5 Factors for Calculating Total Cost of Ownership
So you're looking to calculate the total cost of ownership (TCO) of your machines? That means you're already doing something right. Experienced contractors know accurate budgeting has to account for much more than the equipment purchase price alone.
Calculating the TCO for your equipment is the best way to understand your operation and what you need to do to be profitable. But, as the name implies, total cost of ownership calculations can involve a complex analysis of a variety of factors. These factors are straightforward at times like insurance costs and resale value. Other times there are hidden aspects of ownership that are easy to overlook or forget all together. Planning for these overlooked factors is the best way to ensure your budgets stay intact and your operation stays profitable.
Are you taking the following factors into consideration?
FACTOR 1: PRODUCTIVITY
There's one factor besides purchase price that can affect your TCO from the start — productivity. In other words, if you select a machine that's not entirely up for the job to save a little money up front, it's going to cost you. And those costs will add up sooner than you think.
When you're selecting a machine, it's important to consider the return you expect to receive on the investment as well as the revenue the machine can generate based on its productivity. Think about it this way: If one properly selected machine can do the work of two machines less suited for the task, you'll start seeing those savings pretty quickly.
FACTOR 2: UPTIME
While there are ways to save money when you're purchasing equipment, it's important to consider the service that comes with equipment. Even if you save some money upfront by getting a machine from a less preferred provider, you're gambling those savings with the type of support you can expect on an ongoing basis. When your machines go down, your profits go down. And, in this business, it's hard to avoid an occasional mechanical setback.
That's where dealer support makes all the difference. John Deere has maintenance plans designed to keep you running and get you up and running again as soon as possible when machines do go down. And that support goes beyond large repairs. Talk to you dealer about preventative maintenance agreements that can help ensure your machine is in top shape and minimize the risk of breakdowns happening in the first place.
FACTOR 3: TECHNOLOGY
Telematics has been the buzz in the industry for the past few years, but the impact telematics can have on your operating costs is all but superficial. Technology solutions like JDLink™ and Precision Construction monitor a number of factors that could impact your total cost of ownership, such as:
- Idle time to reduce unnecessary fuel consumption and avoid wasting lease or rental hour allowances
- Engine load and fuel consumption to make it easier to match the right machine for the right job
- Load sizes to ensure you're maximizing efficiency on each trip
Plus, these tools provide remote dealer diagnostics, which can help reduce the costs and time associated with a technician trip to the jobsite. Proactive maintenance recommendations are another benefit of machine telematics that allow you to identify potential problems early so you can keep your operation up and running.
FACTOR 4: MACHINE CONFIGURATION
If you're going to go through all the work to calculate the TCO of your equipment and build your business plans on the estimations, you should probably make sure those machines are configured correctly in the first place. Even the most detailed total cost of ownership plan can become completely useless if the configuration of the machine doesn't match up with the assumptions on which you based your calculations.
When determining proper machine configuration, application is key. Even something as simple as using the wrong bucket teeth can have a huge effect on your operating costs. Talk to your dealer about your project needs and plans for machine application. They'll help you select the right configuration so you can factor it into your TCO calculations and budget plans.
FACTOR 5: OPERATOR TRAINING
Now you have the right machine for the job that's backed by the best dealer support with the right technology to help you monitor your efficiency, and you have it properly configured for the project at hand. Don't undo all that preparation by putting an untrained employee in the operator's seat.
New operators can make tiny mistakes that start to add up. A few of the most common areas where untrained operators can impact your machine's operating cost are creating unnecessary fuel consumption, causing unnecessary wear and tear, and allowing higher idle times. Even seasoned operators need refreshers on updated models or training on machines they're not familiar with. A little training can go a long way in reducing these operator errors and in making sure that your TCO estimates are in sync with the real world.
Ready to start calculating total cost of ownership for your next machine acquisition? Your dealer is a great resource and can help you evaluate the costs associated with various machines.