follows the hours: fuel, upkeep and the operator.
Dry hire includes the operator but not diesel, so the comparison leaves fuel out of both sides. The break-even is the fixed owning cost a year divided by what each working hour saves against hire: the hire rate less your own upkeep and operator.
Getting the inputs right
Three inputs move the answer more than the rest:
- Hours a year. Use billed hours from your own records, not the hours a machine could work. An idle month still carries its owning cost.
- Upkeep. The default comes from a Caterpillar example priced with US workshop labour, so it is probably high for South Africa. Ask the dealer for a maintenance and repair estimate for your application.
- The hire rate. Use a rate you can actually get locally, for the months you need the machine.
What this calculator leaves out
It is a before-tax view. Wear-and-tear, deductible interest, recoupment on sale and the timing of VAT all change the comparison between paying cash, financing and leasing. The Excel workbook in the guide runs that after-tax comparison year by year. Transport to site, standing time and breakdown risk are not priced either; hire usually carries the breakdown risk for you.
Questions
- How many hours a year does a machine need to work before buying beats hiring?
- It depends mostly on the hire rate you can get. With the defaults here, a new 20 t excavator breaks even against dry hire at about 1 680 hours a year if hire costs R500 an hour, and about 930 hours at R659. At the median listed rate of R355 an hour, a new machine does not beat hire at any realistic utilisation, because older hire fleet machines carry far less depreciation.
- Is an instalment sale cheaper than paying cash?
- Usually by very little. Financing changes when you pay, not what the machine costs. After tax, interest is deductible and you keep your cash working, so at the same interest rate the two land within about 1% of each other. A higher finance rate or large fees tips it towards cash.
- Can I claim wear-and-tear on financed plant?
- Yes. Section 11(e) of the Income Tax Act lets a buyer under an instalment credit agreement claim the allowance from when the machine is brought into use, on the cash cost excluding finance charges. SARS sets 4 years for excavators, loaders, graders and tractors, and 3 years for bulldozers and heavy trucks (Binding General Ruling 7).
Compiled by Setout. Figures are planning-stage estimates, not quotes.
Reviewed by Aidan Koetaan MBA PMP, quantity surveyor and construction project manager.