August 6, 2025 • 60 mins
In this episode, Keaton Turner reflects on overcoming a bad day and credits David Kellerstrasse for his influence. He discusses the power of mindset in facing challenges and shares industry news on MP Materials and Apple's investment. Keaton covers economic fluctuations in mining and answers a listener's question on equipment costing and strategy. He highlights Mike Vorster's book and discusses simplifying equipment ownership costs, financing, and estimating residual value. Topics include calculating ownership cost per hour, the impact of idling, and usage-based cost accounting, wrapping up with insights on equipment depreciation and field decisions.
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Episode Transcript
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(00:35):
You didn't think I was gonna bounce back?
You thought I was just gonna lay down and cryabout it?
Just drop one ten minute episode about how badmy day was, and that was it?
You you guys know me better than that.
(00:56):
This is a follow-up to this morning's episode.
I've I've never done this before.
I have never dropped two episodes in one day,at least not intentionally.
But but I couldn't let I couldn't let thesomber mood and me crying about my bad day be
(01:17):
the last thing you guys heard today.
So I'm I'm gonna I'm gonna go ahead and dropthis one today, and and I've bounced back.
I feel phenomenal this morning.
I feel amazing.
I'm on cloud nine.
Yesterday was a valley.
Today, I'm I'm right back up on themountaintop.
It's amazing how quickly that can happen.
I gotta give a huge shout out.
(01:38):
Well, first and foremost, welcome back to thePurdium Podcast.
I think you know what you're listening to.
I am Keaton Turner, and and we're doing thepodcast another day, twice today, actually.
This is a follow-up from yesterday's recordingthat dropped this morning.
Yesterday was not a phenomenal day.
(01:59):
A few guys have already sent me a message.
And and one of the guys that has sent few guyssent funny messages.
But one of the guys that sent a real message, aserious message, was David Kellerstrasse.
And I I David, I appreciate your your kindwords, brother.
David sent me an audio to two two and a half,three minute long audio message, set a prayer
(02:22):
for me, and just made me feel phenomenal, a,that I got people like David in my corner that
that not only listen to the podcast andsupport, the journey that I'm on, but but also
actually care about another human being they'venever actually met.
This is this is the one of the coolest partsabout this podcast is getting messages from
(02:43):
dudes like David.
David, I know I owe you a coffee mug.
I know I do.
David's one of these guys that's been patient.
I think he paid for his coffee mug a week morethan a week ago, and I haven't shipped it yet.
David, I'm gonna ship it, I promise.
Several of you guys are in the same boat.
So I I apologize for that.
Life's just been man, it's been crazy the lastfew days and then work stuff and and everything
(03:06):
else.
So so, David, thanks for the message, brother.
Let's see.
The Viking himself, he he he sent me a messagethis morning, called me kitty cat.
I don't know if that's I don't know if that'slike a a flirtatious thing or not.
We'll have to figure that out later.
But I've totally bounced back.
(03:27):
And and how I bounced back from from just aterrible day yesterday to a what I'm hoping to
be a phenomenal day today is really justmindset.
Nothing else in my life has changed.
All my circumstances today are identical towhat they were yesterday.
(03:47):
But to me, mindset's a big one.
Gratitude, being grateful, all the things youknow, we've talked about this a ton.
But but man, the mind is, I believe, the mostpowerful weapon on the planet.
And and I just, you know, honestly, really puta lot of effort in to get my mindset right for
today.
Being positive, being optimistic, beingthankful for what I have.
(04:11):
To be honest with you, in a weird kinda morbidway, being honest for the challenges that I
have.
So many dudes, you guys see this, you hear it,you read about it online, They run away from
the challenge.
They run away from the leadership hurdle that'sin front of them.
(04:31):
They run away from the hard days, the hardtimes, the big, hairy, meaty problems.
I remember back when I first started, I would II swear to you, I remember this vividly, like
early days, year one, year two in business.
I was like, man, I pray for the big problems.
I want the biggest problem.
(04:52):
I was at I was kinda like teasing God.
I was like, those are the biggest problems yougot at me.
Dude, I'm legit.
I'm I'm a boss.
I'm gonna build this freaking thing.
You know, throw any problem you've got at me,Lord.
I'm gonna knock it down.
Little did I know, I was kinda leaning on myown understanding and leaning on my own, you
know, my own humanly, worldly knowledge.
(05:15):
And turns out, when God throws a big problem atyou, what he really wants you to do is turn to
him, not turn to your own superpowers or lackthereof.
And so that's been a lesson I've had to learnover the years.
But I remember I remember praying for the bighairy problems.
Like, give me the give me the $10,000,000problems.
(05:36):
You know?
Give me the huge issues that I have to gofigure out how to solve.
And and, you know, for better or for worse,he's thrown some problems my way, you know,
over the course of eight years.
And and I've never gotten through any of themon my own on my own knowledge or power or skill
(05:57):
set or any of that, not to get preachy.
You know, I'm a I'm a firm believer.
If he brings you to it, he will figure out away to bring you through it.
And and so, man, just mindset.
That that's really like, when guys ask, how doyou go from really bad day to springboarding
into a really good day?
It's 100% mindset.
(06:19):
It has nothing to do with money today that Ididn't have yesterday.
It has nothing to do with making a customerhappy today that was mad yesterday.
It has nothing to do with an employee.
It has nothing to do with any of that.
It has nothing to do with whether your wife ishappy or whether she winks at you or, you know,
like none of that.
It is your mindset, and I think we can decideto have a good day.
