managementsolutions

Improve your equipment spend

Last issue, we covered benchmarking your equipment costs. This included recovering, or budgeting, the cost of ownership so your company is building a sustainable plan to recoup the costs of equipment depreciation each year. In this article, we’ll look at equipment costs from a few different perspectives and focus our attention on how you can make equipment decisions that help improve your company’s bottom line.

EQUIPMENT VS. LABOUR Our industry is facing a labour shortage, bordering on a crisis. It seems harder than ever to find, keep, and motivate good, skilled people for the positions we have available. There are a few ways to solve this problem: l We can keep advertising for our positions, increasing wages, and investing more into HR and recruiting. l We can plan for less growth, and limit our goals, since we just can’t find the people to help us achieve our sales potential. l Or … you can invest in more equipment, to help each person become more productive — and to increase revenues without necessarily increasing people. Years ago, TBG invested in a skid steer for each crew. The goal was not only to reduce sharing (and unnecessary transport) of equipment, but also to improve each crew’s productivity. Let’s take a look at how this works: l Say you’ve got a three-person crew doing residential landscape construction. The industry “average” daily production for a three-person crew is somewhere between $2,000 and $3,000 in revenue, per day — or about $100 in revenue per man, per hour. (Revenue benchmarks include all revenue generated, including materials installed.) l One of the ways we can improve the revenue generated from our existing people is to invest in, and equip them with, the most productive equipment. A skid steer is a great example. Whether it’s unloading a truck, moving materials, or digging, there is something it could be doing to save time almost every day. l Let’s say you lease a new skid steer for $850 per month. It’s a significant cost, sure, but probably not as significant as you might think. I look at it this way: Any hour saved by using the equipment, is an hour we can use to generate revenue on the next job or task. For instance, if having that machine onsite will help Investing in equipment that helps save time, and makes the job easier, improves margins.

16 | JUNE 2018 | LANDSCAPE TRADES

BY MARK BRADLEY

us save half a day on a one-week job, we just opened a half day’s worth of time where we can generate revenue somewhere else. l If you can just do that once a month, that skid steer will pay for itself. If we can save a half-day for a three-person crew, that gives us 12 additional man-hours for revenue-generating work — which is about $1,200 worth of opportunity. That alone would cover the entire cost of your skid steer, your maintenance, your fuel, and your insurance for that month. l If a skid steer could help your crew save just two days a month, that represents about $4,000 of additional revenue per month, or about $36,000 per year — without needing to hire any more people!

NEW EQUIPMENT VS. OLD Many contractors struggle with the decision to keep older equipment (with no payments) vs. buying new equipment (and having payments, but fewer repairs). While every company is different in the equipment they buy, how well they maintain it, and how hard they use it, my analysis comes to the same conclusion time and time again. Newer equipment will cost you more in payments, obviously. You will, however, save on repairs, maintenance and fuel. Fewer things are likely to go wrong with new equipment, warranties should cover most major repairs, and newer equipment is likely more fuel efficient. Most of the time, these two numbers (payments vs. fuel + maintenance) are very similar, almost cancelling each other out. The hidden cost of owning older, payment-free equipment is the