A new tractor on finance, and a rate set by the neighbour
A new tractor arrives on finance. It will do drilling and heavy cultivations. What should you charge per hour or per acre to cover it? The usual answer is to look at the association's guide, look at what the neighbouring contractor charges, and add a bit. Whether that covers the finance, the fuel, the tyres, the insurance, the servicing and the repairs over the tractor's life, nobody knows.
The same goes for the older kit. The ten-year-old tractor on the hedge cutter feels cheap because it is paid off, but its repair bills are climbing. The self-propelled sprayer does a lot of hours at a high rate, but does it earn its keep? The accounts can tell you what the whole business spent on repairs, but not per machine, and not per hour.
Why running costs per machine are hidden
The costs exist in your accounts. They are just not organised by machine, and the hours that would turn them into a rate are recorded patchily.
- Fuel is bought in bulk and not split by machine.
- Repair and parts invoices go to a single repairs account.
- Finance, depreciation and insurance are handled at business level by your accountant.
- Tyres, services and wear parts are bought when needed and not tracked to a machine.
- Hours are on each machine's meter, and read only when servicing.
Your accountant may calculate depreciation per machine for the accounts, but that figure sits in a spreadsheet at the year end and never reaches the rate card.
What a missing cost per hour costs
Pricing below cost is the big risk. A contracting business can be busy all season and still struggle if some operations are priced below what the kit costs to run. What rates to charge is your decision, and your accountant's advice on finance and depreciation matters, but the question is easier with real figures.
It also affects machinery decisions. Whether to replace, keep, or stop doing a certain type of work depends on what the kit costs per hour. Without that, decisions follow gut feeling, dealer offers, or what the neighbour did.
Running cost per hour, from records you already have
What we build is a cost record per machine that collects costs as they happen and divides them by the hours actually worked.
- Each machine is listed, with its finance or ownership costs and depreciation figures as your accountant gives them to you.
- Fuel per machine comes from your fuel records or telematics, as fills are recorded against machines.
- Repair, parts, tyre and service invoices are read and tagged to machines, with the workshop answering 'which machine?' for anything not clear.
- Insurance, road tax where applicable, and other fixed costs are shared by a rule you set.
- Hours come from meter photos, service records or telematics, with a regular reading so the hours are current.
- Each machine shows cost per hour, broken down by fuel, repairs, fixed costs and finance, and set against the rates for the operations it does.
| Cost | Source | Split by |
|---|---|---|
| Fuel | Fuel log or telematics | Machine directly |
| Repairs and parts | Invoices tagged by machine | Machine directly |
| Depreciation and finance | Figures from your accountant | Machine directly |
| Insurance | Policy schedule | Rule you set |
| Operator | Hours records | Kept separate, for operation costing |
Operator cost is kept separate, so you can see machine cost per hour and add operator cost for the whole operation.
The figures build up through the season rather than appearing at the year end. After a few months you can already see which machines are heading for a high cost per hour, often because of a run of repairs or low hours, and that is useful before the rate review rather than after it. Early figures are marked as early, because a machine with a big service in its first month will look expensive until its hours catch up.
Pricing the new tractor with real figures
After its first season, the new tractor shows a cost per hour made up of finance and depreciation as your accountant set them, fuel from the log, and the first services. The old hedge cutter tractor shows higher repairs but no finance. The sprayer's cost per hour is well under the rate it earns. You take those figures into the rate review, and into the conversation with your accountant about whether to replace the old tractor.
Next time a dealer offers a trade-in, you know what the old machine costs you per hour to keep.
Do you know your cost per hour?
- Rates are set by association guides and what neighbours charge.
- Repairs and fuel are not tracked per machine.
- Hours are only read at service time.
- Depreciation figures stay in the accountant's spreadsheet.
- You are not sure whether some operations cover their costs.