(06:43):
So today is is a different day.
It's a new mindset, and and I'm dropping afollow-up episode to this morning's kind of
somber pouty episode.
I was doing a little bit of pouting for all youguys.
But again, this is real.
This is transparent.
I'm gonna have good days.
I'm gonna have bad days like all you guys.
(07:06):
What's happening in my life today, we we gotour big proposals sent out.
One of them went out on Monday this week, andand the other one went out last week.
Man, there's been some news kinda in and aroundthe industry.
You guys have probably seen MP Materials gets a$500,000,000 investment from Apple, the phone
(07:29):
maker Apple.
Kinda wild.
I I read a Wall Street Journal article thatbasically, in a roundabout way, said mining is
sexy again or mining is on the map.
I forget what the headline read, but but butmining is getting a lot of attention, not only
because of our current administration trying todo what they can to onshore, you know, domestic
(07:50):
production of of base metals and and criticalminerals and all those things, rare earth
elements.
I think mining has been overlooked for way toolong.
I I think construction, you know, trades hasbeen overlooked for way too long.
I think they're the sexiest businesses on theplanet.
You know, there was there was another article Iwas reading last night.
(08:12):
It was like it was like I forget I forget thepublication, but the guy was basically an
adviser, financial adviser, saying, look.
If you're overlooking these mining companiesfor your investment portfolio, you're going to
be missing huge upside, huge gains in themarket.
And he listed out several several miningcompanies.
(08:33):
And so, you know, I for those of you guys thataren't paying attention to mining, especially
mining here in America, It's something I thinkyou should start paying attention to.
Companies that are doing really cool thingshere in America.
I don't know.
I think it's something to pay attention to.
In in the opposite news, copper dropped adollar a pound last week.
(09:00):
A dollar a pound.
It was it was, like, $5.40, $5.50 a pound, alltime high.
It dropped a dollar, and it dropped the dollarfor a lot of reasons.
I mean, there's macroeconomic, you know, globaleconomy at play with copper.
But that's something that that mining companieshave to be aware of is these these crazy spikes
(09:27):
and drops in commodity prices.
We see it in frac sand.
Of course, we've always seen it in gold.
You know?
Gold was just a few years ago sub $1,000 anounce, and now it's, you know, $3,500 an ounce
or $3,400 an ounce.
And so you you just gotta be very careful inmining.
You gotta pay attention to the small details.
(09:49):
You gotta pay attention to the macroeconomicsand supply and demand.
But it's been really fun to see mining make,you know, national news, global news, headline
news in in publications like The Wall StreetJournal.
What a time to be alive and be in mining.
What else is happening?
(10:10):
I got a question from a guy.
I'm not gonna mention his name, so I, you know,I don't know if he wants his name.
He didn't say not to mention him, but I'll keephis name out of it.
He was basically asking how to cost equipment.
He runs a small company.
And and I say small, you know, twenty, thirtythirty man dirt crew.
(10:32):
They run pipes.
They run sewer.
They run underground utilities.
And he was like, man, we're we're having a hardtime with equipment.
We're having a hard time costing it both from,like, when when we bid projects, knowing what
our true cost is to run the equipment, but thenalso, you know, we go to sell some equipment
and we're upside down on it.
(10:54):
And then we can't go buy new equipment becausewe're too upside down on the equipment we have.
And then we get these accounts from QuickBooksor these reports from QuickBooks or reports
from accounting, and we don't feel like ourequipment rates are being accounted for
properly.
And so, you know, he he asked how we think orhow I think about equipment.
(11:18):
Oh, phone call.
I'm gonna decline that one.
Hartsville, Tennessee.
And and the reason I'm picking this guy'squestion, there's I I know I gotta get caught
up on the hotline, guys.
I I sincerely apologize.
But the reason I'm taking this guy's questionis because I I have been dealing with this one
recently, and and there's a lot more nuances tothe equipment question than you might realize.
(11:47):
I have lived through this equipment strategy.
I'm gonna call it equipment debacle for, Idon't know, fifteen years since I entered the
industry as a young as a young guy.
I'll never forget, like, when I was especiallywhen I was working for my uncle, like, trying
to figure out, like, what does a haul truckactually cost us?
(12:12):
I mean, sure, we know what the rental rate is.
We get a price from the dealer, but there's allthere's all the time hidden fees, and and there
are costs that are tacked on at the end of therental cycle, or maybe we didn't use all the
hours in the rental cycle that we should have.
And so we actually if you if you think aboutit, if you're paying $20,000 a month to rent a
(12:34):
haul truck and you only use a hundred hoursthat month instead of the hundred and seventy
six hours the dealer promised you, well, yourcost per hour is a lot higher than if you would
have used a hundred and seventy six hours.
And so there are a ton of nuances to thisequipment gain.
(12:56):
I think first and foremost, as a disclaimer, Ido not pretend to be an expert in equipment.
I have to say that.
Nothing I'm about to give you is advice thatyou should go put to use in your business
because I don't know your business.
I don't know I don't know the the nuances ofyour business.
(13:19):
I'm gonna tell you how I think about equipment,the whole game of equipment, the strategy that
is equipment.
But I don't you know, I'm gonna paint with somebroad strokes here, and and I don't want you to
take any of this as the gospel.
This is what I've learned over the lastfifteen, sixteen years, whatever it's been,
(13:39):
trying to figure out how to play this equipmentgame.
So so first and foremost, I'm gonna break itdown.
Equipment in my world and and we run verysimple machines.
