Part 1 in a 3 Part Series
We get a lot of questions from cleaners, restorers, entrepreneurs thinking about becoming a cleaner or restorer, tax accountants, consultants, and more related to the ownership cost of a truckmount. How much does it cost to own and operate a truckmount? How does that related to how much you charge for using it? What is the income earning potential for a truckmount? While all three of those questions are related, they are really asking three different questions when it comes to measuring them.
- What is the cost of owning and operating your HydraMaster truckmount? Hourly? Annually?
- How does this cost of operating interact with what you should be charging for cleaning services that you use your truckmount to perform?
- What is the revenue production capability of your truckmount? Hourly? Annually?
There are many ways to approach answering these questions. I like to try and look at everything in relation to a production hour. A production hour means your machine is running and you are making money. It is NOT – selling time, driving time, set-up time, tear down time, break time – just when the machine in on, you are earning money. Now admittedly, there are ways on a job site to earn money when your machine is not running. Selling fabric protector is one that comes to mind. But essentially, when your machine is on, you should be earning income. When it is off, you are usually not earning any income. I call this a “production hour.”
If you are brand new in business, your likely most pressing issue is not whether you are earning money – it is likely you need to get some jobs booked so you can earn money. So if you booked less than say, 5 jobs last week, using a production hour to measure cost and revenue is not going to be your most effective measurement. So if you are new and in this boat, just go with me for a while and at least let me get these principles introduced into your mind.
A problem I often see when any group of cleaners and restorers start talking about what something costs and what something can make, is that they often have a tendency to boast too much or get defensive about the way they do things. Enter this calculation with an open mind. This is not a contest, it is more like getting a numbers based “physical” at your doctor – not to determine your health, but the first step in looking at the health of your business.
Another common mistake made when calculating cost is that too many people put into their cost calculations what they presently have when it comes to a van and their cleaning equipment. Then they base their prices on that and wonder why they can never seem to afford something more. For instance, if you determine your cost based upon paying for a used van, then the price you determine to charge from that cost may always limit you to a used van. If you want a new van, or you have your eye on a specific truckmount, try doing these calculations twice – once the way things are now, and once the way you want them to be. See what the difference is.
In Part 1 of our 3 Part series, we are going to focus simply on the ownership and operational cost of your truckmounted equipment.
If you have access to an income statement for your company from the most recent year, that may assist you in some of these calculations. If you don’t, we will provide some “averages” to help you get going on these calculations. For our sample calculations, we are going to use a HydraMaster Boxxer 318 Slide-In Truckmount. So let’s get started on our journey.
A. What is the replacement cost of the cleaning equipment? (machine, hoses, wands, accessories, tools, van organization – everything in your can you must have to complete the job) $_______________
B. What is the replacement cost of the transportation equipment (van)?$___________
C. How much do you spend annually on the chemicals you use while you are operating your truckmount? (If you operate more than one van and truckmount, divide the annual cost on chemicals be the number of cleaning trucks in your fleet) $_____________
D. How much gasoline do you consume while running your equipment? (This is not the cost of gasoline to get from job site to job site – that will come later) $______________ (If you don’t know we will give you a way to calculate this)
E. What is the annual cost of proper maintenance of your equipment? (If you operate more than one van and truckmount, divide the annual cost on chemicals be the number of cleaning trucks in your fleet) $____________
F. How many hours a year do you put on your truckmount? (Production Hours). The industry average is around 500. ____________
G. The accounting life of a truckmount is 5 years. It will be completely depreciated in five years. So that is the number we will use for the life of your cleaning equipment. Of course, you can make a truckmount last longer. But as any tax accountant will tell you, periodically replacing your older equipment with newer equipment is one of the best ways to save you money on taxes and reduce your maintenance costs. G=5
H. The accounting life of your van is 5 years (See note for equipment above) H=5
I. What is your average cost of gasoline per gallon? $_____________
Calculating the cost of owning and running your truckmount
- Replacement cost of the equipment is determined as follows: Cost of cleaning equipment (A) divided by the life expectancy in production hours of the machine (F x G) = A/ (F X G)
- In the case of a Boxxer 318, that is presently $13,650. Let’s add $3000 for tools accessories, hoses, etc in your van for a total of $16,650.00 (A)
- The “accounting” life of the machine is generally going to be 5 years (G). The average carpet cleaner puts about 500 hours a year on their machine (F). That means the useful life of the machine is around 2500 hours (F x G).
