Recovering Equipment Costs in Your Overhead
The different ways of recovering your equipment costs in your MORS budget
Weston Zimmerman avatar
Written by Weston Zimmerman
Updated over a week ago

Depending on how you want to classify your equipment, you could:

  1. Bill for your equipment separately by the day, hour, etc

  2. Count all your equipment expenses as overhead, and automatically recover the equipment costs in your labor and material markup

Method #2 does simplify things, and it's our preferred method. Here's why:

If you own a piece of equipment, it is costing you to own it whether you use it or not. So if your guys are out sealing a patio, which does not require heavy equipment, you still need to make your payment on your excavator sitting back at your shop. Regardless of whether you use it or not.Β 

So #2 is a more consistent method to ensure you don't get to the end of the year and discover you didn't recoup enough costs for your equipment because you didn't use it enough. Instead, simply count all your equipment as overhead, and apply that cost to your overhead recovery numbers.

In this method of recovering your equipment costs in overhead, regardless of whether your guys are running that excavator digging for a patio, or planting a bush with a shovel, you are recouping your costs of owning that machine.

Method #1 can also work but requires more diligence on your part. There's a couple of weaknesses we see in method #1:Β 

  • Billing for your equipment separately means you also add in the equipment you anticipate using on a job as a line item in that job's estimate. For example, if billing a day rate for an excavator, let's say the sales guy anticipates it'll take 5 days, so he adds the excavator to the estimate with a qty of 5 days. Now, in the pressure of making the sale, and trying to shave the estimate to a cost as low as possible; we have observed that cutting the equipment to a lower qty is the easiest and most vulnerable place to shave costs on the estimate.

    C'mon, don't lie. We know how it is. 😜 At first, you were thinking it'll take 5 days. Then you were like whoa, they're not gonna go for that price, eeeehhh, I bet it'll take the guys only 3.5 days of machine time to do this job. And so you shave it. Now you do that a few times, and you get to the end of the year, and you realize it actually did take the 5 days, not the 3.5 days, and this happened a number of times throughout the year. Now, it's December, you're looking over your numbers, and you realize you did not bring in enough equipment charges to cover the costs of owning that machine.

  • On the other hand, when you recover your equipment as overhead recovery and apply it to things like labor and materials, it's impossible to cheat. Unless you underbid labor and materials consistently (which is a larger problem) you will recover your costs of owning that equipment. You'll get to the end of the year, you billed for all your man-hours and materials of course, and in doing so inherently covered your costs of equipment as well. The reason we feel this method is better is: it's more consistent, easier to manage on a day-to-day basis, and there are fewer ways to screw up an estimate. You might be thinking, well, I could shave my labor or material costs as well and underbid that too. Yes true, but labor and materials are much more visible, and if you underbid labor or materials, the whole team will know, not just the sales guy.

If you have any questions, hit us up in the chatbox, we're ready to help.

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