None of our stuff, at least most of our stuff,is not, like, full custom built.
Now we have had some some dredges.
(14:00):
That was custom.
We have had some custom machines, some custombuckets.
You guys have seen the XMore buckets.
Shout out to the guys at AMI.
Shout out to Ben Rapple.
We we love AMI.
We love the XMore buckets.
But most of our stuff, for for for all intentsand purposes, is just off the shelf stuff you
can buy from Caterpillar, Komatsu, Volvo,Hitachi, so on and so forth.
(14:25):
And so I I say all that to say there are twocost buckets when talking about equipment.
The first cost bucket is your ownership cost.
What's it cost you to own the equipment?
The second cost bucket is the equipmentoperating expense.
We call it EOE.
(14:46):
Other companies call it something different.
But what does it cost you to own the machine?
And then what does it cost you to run themachine?
For every hour that you run the machine, themachine depreciates, believe it or not.
For every hour that you run the machine, ifyou're if you're actually running it, you have
expenses like tire wear.
(15:08):
You have track wear.
You have ground engaging tools, GET, that wearout as you dig into the earth.
You have liners in buckets.
You have cutting edges on dozers and blades.
There is wear and tear that happens on amachine.
You've got your preventative maintenance, yourfive hundred hour service, your a thousand hour
(15:33):
service, your majors.
This is equipment operating expense.
So those are your two equipment cost buckets.
Again, painting with very broad strokes.
You've got your ownership cost, which just tobreak it down very simply, is your principal
(15:53):
and your interest, and we'll get into residualsand stuff like that and how we calculate
ownership cost.
Ownership cost in our world, we can also userental cost as a substitute.
Right?
You've got your monthly rental payment dividedby and and all associated fees, environmental
fees, stuff that the dealers like to scam youwith.
(16:15):
And, I'm calling out dealers for environmentalfees.
Rental cost divided by the number of hoursyou're gonna run-in a month will also get you,
you know, an ownership slash rental rentalcost.
That's one bucket.
Your other bucket, the other half of yourequipment cost is your equipment operating
(16:36):
expense.
Before I go any further, I wanna give a freesponsorship.
Okay?
I hate to interrupt the podcast.
One of one of my good virtual friends, misterWade Gaines, shout out Wade, who is with an
equipment dealer, told me, don't interrupt mypodcast for sponsorships, but I have to for
(17:00):
this one.
This sponsorship, if you guys like this topic,if you guys are into equipment, if you're into
figuring out how in the world to cost equipmentfor your company, If you're trying to get into
a new role and you wanna learn more about howequipment costing is done, how equipment
maintenance is done.
(17:21):
I would even recommend haul truck drivers,equipment operators, people that want to learn
after hours, after their job is over for theday.
I'm all about continuing education informallyby reading, by learning, by watching, by doing.
I would highly, highly, highly recommend youbuy Mike Vorster's book.
(17:45):
It's called Construction Equipment EconomicsVersion Two.
How to Improve Fleet Management and Get theMost From Your Investment.
Mike is somebody that I got a lot of respectfor.
This is like a comprehensive guide forconstruction professionals on how to manage
heavy mobile equipment fleets.
(18:07):
Anybody that's anybody, and I'm gonna say thiswith 100% confidence, anybody that's anybody in
the industry of mining or construction that ismanaging a fleet of equipment, that is helping
cost equipment, Anybody that's anybody has readMike Forrester's content.
(18:29):
There's a version one of the book, and this isthis is an older book, the version one.
Version two is newer, updated.
It's got some it's got some more information init.
It's a $115 for the book.
Now you might be thinking, well, who sells abook for a $115?
Well, I'll tell you who sells a book for a$115.
(18:50):
A guy that will save your company millions ofdollars.
That's that's how you get to sell a book for a$115.
I think it's too cheap.
If I was Mike's, like, financial adviser, Iwould say, dude, you need to be selling this
book for $5.
There's no reason this book should be a $115.
(19:11):
It should cost $5,000.
And and that's probably like $5,000 per module,like per chapter.
This book will make that much of a difference.
So a lot of the stuff I'm going to talk aboutis is kind of a a distillation or distilled
down version of what Mike really breaks down inthe books.
(19:33):
Our guys have read it, like Patton, Jake.
Jake knows Mike.
Know, Mike's just a legend.
So it's Mike Borster, v o r s t e r.
The book is called Construction EquipmentEconomics.
Go look it up.
You can buy it.
CEMP Central Inc or cempcentral.com.
(19:55):
Go buy the book.
It's I'm telling you, I don't care if you're atruck driver, an operator, a foreman, a
superintendent, a vice president or CEO, youshould know this information.
This is very principled, foundationalinformation.
If you're in construction, if you're in mining,any any honestly, any industry that has heavy
(20:18):
assets, machinery, you have to read this book.
So there you go, Mike.
Free sponsorship.
Michael never listened to a podcast, especiallythis one.
But but that's that's a a key key component ofmy learnings over the years, even back I mean,
but even before I started Turner Mining Group,Mike was putting out this kind of information.
(20:41):
So in the book, he talks about building arobust organization, stresses the need for
clear roles, responsibilities, alignment withinthe organization for successful fleet
management, talks about understanding yourcosts, managing fleet age, managing utilization
of equipment, which is, I mean, critical, maybeone of the most critical pieces, and then
(21:04):
proactive management.
So tons of good information in there.
I can't recommend the book enough.
Gotta go you gotta go do it.
And then catoperatortraining.com has a I thinkit's a course that you can go take, a Mike
Forrester course.
