I continue to be amazed at how many companies, especially startups, have no idea of their costs, profit margins, etc. Equipment can be confusing since it has a cost but how does one allocate it to different cost centers? Please consult with a qualified accountant/tax expert in your area since these basic observations are to get you to think but cannot take into account your particular situation.

 

1. How is the equipment used? If a major piece of equipment is used 100 percent at one facility with the result that labor hours (and benefits) are saved, one can determine the ROI (return on investment) based on comparing the former process (including equipment, labor, supplies) costs to the new process. In many cases, a productive piece of equipment can easily pay for itself while still under warranty.

 

2. What if the equipment is used at different sites for varying lengths of time? This can be trickier since there are different ways of arriving at that number. A suggested way is to divide the costs (for example $5,000) by the number of days used per year (can vary from 1 – 365) to arrive at it daily costs. Then divide the result by the average number of hours used (example: 5 hours per day). The math would be $5,000/260/5 = $3.85 per hour costs. Of course, we are not including labor, supplies, transport, maintenance, etc. in this example. 

 

3. Using this logic, Account A has had the equipment used at it for a total of 14 hours therefore the cost assigned would be 14 x $3.85 = $53.90. Account B has had the equipment for 124 hours therefore the cost assigned would be 124 x $3.85 = $477.40. 

 

Using this process you can better determine what each site is costing when looking for each site for a shared piece of equipment. Although you may “feel” like you are making money, you need to know what your true profit is after all your related expenses are captured. 

 

Your comments and questions are important. I hope to hear from you soon. Until then, keep it clean…

 

Mickey Crowe has been involved in the industry for over 35 years. He is a trainer, speaker and consultant. You can reach Mickey at 678-314-2171 or CTCG50@comcast.net.