- 16, 650.00 divided by 2500 hours means the cost of the machine is about: $6.66 per hour
- So the replacement cost of the machine is around $6.66 per production hour (time on the job spent cleaning)
- Replacement cost of the van is determined as follows: Cost of the van (B) divided by the life expectancy of the van in production hours of the machine. (F x G)
- A good price for the van new these days is around $31,000 (B)
- The “accounting” life of the machine is generally going to be 5 years. The average carpet cleaner puts about 500 hours a year on their machine. That means the useful life of the machine is around 2500 hours. (F x G)
- 31,000.00 divided by 2500 hours means the cost of the van is about: $12.40 per hour B/(F x G)
- So the cost of the van is around $12.40 per production hour (time on the job spent cleaning)
- Cost of chemicals is determined by the following: Your annual cost for chemicals (C) divided by the production hours in a year (F)
- Let’s say you spent around $2500 per year for cleaning chemicals
- That is $2500 divided by 500 production hours (C/F)
- That means your cost of chemicals is $5.00 per production hour.
- How much gasoline annually do you use while running your equipment? (D)
- You are running 500 hours per year. The engine on a Boxxer 318 consumes around 1.4 gallpns per hour. So that is 500 hours x 1.4 gallons = 700 gallons consumed per year.
- 700 gallons x $3.30 (I) per gallon equals $2310.00 annually in gas to run the equipment.
- $2310 divided by 500 hours means your cost of gasoline is $4.62 per production hour (D)
- By the way, did you know that in many states, you can apply to have the sales tax you paid on gasoline you used to operate your truckmount (not drive from job to job but to actually perform a production hour) refunded? Consult with your tax advisor.
- What is your annual maintenance cost for the truckmount? (E)
- If you just look at your financials for the last year, you could come up with an exact figure for this. Let’s assume it is around $750 per year
- $750 per year divided by 500 production hours in a year = $1.50 per production hour. (E/F)
So what does it cost you to own and run your Boxxer 318 (assuming you are the cleaning technician)?
- Replacement cost of equipment: $6.66 per production hour
- Replacement cost of the van: $12.40 per production hour
- Cost of chemicals: $5.00 per production hour
- Cost of gasoline to run your truckmount: $4.62 per production hour
- Maintenance cost for truckmount: $1.50 per production hour
So question 1 is answered. What is the cost of owning and operating your HydraMaster truckmount? The cost of owning and operating a Boxxer 318 truckmount is approximately $30.18 per production hour.
Now keep in mind that does NOT include a lot of the other expenses for running the business: gasoline cost for driving the van from job to job: marketing and advertising: insurance – general liability, van/truck, life, health;; van maintenance; utilities, cellphone/telephone; rent/mortgage, miscellaneous, and MOST IMPORTANTLY labor – how you pay yourself and any employees that are helping you.
In part 2 of our series, we will examine how all the other expenses your company has can be built into an overall cost benchmark:
- Salaries (Labor)
- Marketing and Advertising
- General Liability Insurance
- Van and Truckmount Insurance
- Care, Custody, and Control Insurance (if you are hauling or storing your customers belongings)
- Health Insurance
- Other Insurance
- Other Maintenance Costs (Van/Shop)
- Phone (Mobile and Landline)
- Rent/Mortgage or percent of rent or mortgage (if operating out of your home)
- Other expenses
In part 3 of our series, we will focus on how you can use your cost calculations to help you set prices, and also look at how to measure the revenue producing capacity of your equipment overall. But let’s start with a simple calculation. If someone asks you what the revenue generating capabilities of your truckmount are, we can simply look at some industry averages as a starting point. If you are charging 30 cents per square foot for carpet cleaning (average price per square foot in last Cleanfax magazine benchmark survey – http://www.cleanfax-digital.com/NovDec2017#&pageSet=5 – and you average 500 square feet per hour cleaning carpet residentially, then your production hour revenue is $150 per production hour (500 x $0.30 per square foot). We will dig deeper into this in part 3.