He's an he's an ex cat an ex cat guyCaterpillar guy.
So to sum it all up, there's two buckets withequipment.
(21:29):
I'm gonna talk first and foremost because it'sa it's a more simple concept.
I'm gonna talk first and foremost about theownership portion of equipment cost.
I wanna be super clear here because a lot ofpeople mess this up.
A lot of people think estimating and biddingwork are the same thing.
(21:52):
You hear people like use them kind ofinterchangeably, use the two terms.
Oh, I'm in estimating.
You know, we bid work.
I'm like, okay.
Well, estimating and bidding, in my opinion,are two completely different things.
Completely different things.
And doesn't mean you have to have differentpeople doing estimating and different people
(22:15):
doing bidding.
You can have the same person or the same teamdoing both activities, but they're two separate
activities.
Estimating is an art first and foremost, andit's the art of calculating the true cost of
doing the work.
That's what estimating is.
(22:36):
It's the art of calculating the true cost ofdoing work.
Now bidding on the other hand is also an artform.
I a fan of bidding.
I'm good at bidding.
I am bad at estimating.
I don't like details.
I don't like to get into the minutiae ofcalculating rim pull and cycle times and all
(23:00):
that.
Just not great with it.
So estimating is not my strong suit.
Bidding, however, is the art of figuring outwhat price you can win the work for.
That's what bidding is.
Just because you estimate your cost to be adollar 50 a ton doesn't mean that you add your
(23:25):
margin or markup.
I'm not gonna waste time on this episode totalk about the differences in margin and
markup, but they're two totally differentthings.
Just because you have a cost, an estimated costof a dollar 50 per ton doesn't mean you quote
the work at a dollar 65 a ton.
(23:45):
You might be able to win the work at $2.15 aton or $3 a ton.
Bidding is different than estimating.
Okay?
So I had to clarify that.
Maybe that's a whole separate episode someother day.
When you're estimating equipment ownershiprates, It's very simple.
(24:08):
It's very simple.
And I don't wanna overcomplicate it.
I know there are gonna be people.
Mike Mike Vorster himself would would probablypick my pitch apart here, but it's very simple.
You have your original purchase price.
What is the price you're buying the machinefor?
Add in your taxes and fees and broker fees andwhatever, whatever your costs are, but add in
(24:30):
all those costs.
What can you buy the machine for?
For round numbers, let's assume the machine isa million dollars.
I'm actually gonna make it a a little morerelatable because not many folks that listen
are buying million dollar machines.
Let's pretend for one minute it's a $300,000machine.
Okay?
(24:50):
Brand new, right off the showroom floor.
You go to CONEXPO.
You buy a new machine.
It's $300,000 That machine, when you startrunning it, depreciates.
Now in my world, if I take a $300,000 brand newmachine and I never turn the key on and I leave
(25:13):
it parked in my yard for six months,theoretically, that machine is still worth
$300,000.
The key hasn't turned on.
The odometer hasn't moved.
There are no hours being logged on the machine.
It hasn't depreciated.
Now you can argue again, try not to get intothe minutiae of this all because this will take
(25:38):
three hours.
You could argue that if you let a machine sitfor a year or two and never turn the key on,
it's worth less than when you bought itbecause, you know, hoses start to dry rot, the
tires start to dry rot.
Like, obviously, there are, you know, somelimits to what we're talking about.
But if you park a machine in your front yard,never turn the key on, it should be worth the
(26:03):
exact same amount of money six months later aswhat you paid for it.
A machine depreciates when the hour metermoves.
Okay?
Hour meter's gonna be a critical component hereto calculating the ownership cost.
So in our world, when we buy a machine, wedon't wanna be speculative equipment
(26:24):
purchasers.
We want to buy machines really only when wehave a contract that we're gonna use the
machine for.
I don't wanna go just buy a fleet of trucks andtry to figure out when and where and how to use
them.
I will buy a fleet of trucks if I know we havetwo years, three years, four years, five years
worth of work for them on a specific contract.
(26:46):
And so what our team does is they calculate howmany hours they're gonna use the trucks for
over three years.
So in this case, if we have a $300,000 machine,let's pretend we're gonna use it for three
years, and each year, we're gonna put athousand hours on it, which is which is light.
(27:07):
I get it.
Most machines are gonna run two thousand hoursa year kind of standard.
Some machines, if you're double shifting themor triple shifting them, they might get 5,000 a
year.
They might get more than that.
But for for the sake of conversation, we have a$300,000 machine.
We're gonna put a thousand hours a year on itfor three years.
(27:29):
So at the end of the three year term, at theend of the three year contract, this machine
has three thousand hours on it.
Now what we need to do is calculate theresidual value of the machine when I'm ready to
get rid of it, whether I whether I sell it,whether I trade it in, whatever, send it to
(27:50):
auction.
What is the machine worth at the end of thethree year term, at the end of the three
thousand hours that I've put on it?
For for round numbers, let's say it's worth a$100,000.
So I've I've purchased the machine for$300,000.
I've ran it for three years.
I've put three thousand hours on it, and it'snow worth a $100,000.
(28:14):
That is the residual value.
That's the value left over after I've used it.
So I've got $200,000 now in depreciation.
Again, don't don't think straight linedepreciation and financing and all that yet.
Let's let's just keep it simple.
The machine has depreciated in value by$200,000, and it has done that over the course
(28:41):
of three thousand hours.
Okay?
