The Real Cost of Owning an Excavator: Are You Calculating Your Hourly Rate Correctly?
There is a dangerous little habit in the construction and plant-hire industries.
An excavator owner buys a machine, looks at the monthly finance repayment, adds a bit for diesel, throws in a few maintenance costs and decides what to charge per hour.
Then, at the end of the month, the money comes in, the bills go out and there is surprisingly little left over.
Sound familiar?
The problem is that owning an excavator costs considerably more than most people think.
The purchase price is only the beginning. There is depreciation, finance, insurance, servicing, repairs, undercarriage wear, transport, downtime and a whole collection of expenses that have a nasty habit of appearing when you least expect them.
If you don't understand the true cost of operating your machine, you may be working hard, keeping your excavator busy and quietly losing money.
And there is nothing particularly impressive about being busy while going broke.
Let's look at what it really costs to own and operate an excavator in South Africa.
1. The purchase price is only the beginning
Let's imagine you purchase a 20-ton excavator for R1.5 million.
You have bought an asset. You may even have negotiated a decent deal.
But that R1.5 million machine is going to consume money every time it works, and even when it doesn't.
The first mistake many owners make is treating the purchase price as the main cost of ownership.
It isn't.
You need to account for the cost of having that capital tied up in the machine, whether you financed it or paid cash.
If you financed the excavator, there are monthly repayments and interest charges.
If you bought it outright, you still have an opportunity cost. That money could have been invested elsewhere or used to grow another part of your business.
And then there is depreciation.
An excavator loses value as it ages and accumulates operating hours. The rate depends on its condition, age, hours, maintenance history, market demand and general economic conditions.
That reduction in value is a real economic cost, even if it doesn't appear as a monthly cash payment.
A machine that cost R1.5 million today will not necessarily be worth R1.5 million in five years.
If you ignore depreciation, you may believe your machine is making more money than it actually is.
2. Diesel: the expense that never stops
Anyone operating an excavator in South Africa knows that diesel is a major operating cost.
A 20-ton machine can consume a significant amount of fuel during a working day, depending on its age, condition, engine, workload, operator and operating environment.
Let's use an illustrative consumption figure of 15 litres per hour.
At a hypothetical diesel price of R23 per litre, that gives you:
15 litres per hour.
R23 per litre.
R345 per operating hour.
At eight hours of operation, that's R2,760 per day.
At 160 operating hours per month, diesel alone would cost R55,200.
And that is before you pay the operator, service the machine or replace anything that wears out.
Of course, actual fuel consumption varies considerably. Digging hard rock, loading trucks, working in soft material and idling for long periods all produce different results.
The important thing is to measure your own machine's consumption rather than relying on a manufacturer's brochure or somebody else's experience.
A machine that consumes more diesel than expected may have an underlying mechanical problem, an inefficient operating pattern or simply be working under demanding conditions.
Fuel is one of the biggest variables in your operating cost.
Know your numbers.
3. Maintenance and repairs: the costs that arrive uninvited
This is where things become particularly interesting.
An excavator is a machine made up of thousands of moving parts, operating under considerable mechanical and hydraulic stress.
Eventually, things wear out.
Engine oil and filters need replacing. Hydraulic filters need attention. Pins and bushes wear. Hoses deteriorate. Track components need replacing. Pumps, motors and cylinders eventually require repairs.
Some of these expenses are predictable.
Others arrive with very little warning.
A sensible owner should budget for routine maintenance and build a separate reserve for unexpected repairs.
Let's use another hypothetical example.
If you budget R150 per operating hour for maintenance and repairs, a machine working 160 hours per month would require a monthly provision of R24,000.
That doesn't mean you will spend exactly R24,000 every month.
Some months may be relatively quiet. Others may involve a major component replacement.
The purpose of the reserve is to smooth out those expenses over the working life of the machine.
And don't make the mistake of assuming that a machine that has been running well for six months will necessarily continue doing so.
Mechanical components don't consult your cash-flow forecast before they fail.
4. Undercarriage: the expensive bit nobody wants to think about
If you operate tracked excavators, the undercarriage deserves particular attention.
Track chains, rollers, idlers, sprockets and track shoes are all subject to wear.
The rate of wear depends on several factors:
Ground conditions.
Operating hours.
Travel distance.
Operator behaviour.
Track tension.
Maintenance.
The quality and condition of the components.
Working in abrasive conditions can accelerate undercarriage wear considerably.
Excessive travelling, operating on hard surfaces and incorrect track tension can also increase costs.
The important thing is to recognise that undercarriage wear is not an unexpected repair in the same way as a sudden hydraulic failure.
It is a predictable operating cost.
You may not know exactly when a component will need replacement, but you should anticipate that it will happen.
Budget for it.
Inspect it regularly.
And don't wait until the machine is practically running on its sprockets before doing something about it.
5. Insurance, transport and all the other expenses
There are plenty of smaller costs that can collectively make a substantial difference.
Insurance is an obvious example.
An excavator worth R1.5 million needs appropriate cover, and that insurance premium forms part of the cost of owning the machine.
Then there is transport.
Moving a 20-ton excavator between sites is not cheap. Depending on the distance, access and transport arrangements, moving the machine can become a significant expense.
You also need to consider:
Operator wages and related employment costs.
Workshop and yard expenses.
Licensing and compliance costs where applicable.
Finance charges.
Administration.
Security.
Telematics and tracking.
Cleaning and general upkeep.
Some of these costs are directly attributable to individual machines.
Others are overheads that need to be allocated across your fleet.
The point is that your excavator doesn't operate in isolation.
It forms part of a business, and that business has costs that need to be recovered.
