Owning a machine costs money every hour it runs and many hours it does not. Here is what goes into the number, how to calculate it, a worked example you can check by hand, and how to tell whether owning or renting is cheaper for your hours.
The true cost of owning a machine is everything it costs per hour you run it. Owning costs (depreciation, cost of capital, insurance, taxes, storage) accrue whether it works or not. Operating costs (fuel, lubricants, repairs, wear parts, and operator labor if you include it) accrue only while it runs. Divide the annual owning cost by the hours you actually work, add the hourly operating cost, and that is the number.
The word that matters is actually. Hours worked, not hours planned, drive the answer, which is why a machine that sits idle is more expensive per hour than its spec sheet suggests.
| Group | Line | How to estimate it |
|---|---|---|
| Owning | Depreciation | (Purchase price minus expected resale value) divided by useful life in years |
| Owning | Cost of capital | Average investment (purchase price plus resale value, divided by two) times your interest rate or your cost of money |
| Owning | Insurance, taxes, storage | Your actual premiums, taxes and yard costs, or a percentage of average investment if you do not track them per machine |
| Operating | Fuel | Gallons per hour times price per gallon |
| Operating | Lubricants and filters | Usually estimated as a percentage of fuel cost, or taken from service records |
| Operating | Repairs and wear parts | Last twelve months of repair cost divided by hours worked; tires, tracks and cutting edges by replacement cost divided by expected life in hours |
| Operating | Operator | Fully loaded hourly wage, if you include it (see the note on comparisons below) |
If you want to run your own machine through these lines, the equipment cost per hour calculator uses exactly this structure.
The figures below are assumptions chosen to show the arithmetic, not benchmarks for any particular machine. Take a $250,000 machine with a $75,000 expected resale value, a seven year useful life, an 8% cost of capital, and insurance, taxes and storage at 3% of average investment. It burns 6 gallons of fuel an hour at $4.00, lubricants and filters run 15% of fuel cost, repairs average $12 an hour and wear parts $6 an hour. It works 1,200 hours a year. Operator wages are left out.
| Annual owning cost | |
|---|---|
| Depreciation ($250,000 minus $75,000, over 7 years) | $25,000 |
| Cost of capital (8% of $162,500 average investment) | $13,000 |
| Insurance, taxes and storage (3% of $162,500) | $4,875 |
| Total owning cost per year | $42,875 |
| Per hour at 1,200 hours a year | |
|---|---|
| Owning ($42,875 divided by 1,200) | $35.73 |
| Fuel (6 gallons at $4.00) | $24.00 |
| Lubricants and filters (15% of fuel) | $3.60 |
| Repairs | $12.00 |
| Wear parts | $6.00 |
| Total cost per hour | $81.33 |
Notice that fixed ownership is under half of the hourly figure here, yet it is the half that moves when your work does.
Same machine, same assumptions. Only the hours change:
| Hours worked per year | Owning per hour | Operating per hour | Total per hour |
|---|---|---|---|
| 800 | $53.59 | $45.60 | $99.19 |
| 1,000 | $42.88 | $45.60 | $88.47 |
| 1,200 | $35.73 | $45.60 | $81.33 |
| 1,600 | $26.80 | $45.60 | $72.40 |
| 2,000 | $21.44 | $45.60 | $67.04 |
Nothing about the machine changed between the first row and the last. It just worked more. This is the most common reason two shops with identical iron report very different costs per hour.
Owning beats renting once the machine works enough hours that its annual owning cost, spread across them, plus its operating cost comes in under the rental rate. Solved for hours:
| Breakeven hours per year |
|---|
| annual owning cost ÷ (rental rate per hour − operating cost per hour) |
With the example above and a hypothetical rental rate of $95 an hour, that is $42,875 ÷ ($95 − $45.60), or about 868 hours a year. Below that, renting is cheaper on paper; above it, owning is. The $95 is a placeholder: use a real quote from your market.
Compare like for like. A rental rate may or may not include delivery, a damage waiver, fuel or maintenance, and your owning figure may or may not include an operator. Put both sides on the same basis before reading anything into the gap.
| Often missed | Why it matters |
|---|---|
| Idle and standby time | Hours the machine is on site but not working still carry owning cost, and some operating cost. Use hours actually worked for the divisor, and track idle time separately. |
| Downtime | A broken machine still depreciates and still ties up capital, and it can idle a crew. The cost of an unreliable hour is higher than the rate on paper. |
| Transport and mobilization | Moving a machine between jobs is a real cost that rental quotes often price in and ownership figures often skip. |
| Compliance and inspections | Registrations, permits, certifications and required inspections are small per hour but real, and they differ by state. |
| The resale assumption | Depreciation depends on the resale value you assume. It is the softest number in the whole calculation, so test the result against a more conservative figure. |
| Rising repair cost with age | A lifetime average repair rate understates late-life cost and overstates early-life cost. Use your recent history where you have it. |
A cost per hour worked out once is a snapshot. Repair cost drifts, fuel prices move, utilization shifts with your job mix, and resale values change. Fleets that track it continuously see a machine's rate climbing before the big invoice arrives; fleets that calculate it only when a quote forces the question see it afterward.
Once you have the number, it feeds the next decision. If it is climbing, read repair, rebuild or replace: the numbers that decide it.
Two groups. Owning costs accrue whether the machine works or not: depreciation, cost of capital (interest on the money tied up in it), insurance, property taxes and storage. Operating costs accrue only while it runs: fuel, lubricants and filters, repairs, wear parts, and operator labor if you choose to include it. Add the two, expressed per hour, for the true cost per hour.
Annual owning cost divided by the hours you actually run the machine in a year, plus operating cost per hour. Annual owning cost is depreciation ((purchase price minus resale value) divided by useful life in years), plus cost of capital (average investment times your interest rate), plus insurance, taxes and storage.
Owning costs are mostly fixed per year, so they are spread across fewer hours when utilization drops. Operating cost per hour barely changes. In the worked example on this page, the same machine costs about $81 an hour at 1,200 hours a year and about $99 an hour at 800.
It depends on hours. Owning wins when you run the machine enough that the annual owning cost, spread over those hours, plus operating cost, comes in under the rental rate. The breakeven hours are annual owning cost divided by (rental rate per hour minus your operating cost per hour). Compare like for like: rental rates can include delivery, maintenance or damage waivers that your owning figure does not.
Include them when you are comparing against a rental that comes with an operator or when you are pricing work. Leave them out when you are comparing two machines that would be run by the same crew, since the wage is the same either way. Whichever you choose, use the same basis on both sides of a comparison.
The purchase price matters through depreciation and cost of capital, which are both calculated from it and the expected resale value. Once the machine is paid for, what you originally paid should not drive a repair or replace decision. What it is worth now and what it will cost from here should.
Torgix keeps owning and operating cost per hour up to date for every machine you run, from your own labor, parts, fuel and usage records. Free trial on your real fleet, no credit card required.