So all we have to do here is take the $200,000that it's depreciated, divide it by the three
thousand hours we have ran the machine, and weget a depreciation cost per hour of $66.66 an
(29:06):
hour.
Are you with me?
Are you following me?
So if you just paid $300,000 cash for amachine, and I'm saying cash payment, you
didn't finance it, there's no interest expense,there's I'm not getting into insurance yet, You
paid 300,000 for it.
You ran it for three years, and you sold it fora 100,000.
You took 200,000 in depreciation on themachine.
(29:29):
You ran it for three thousand hours.
The cost of depreciation, that's all, justdepreciation, is $66 an hour.
Now I'm assuming you did not pay $300,000 incash for the machine.
I'm assuming.
I'm assuming you got a loan.
I'm assuming you called up Cat Finance orKomatsu Finance or one of your friendly bankers
(29:55):
in town and they gave you a loan.
Right?
Today, you can borrow money on a machine for,you know, if you got if you got a smoking deal,
maybe maybe 6%.
If you got a bad deal, maybe it's 10%, but it'ssomewhere in that range.
Those of you guys that are borrowing money atless than 6%, call me.
I'd love to talk to you.
Those of you guys that are lending money atless than 6% right now, call me.
(30:18):
I'd love to talk to you.
So let's assume you're paying a nominalinterest rate of 7% on a $300,000 purchase for
three years.
You can calculate I don't have my interestcalculator right here in front of me, I'm not
the best in the world at math.
But then you can do the same equation to figureout how much interest costs you per per hour of
(30:42):
run time.
So again, you've borrowed 300,000.
You borrowed that money for three years.
Once I get parked, I will I will push pausehere and do some simple math to get you kind of
a real number.
But you can also go online, Google equipmentcalculator, like I'm sure quicken.com.
(31:03):
The same way you can go Google a mortgagecalculator.
You can Google an equipment calculator.
You can put in exactly what you bought themachine for, what you're assuming the residual
value is, how many hours you plan to run it inthat period, what your interest rate is, any
fees.
You can also put your insurance costs in therebecause insurance is a real cost.
(31:24):
Every hour you run a machine, you've got someinsurance costs on the thing, and it will spit
you out a number that is really close.
Now the one big variable when calculatingequipment ownership cost, the one big variable
that you can screw up and it will throw allyour numbers off, that's your residual value.
(31:48):
And here's how that works.
If you buy the machine for 300,000 and you putthree thousand hours on it and you assumed you
could sell it for a $100,000, but you actuallyonly sold it for $50,000, what that means is
(32:08):
you've got 200,000 doll $250,000.
Excuse me.
What that means is you've got $250,000 indepreciation costs now spread over the same
three thousand hours you ran the machine.
Your cost per hour went from $66 up to $83.
Huge difference.
(32:30):
This is where people get screwed up.
This is where I have screwed up.
I can tell you, right now, I've got a I gotseveral of this one specific type of machine.
I'm not gonna say it on here.
I don't wanna get people in trouble, and Idon't need any more hate mail.
I got one type of machine that we assumed aresidual value on a few years ago when we
bought a bunch of them, and we're way off.
(32:53):
We're nowhere freaking close.
The residual value we thought we were gonna getout of these machines is off by a factor of
two.
Big, big problem.
So when you screw up your assumed residualvalues, your cost per hour goes way out of
(33:14):
whack.
Now as equally as painful as it can be on thebad end, if you over assume or you or, you
know, your rose colored glasses, you assume youget more in a residual value than what you can
actually go sell it for.
That's a bad scenario because your cost perhour goes up.
The opposite's also true though.
(33:35):
If if you get more out of a machine, and we'vedone this a few times, if you sell a machine
for way more than what you assumed you couldsell it for, your cost per hour comes down.
So instead of $66 an hour, if I sold themachine instead of a $100,000, I sold it for a
$150,000, Now I've only got a 150,000 indepreciation spread over the same three
(34:04):
thousand hours.
My cost went from $66 an hour to $50 an hour.
So you can see very quickly the number you havegot to get right is the residual value.
When you're coming up with equipment rates forbidding, for estimating, for just tracking your
costs on a job, you have got to get thisresidual value right.
(34:29):
And there's a lot of ways you can do it.
There's all kinds of programs out there.
I'm not gonna shout any of them out because Idon't have any real great firsthand experience
with them.
You could you could call Jay Cubble or, youknow, there's a lot of lot of folks in the
industry you could call, but call Jay Cubble.
He's got some experience with which programswork and which ones don't.
You know, I'm a big fan of just getting gettingon Machinery Trader and pulling comps of all
(34:53):
the machines we're trying to build rates forand seeing what they've sold for over the last
year.
That's a quick and dirty way.
It's not a super sophisticated way to do it,but that's you know, if I'm buying a backhoe or
a dozer or you know, something simple, you canget on Machinery Trader, see what all the same
D6s have sold for in the same hour range, inthe same kind of condition, and you can get a
(35:14):
good ballpark.
But this is a quick and dirty on how you comeup with equipment ownership.
This is your ownership rate.
Okay?
I don't know what your insurance rates are, soI'm not gonna talk about insurance.
You can calculate that on your own.
I don't know what your interest rate is, butall you have to do is add in your interest, add
(35:37):
in your insurance, and you have a fully bakedequipment ownership cost per hour.
And why I say per hour and not per month or notper year or not per mile if it's a truck or
something with tires, because hours are whatdrives the value of the machine.
(36:01):
When you're talking about yellow iron, nobodycares how many idle or excuse me.
