Following on from my mini series of tips and advice for setting charge out rates I thought I would cover machinery usage.
Customers - remember we are all customers of someone's business - want something for nothing or at least if they have to pay for it then at least they want to pay as little as possible.
You, as a business person want to at least break even on costs and more favourably make a profit. After all it is your future we are talking about.
Lets us take a lawn mower as an example.
I am going to use a made up cost price of £520 for the mower but of course it is up to you to change my example to suit your own situation.
If you are into numbers and statistics then you can really make this work by keeping an accurate log of how many hours you use your mower for in any one season but many of us are too busy so we will have to take a view.
The mower costs you £520.00 and you hope it will last you three years (anything more will be great because it will be bought and paid for after that and will make even more profit for you). We however, as good business people want to recover the cost of the outlay in year one and then put away enough money in year two to buy a new machine outright. We never want to subsidise someone else's use of our machinery and you may well have included the cost of a machine in the previous example of setting your hourly rates by working out what the total business overhead costs are.
It does not matter which method is used as long as you get the cost back plus a profit.
If we decide to claw back that cost price after 12 months then that is easy we just divide by 12 to give us £44.00 per month or by 52 weeks just £10.00 per week
Of course you will not use your mower all the time and as the season warms up your usage will increase from late march where you might be doing a couple of hours a week to mid May when you might be using it for 16 hours or more a week.
Now you have to take a view on how much fuel the mower uses in an hour and how many times you replace the blade in a season (one is usually enough for moderate use with a sharpen).
When I first started my business in May 1984 I bought two Honda mowers and not having any business knowledge or experience I didn't charge any extra for use of machinery. I made my profit by literally working 80-100 weeks but I could have made a good deal extra by making a charge for the Honda mowers.
If your mower uses half a litre of fuel an hour then this has got to be charged back to the customer, after all it is for their benefit isn't it?
The key to success and profitability is getting the charge out rates correct and if you do this then you are well on the way to being a success. Get it wrong and you will tread water and not progress.
Recent Comments