Replies to This Discussion

Permalink Reply by Michael Fitzgerald on July 28, 2010 at 20:25

we have our own 7.5 ton tipper and our own 1.5 ton mini digger and trailer, so as regards hiring in plant and skips, that is not something we do so its not really possible for me to gauge one against the other because I dont know the cost of hiring in, but owning your own plant etc is alot more convienient there`s no waiting around for your skip to be delivered or exchanged, or if you need a few ton of mot or sand etc you just go and pick it up yourself, again no waiting for deliveries, as regards storage we rent a yard,

PRO MemberPermalink Reply by Mick Gammage on July 28, 2010 at 21:07

I hire everything in and get a very good service off all my suppliers

skips are emptied and returned within a couple of hours if I have a machine on hire, I can get 3 - 4 skips daily emptied and returned if required without leaving the job. I have had a skip wagon on turn round all day on bigger jobs just servicing me or have an 18 yard skip on turn round, there is always a way round not having to leave the job

the price I pay to hire a mini digger is not worth buying a machine, I looked at this route last year and the hire company came up with even more competitive prices, the machine is in and out as fast as possible to minimise cost,

I can vary between a 1.5 ton or a 3 ton mini digger depending on the space you have, bigger machine means bigger bucket, more power and longer reach so its an ideal situation with no mechanical breakdown costs

no unit or yard either, I keep everything as tight as possible, materials are delivered as needed and if I am the odd ton of MOT or sand short or a pack of blocks I will pick them up in the back of my van if I can't get it delivered within the hour

the down side if thats the right word to use is there are the odd day here and there where having a mini digger on the job would of saved a couple of hours hand digging or placing the last bit of debris in the skip by hand but the saving on the overheads far outweigh having to drag a mini digger to work and back every day just in case its needed

overheads on a wagon
road tax
insurance
diesel
tacho
time missing from site whilst tipping

me
mobile phone - hello can I have a skip please = 10p
mobile phone - hello can you pick the skip up please = 10p

its got to cost more than 20p to keep a wagon on the road for a day :)

Permalink Reply by Michael Fitzgerald on July 28, 2010 at 21:10

Mick, overheads on a wagon you missed out Operators Licience and Mot, plus a safety inspection every six to eight weeks

PRO MemberPermalink Reply by Mick Gammage on July 28, 2010 at 21:13

yeah I dare say Michael, they were just off the top of my head :)

Permalink Reply by Bigyin on July 28, 2010 at 21:18

I'm generalising here as I'm not in the trade but buying or leasing equipment over say three years means you have to meet the repayments regardless of the market. Can you guarantee that the kit will be used regularly enough to always cover those monthly payments. Depreciation needs to be spread over no more than three years in most cases. A related factor is how do you decide on your charges (a much discussed topic here). ? If financed kit is used irregularly, how do you cost it out? Do you load the clients on who's jobs the kit is used or do you spread the costs of the kit evenly accross you client base whether or not the kit is used on their job. Hiring has the advantage that you can charge the hire out to the particular client's job AND you haven't got repairs and maintenance to worry about. I think I would apply this mostly to tools rather than say vehicles and trailers. Just my opinion.
It would cost me around 10,000 euros to buy a half decent tractor and a couple of implements to maintain my land. I can get an agricultural contractor with any implement required for 25 euros an hour and they can do a lot of damage in an hour. For my 10,000 euros I can get 400 hours of experienced operative with kit more than ample to the job. I think I'll be long gone before that 400 hours is used up. :-)

Permalink Reply by Bigyin on July 28, 2010 at 22:04

So what would it cost you to finance a 3t with full set of buckets etc. over three years ?

PRO MemberPermalink Reply by Rowly Hill on July 28, 2010 at 22:57

For example - £8k used machine + vat = £9400 over 36months at 8% interest ( if you can get it ) that's £324/month approx not including admin fees etc.

Bigyin said:

So what would it cost you to finance a 3t with full set of buckets etc. over three years ?

Permalink Reply by Bigyin on July 28, 2010 at 22:59

I've just spent half an hour trying to find the price of new diggers and the info is hard to find. I suspect the main buyers are construction companies and hire companies. Looking at used prices my guess is that you wouldn't get change from £25K for a new 3t, plus the bits and trailer etc. Add finance costs and it's a big investment with a depreciated piece of kit after 3 years. Add maint and repairs and it's a big chunk of dosh. The hire company gets a return of about 75K if hired regularly so makes a profit. Can you charge enough on this one machine for example to cover and make profit on about £10K/annum outlay ? You'd need to make £40/day profit on it to break even assuming a 52 week/ 5 day week usage.

PRO MemberPermalink Reply by Rowly Hill on July 28, 2010 at 23:09

Exactly + depreciation costs - v. hard to justify outright purchase. For me hiring is the only way to go.

Pro Gard said:

then on top youve got maintance and fuel costs as well.

ROWLY HILL said:

For example - £8k used machine + vat = £9400 over 36months at 8% interest ( if you can get it ) that's £324/month approx not including admin fees etc.