Everyone cares how many idle hours.
No one cares how many miles your dozer has onit because you can replace the tracks, replace
the undercarriage, replace the sprockets, andyou're good to go.
Whether it's got a thousand miles on it or a100,000 miles on it.
(36:23):
No one cares.
Same thing with same thing with haul trucks.
If a haul truck's got one thousand hours on thetruck, but it's got 50,000 miles on I'm using
an extreme scenario here, but it's got 50,000miles on it, is that truck worth more or less
than the truck that's got a thousand hours and10,000 miles on it.
(36:45):
It's it's it's not worth any different.
Okay?
And again, people people might wanna argue thisand pick me apart.
We care about the hours on the machine.
When the key is on, when the ignition is on,when the hour meter is running, your machine is
depreciating.
(37:06):
Just just simple as that.
When the when the hour meter is running, yourmachine is depreciating.
And so it you gotta be I've seen a lot ofpeople sit there and idle a machine half a
shift or a whole shift, eight hours worth ofidle time.
And it's like, well, you didn't get any workdone for it.
(37:28):
Maybe if you're on a t and m contract, theowner wants to check the, the odometer, or the
hour meter.
Like, I guess, like, maybe you could justifyleaving a machine idle all day if you're on T
and M, but that's kind of I don't know.
Seems like a scammy way to do business.
Don't idle machines.
(37:50):
Some people believe like, well, I'm notrunning.
I'm not act you know, I'm I'm not my tiresaren't getting anywhere.
The undercarriage isn't getting anywhere.
My GET isn't getting anywhere.
I'm just sitting here idling it.
Do you realize that by idling the machine forfour hours, you're spending more money than you
would if you actually just calculated the GETor the or the equipment operating expense?
(38:16):
Most of the time, not always, but most of thetime, your equipment ownership rate is twice as
much as your equipment operating expense perhour, most of the time.
And it's not a it's not like a true one to tworatio or two to one ratio, but most of the
time, if a haul truck costs you $50 an hour inownership cost, generally speaking, the EOE is
(38:44):
gonna be somewhere around 25 to $30 an hour forequipment operating expense, your EOE figure.
So a big chunk of your runtime cost on amachine is just when the key is turned on.
So idling is costing you $50 an hour for everyhour you idle.
(39:06):
We gotta stop idling.
It's important for people to understand this.
I want my own operations to understand it, butI mean, obviously, for your operations, think
of how many thousands of dollars you can saveevery month by shutting the machine off because
you're paying for that idle time and themachine's depreciation.
(39:29):
Okay?
This is very simple stuff.
Now staying on equipment ownership for just onesecond.
I believe firmly the equipment ownership rate,let's say it's $50 an hour just for equipment
(39:49):
ownership.
And that's again, that's your depreciationcost.
That's your interest cost.
That's your insurance expense.
I believe that number should be the same whenit's in the estimating department.
That number should be the same when you'rebuilding your project budget.
And that number should be the same when you'redoing accounting work to provide your managers
(40:16):
with a project p and l, Project profit and lossreport.
This is where it gets much more detailed, muchtrickier.
This is where there are a bunch of differentschools of thought.
This is where cash flow becomes reallyimportant.
We've had our own internal battles on this fora long time.
I mean, we're right in the middle of switchingour system for the third time since we started,
(40:40):
literally for the third time.
For for a long time, we were just, you know,doing accounting work based on the rate that
the the basically, the finance payment.
If $5 a month came out, the bank pulled $5 amonth a month out for the debt service on the
machine, that's what we charge the project for.
(41:01):
Well, that's fine.
But what if the project was double shifting andrunning the equipment way more and we were only
charging the project $5 a month for it?
What ends up happening is at the end of theproject, when everything's said and done, we've
only charged the project let's say it's ayear's worth.
(41:22):
We've only charged the project twelve months at5,000 a month.
We've charged the project $60 for a machinethat was running double shift or triple shift,
we have improperly costed the job because thatmachine should have been costed way more than
(41:43):
$60 for that year it ran.
It should have been costed a $120 or a $150because again, it's depreciating.
You're running more hours.
So again, there are a lot of different schoolsof thought here, but my belief is usage based
cost accounting for assets is the way to go.
(42:05):
That causes other problems.
I know you again, I don't have a ton of time.
This is already getting too long winded.
If you calculate your machine cost is $50 anhour, I am of the belief you should charge your
projects $50 for every hour that machine runsregardless of how much the interest or or
(42:29):
excuse me, regardless of how much the financepayment is coming out of the bank every month.
And what this looks like is, for round numbers,if a machine if you're gonna if you're gonna
buy a machine, and again, sticking with $50 anhour for a second, if you're gonna finance the
machine on forty eight months, okay, and you'redoing all this math to say, well, two thousand
(42:51):
hours a year, four years worth of financing.
So I'm gonna have eight thousand hours on thismachine over four years and straight line
depreciation.
Here's why it doesn't work.
Because the first month you run and again, twothousand hours a year divided by twelve months
(43:15):
in a year, it's a hundred and sixty seven hoursa month is what you are kinda straight line
depreciating this asset.
You're you're forty eight months, eightthousand hours.
It's a hundred and sixty seven hours a month.
So you're if you pull a finance payment out ofthe bank for the asset and that's what you
(43:38):
charge to your project, you're charging yourproject a hundred and sixty seven hours at,
what do we say, $50 an hour, that's $8,300 amonth is what you're charging the project.
Okay?