6. Downtime: the cost that can destroy your margins
Now we get to the big one.
Downtime.
An excavator that isn't working isn't earning money.
But the expenses don't necessarily stop.
You may still be paying finance, insurance, operator wages, yard costs and other fixed expenses while the machine sits in the workshop.
You may also be losing revenue because you cannot fulfil a contract.
Consider a hypothetical machine that should generate R1,500 per productive hour.
If it works eight productive hours per day, that's R12,000 in potential daily revenue.
If the machine is standing for five working days, the potential lost revenue is R60,000.
That figure isn't automatically the same as lost profit. You would need to deduct variable costs that were avoided while the machine was not operating.
But the commercial impact can still be substantial.
And if the breakdown delays an entire project, there may be additional consequences.
This is why the availability of replacement parts matters so much.
A cheaper component that takes six weeks to arrive may not be the best commercial decision if a suitable alternative can get the machine working again much sooner.
The cost of a component should always be considered alongside the cost of waiting for it.
7. Your hourly rate: are you actually charging enough?
Let's bring everything together.
Suppose you own a 20-ton excavator and want to calculate its operating cost.
The following is an illustrative monthly budget, not a market quotation or a recommended industry rate.
Assume the machine works 160 hours per month.
Expense | Monthly cost |
Diesel | R55,200 |
Operator and employment costs | R18,000 |
Maintenance and repair provision | R24,000 |
Undercarriage wear provision | R8,000 |
Insurance | R4,000 |
Finance / capital cost | R20,000 |
Other allocated overheads | R5,000 |
Total | R134,200 |
At 160 operating hours, that works out to approximately:
R839/hour
Illustrative operating cost per hour, before profit and any additional costs not included above.
Now imagine you are charging R1,000 per hour.
At first glance, you might think you're making R161 per hour.
But have you accounted for VAT correctly? Are all your overheads included? Are you recovering transport costs? Is the machine genuinely achieving 160 billable hours every month?
And what happens when it works only 100 hours?
Your monthly costs do not necessarily fall in proportion to your operating hours.
This is why a rate that looks profitable on paper can quickly become unprofitable in practice.
You need to know your cost per productive hour, not simply your cost per engine hour.
Those are not always the same thing.
8. The utilisation problem: owning a machine is one thing, keeping it working is another
A machine that works 160 productive hours every month is very different from one that works 80.
Many excavator owners calculate their hourly rate using an optimistic utilisation assumption.
They assume the machine will work full days, every week, throughout the year.
Reality is rather less cooperative.
There are rain days, public holidays, site delays, waiting for trucks, breakdowns, operator absences, transport between projects and periods when there simply isn't enough work.
You may own a machine capable of working 2,000 hours per year.
That doesn't mean you will invoice for 2,000 hours.
Let's say your monthly ownership and overhead costs amount to R40,000 before diesel and other hourly operating expenses.
At 160 productive hours, those fixed costs represent R250 per hour.
At 80 productive hours, they represent R500 per hour.
The machine hasn't become more expensive.
You simply have fewer hours over which to recover the costs.
This is one of the most important calculations in plant hire.
A machine that isn't working is still costing you money.
9. Should you repair, rebuild or replace?
Once you understand the true cost of owning an excavator, you can start making better decisions about major repairs.
Suppose your machine needs a hydraulic pump.
You receive a quotation for a new genuine OEM pump, but the price is substantial.
You could also investigate a suitable used OEM or refurbished OEM alternative.
The right decision depends on the machine's overall condition, the nature of the failure, the cost of the component, the expected remaining working life and the cost of downtime.
There is little point spending R150,000 on a major repair if the machine has several other serious problems and is nearing the end of its economic life.
Equally, replacing an otherwise sound machine because one major component has failed may be financially foolish.
Think about the machine as an investment.
What is it worth today? How much useful life remains? What will the repair cost? What is the likely cost of replacement? How much money can it generate once repaired?
This is where experienced parts suppliers and competent mechanics can make a real difference.
The cheapest immediate repair isn't always the best long-term decision.
10. The secret to profitability is knowing your numbers
There is nothing particularly complicated about making money from an excavator.
You buy the right machine, keep it maintained, put it to productive use and charge enough to cover your costs and generate a reasonable return.
The difficult part is knowing whether you are actually doing those things.
At a minimum, every excavator owner should be tracking:
Actual operating hours.
Billable hours.
Diesel consumption per hour.
Routine servicing costs.
Repairs and component replacements.
Undercarriage condition and replacement costs.
Insurance and finance costs.
Downtime.
Revenue per machine.
Profitability per productive hour.
If you don't know these figures, you are essentially running a business by intuition.
And intuition is a particularly unreliable accounting system.
The best plant-hire operators understand their machines as assets that need to generate a return.
They don't simply look at how much money came into the bank this month.
They look at what it cost to generate that money.
Final thoughts: Your excavator should be making money, not just making noise
Owning an excavator can be a very profitable business.
But only if you understand the economics behind it.
The purchase price is just the beginning. Diesel, maintenance, depreciation, undercarriage wear, finance, insurance and downtime all need to be accounted for.
And when something breaks, the cost of the replacement component is only part of the equation.
At Vikfin, we understand that every day your excavator is standing is another day it isn't earning.
We supply used OEM and refurbished OEM excavator components for leading brands including Caterpillar, Komatsu, Hitachi, Volvo, JCB and Doosan.
Our aim is to help you find practical, cost-effective component solutions without unnecessarily stretching your repair budget.
Because the objective isn't simply to own an excavator.
It's to own an excavator that makes money.
Vikfin – Getting You Back to Work Fast.
Comments