Bigyin said:

So what would it cost you to finance a 3t with full set of buckets etc. over three years ?

PRO MemberPermalink Reply by Phil Voice on July 29, 2010 at 8:48

Excellent topic.

I don't think there's a 'one size fits all' formula for hire versus purchase but there are a few things to consider.

I had two flatbeds. One was a Ford Transit tipper and the other a Nissan Cabstar with a non-tipping body and both vehicles were invaluable and extremely time saving.

For example, we often excavated soil or old drives/patios in places that were difficult to access with skip or grab lorries but we could drive these right up to the work area and load or unload with ease; it's in these circumstances that the labour saving element comes into play and there are legitimate (or were then) ways to increase your profits on muck-away charges.

Muck off site was recycled where possible (i.e. I had an unmade up track that serviced my yard so small sized hardcore, gravel and scalping type waste could be used for levelling and potholing) but we also had an advantage that my base was nicely sandwiched between sand and brick clay quarries that needed top soil and rubble for landscaping and roadway management so we often tipped for free (I rented a small area of storage in the Selborne Brickworks and they always needed clean waste).

I also had several friendly farmers who constantly needed hard waste for gateway filling and for potholes on farm tracks. I would make charges for this waste to be removed from site on a per ton basis but tip for free (bear in mind I have not been actively trading as a landscaper since 2004 so you have to consider the waste regulations here).

I always wanted to buy a 1.5 to excavator but never did and we hired in the size we needed at the appropriate time. It was a system that worked well for 90% of the time but there were occasions when we might have needed a digger for the moving or removal of material for an hour on an intermittent basis during the build.

If I were in the same boat now I would probably purchase a new or good condition micro excavator and call it my super-labourer and utilise it for the small jobs and flexible on-site works and hire in the larger plant as needed.

We also owned a Power Barrow which was fantastic for restricted site work or for lugging heavy materials such as ballast or blocks through narrow spaces or up slippery slopes; it was also a great skip loader.

In summary, don't always look at a piece of purchased kit as something you can only profit from on an hourly or daily basis but view it as a tool that can knock hours and hours off of a manual job. You can charge £500-1,000 plus per day (on the right project) on a mini excavator so instead of paying out a hire fee you charge the same as what you'd hire it in for, add 100% gross margin, then assess its time saving capabilities and sell the job to the client as part of the package.

A good excavator, used wisely and well maintained, will last way beyond its accountable write-down life and there's no reason why it cannot last for 10-15 years so any hire charges are paying off YOUR machine so in years 3,4 or 5 onwards, your profits should rise substantially (depending on the quality of your machine).

If you own a machine then you also have to actively market it.

PRO MemberPermalink Reply by Phil Voice on July 29, 2010 at 9:06

We also owned a large transporter trailer (cannot remember the size) which we used constantly all year.

PRO MemberPermalink Reply by Phil Voice on July 29, 2010 at 10:15

I think you need to look at it differently - here's a very simplistic way of approaching it.

Let's say you've been asked to dig out a row of twelve mature conifer roots that are in a part of the garden that has restricted access.

You identify that you have only two options available to you.

1. Dig them out by hand using an axe and spade and possible a winch?
2. Dig them out with a 1.5 ton excavator.

They will take two men (you and your helper) half a day each root to dig out; your hourly rate is £18.00 so you charge £288.00 for the day for the two men - the total time taken is six days and you charge £1,728.

Working on about 30-40%* overhead on turnover (this includes your wages) cost for your business so it's cost you £518-691.00 before you even start; add to this the cost of your labour (can be charged as an overhead if your helper is salaried) of £10.00 ph = £480.

You have made £557.00 -730.00 - or £11.60/15.20 per hour - net profit ( and at the end of a very long working week, you've only managed this one job and you are knackered.

Lets say you've bought a digger over 4 years for a cost of £12,000. Working on the basis that you only work 2000 hours a year then that your digger will cost you £6 (as an overhead) per hour. However, chances are you'll only employ the machine for a fraction of your working year; if you only use the machine for 100 hours per year, for example, then the machine will have an overhead cost of £30.00 for every hour worked (bear in mind that you will have interest, depreciation and maintenance to add into these figures) and you'll no doubt have to calculate the cost of a suitable trailer into your numbers too.

Now let's look at the digger scenario. Digging out the twelve roots using your digger can still be charged to the customer as £1,728.00 as this is not an unreasonable amount of money.

It will only take one person one hour maximum per root or 1.5 days in total. Your overhead costs are still 30-40% of turnover but because you've completed the task in a quarter of the time, the charge to the business is only £129.00; the cost of sale for charging out the digger is £360 (perhaps £20.00 fuel)

So you've made sales of £1,728 less overhead of £129.00 (remember, this includes your wages) less the cost of sale of £380 for the machine = £1,219 net profit or £101.58 per hour.

You now have another 3.5 days of your week to either increase your profits (all bottom line earnings) do some maintenance or have a day off.

There are a lot of variables and assumptions but I hope you can see my reasoning?

If you see any inaccuracies please let me know.

*based on per hour worked assuming 2000 hours a year.

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