So maybe, you know, again, for simple terms,your finance payment coming out of the bank for
(43:59):
your equipment is $8,300, and that gets you ahundred and sixty seven hours of runtime.
Here's the problem.
If you charge a project $8,300, but you ran themachine three hundred hours instead of a
hundred and sixty seven hours, what you'redoing is under costing the equipment for that
(44:24):
month, for that project.
Because, it's $8,300 to burn a hundred andsixty seven hours.
If you burn three hundred hours at $50 an hour,it's $15,000 is what you should have charged
the project for that asset that month.
(44:44):
The opposite is true.
If you run the machine eighty hours instead ofa hundred and sixty seven, eighty hours times
$50 an hour is $4,000 that month.
Here's where it gets a little hairy, and thisis what CFOs hate.
(45:09):
If you're paying the bank $8,300 a month forthe asset in a straight line depreciation, but
you're only charging your project $4,000 thatmonth because they only ran the machine $80 or
excuse me.
You're you're only charging the project $4,000that month because you only ran the machine
(45:29):
eighty hours.
You have a cash problem coming because you havemore cash going out the door than what you're
costing for the project.
Now, onesie, twosie, like one machine here andthere, not the end of the world.
Right?
Maybe next month, you make up the hours, andinstead of running a hundred and sixty seven
(45:50):
hours next month, you run two fifty, and youkinda catch up and it evens out in the wash.
If you have a whole fleet that's running fewerhours than what you originally based the rate
on, you're gonna have a cash problem becauseyou're paying more money to the bank than what
you're charging the project, and so the booksare gonna look terrible after a year or two.
(46:14):
So you gotta be aware of this.
I I account for this or want to account forthis in a fixed asset report is what we call
it.
It's all the assets in the company.
How many hours did we start with at thebeginning of the month?
How many hours did we end with at the end ofthe month?
That tells us how many hours we ran in amonth's period.
(46:36):
And then we can look at which machines aregetting utilized and which are not.
That's a that's a little bit different issue tosolve.
But but to properly account for machine cost atthe project level, project p and l's, again,
I'm living through this right now.
I'm gonna go in and have a meeting with my teamon this today.
You have to charge per hour of depreciation.
(47:02):
And here's why.
Make this very simple.
If you're a project manager and you pay $20 amonth for all your trucks, all your haul
trucks, That's that's the flat rate the companycharges you on your p and l.
Whether you run it an hour or whether you runit five hundred hours that month, you're paying
(47:22):
$20.
Here's the problem.
As a project manager, I have to plan my day,plan my resources for the day.
And if I can hit my production rates with ninetrucks instead of 10, I should only run nine
(47:45):
trucks that day.
I should shut one of the trucks off.
Doesn't make any sense to run that tenth truckif I can get the same number of loads with
nine.
But what happens is if you're paying for thetruck anyway, if you're paying a flat $20, if
the company's charging you on your p and l $20a month for the truck, why wouldn't I run the
(48:08):
tenth truck?
I'm getting charged for it anyway.
Might as well run it.
It creates bad behaviors.
This is where it's and again, some people mightargue with me.
I'd love to hear some theory on this.
This is where I believe knowing truedepreciation cost of the asset at the project
level and giving the power to the decisionmaker at the project level to pull the lever
(48:34):
and say, hey, I'm paying for every hour I runthese machines.
I gotta shut x y z machines off because I canpull in the same revenue without them, but I'm
only adding more cost to run them becausethey're running every hour.
I want managers knowing exactly what a machinecosts to run for every hour it runs.
(49:00):
If they just think a truck costs $20 a monthwhether it runs or not, They're not making any
decisions in the field in real time to optimizeour costs.
If we're charging them for all the trucks,guess what?
They're gonna run all the trucks whether theyneed to or not.
(49:22):
This is super, super important.
I've lived through this now three times.
I was gonna go into a whole different subjecton how to build an equipment team and then
build an ops team because at one point, we hadan equipment department, like a whole team of
equipment people.
(49:42):
It was a equipment leader, senior vicepresident of equipment, and he had a team.
And the equipment team charged the ops team.
They, like, sent invoices for equipment.
It I don't have time to go through that becauseI'm already what am I?
Oh, man.
I'm already at forty nine minutes.
Maybe I'll save that for tomorrow's episode.
(50:03):
You have to get this depreciation cost per hourright before you even think about anything
else.
Every hour you run a machine, it costs yourcompany money.
Every hour, the key is turned on.
Whether you're producing revenue with the unitor not, it costs your company money.
(50:24):
I have a rule of thumb when I was managingprojects, if you're gonna idle for more than
ten minutes, shut the machine off because youhave to let the turbo cool down.
Like, there's gonna be a bunch of equipmentnerds that are gonna argue, well, you gotta let
the thing cool down and you gotta let it warmup.
And if you're gonna idle for more than tenminutes, shut it off.
Unless the handbook says something different,unless some equipment guru consultant says,
(50:47):
well, yeah, but you're gonna have turbo issues.
Like, maybe it's thirty minutes.
If you're gonna let it idle for more thanthirty minutes, shut it off.
But if you're idling equipment, you're burningmoney.
You think you're saving money because you'renot actually, like, using a bunch of fuel and
you're not actually, like, putting the machineunder a load and burning GET and tires and
(51:11):
everything.
You're lighting money on fire to sit there andidle machines all day.
I'll never forget, quick story, and then Igotta go.
Pulled down into the pit one day, and we hadpit samplers.
This was a project in California with pitsamplers because there were seven different
types of ore that we were grading.
(51:31):
And so we had to have full time samplers, andthese samplers come down in the pit.
It's a big deep hole.
It takes twenty five minutes just to get downto the bottom.
We get down to the bottom of the pit, and twoore samplers are sitting in CAT seven forty
five hull trucks idling, sitting there on theirphones.
(51:55):
I parked the truck.
I get out.
I walk up to them.
I'm like, hey.
What are we doing?
They're like, oh, we're not doing anything.
We're just waiting on the we're waiting on thesamples to come back.
Because the lab was up at the top of themountain, the pit's at the bottom, you know,
you had to run samples.
So they had a guy running samples, and they'rewaiting to get the readout of the ore quality
(52:16):
so they could start painting the colors on theshot to tell the the hoe where to dig.
So I asked the question.
I'm like, okay.
You're waiting on samples.
What are we doing in haul trucks?
What what are you doing sitting here?
And they're like, well, these these thesetrucks were just they were just parked today.
We didn't have drivers.
We didn't need to run all these trucks.
So we're just sitting down here.
(52:37):
It's hot.
We're we're sitting here in the AC.
We were told we're allowed to do that.
I'm like, wait a second.
You were told because we had two extra truckssitting around, haul trucks, by the way,
sitting around that you could drive them to thebottom of the pit, park them, and sit in them
(52:59):
while you're waiting on samples to come backjust so that you could have air conditioning.
Like, yeah.
That's that's actually spot on.
So I did this little exercise with them.
I said, guys, do you know how much those truckscost you per hour to get air conditioning?
Do you have any idea?
I'll walk through it with them.
(53:20):
We did the calculation for the day, how manyhours they were gonna sit there and let those
trucks idle all day.
Because, again, all they're doing is ordercontrol.
It's all they're doing.
They're not driving the trucks.
They're not hauling loads.
They're just sitting with the trucks on idlefor ten hours to get air conditioning.
I said, these two trucks sitting here cost us$1,600 today to provide you air conditioning,
(53:48):
and that's just today.
If you do it again tomorrow, it's another$1,600, $80 an hour per truck.
You do it another day, it's 1,600.
I said, we can go down and rent two pickuptrucks from Enterprise for $500 for the whole
week.
You're burning $1,600 a day.
(54:12):
Why I tell that story?
They were blown away.
They're like, oh, hell.
We didn't know.
We were just we were just trying to get airconditioning.
Well, yeah, you didn't know because you didn'tthink.
And you didn't think because, quite frankly,it's not your job to think.
Your job is to do or control.
It's the leader of the operation's job tothink.
Never did the math.
(54:33):
Never thought of a creative solution.
Wait a second.
My guys need air conditioning.
Is there a cheaper way to get air conditioningthan $1,600 a day?
Oh, I I'm sure there is.
I mean, shoot.
I'll buy you a walk in deep freeze cheaper permonth than what it would cost to sit there and
let those trucks idle.
If the key is turned on, it's costing youroperation money.
(54:58):
It's costing your company money.
And at the end of the day, at the end of theyear, it's fewer dollars to go around.
I know this sounds tone deaf sitting where Isit.
Like, this is one big pitch to shut equipmentoff and people have to sit out there in a
sweltering heat.
That's not what I'm saying.
Go sit in the office.
Go sit in a pickup truck.
(55:18):
Let the pickup truck run.
Pickup trucks are opposite of heavy equipment.
Pickup trucks don't depreciate when you sitthere and idle.
You know why they don't depreciate when you sitthere and idle?
Because when you sell a pickup truck, what'sthe first question people ask?
They ask how many miles are on it, not how manyhours are on it.
(55:40):
Depreciation per hour is the first thing youhave to think about when talking about
equipment costing.
This is my fifty five minute intro intoequipment.
I'm not saying I'm a genius at it, but I amsaying we have done hundreds of thousands of
hours of equipment usage and costingdifferently and different mentalities and
(56:03):
methodologies and monthly costs and annualcosts.
This is the way to do it because it givespeople in the field the power to make a
decision to shut off a machine and save thecompany money.
So if you're not doing this, if you havequestions on it, hit me up on the hotline, 980
(56:24):
(980) 737-3436.
If you got more questions, we will do a parttwo to this talking about equipment operating
expense, maybe even a part three to thistalking about how to build an equipment team,
because again, this is something we'vestruggled with forever.
I told my guys the other day, I'm like, we'venever done equipment maintenance as a key
(56:48):
function of our business as a world classmaintenance team.
We've never done that.
That's something we're working on building.
It's we've got a lot of really good maintenancepeople.
We got guys that bust their balls every day tokeep machines running.
Equipment maintenance is a monster, especiallywhen you got several 100 machines all over the
(57:09):
country.
It's a monster.
It's why companies like Mater exist only to doequipment maintenance on machines.
It's a business.
That's their only thing they do as a business.
Equipment maintenance is tough.
So maybe we'll talk about that one part four.
But first and foremost, you gotta get yourdepreciation cost per hour down.
(57:30):
You gotta make sure your estimating team knowshow to use it.
You've gotta budget the project.
When you win something, you gotta budget theproject with the right number of machine hours
and then apply your depreciation per hour toget your true equipment costs in the budget.
And then you have to have your accounting teamreporting on the number of hours you're using
(57:52):
the machine every month.
What's the depreciation cost for that number ofhours?
And if you're using fewer hours, again, my ruleof thumb is if I'm using less than two hundred
hours a month on a machine, it's underutilized.
Now you could argue, you know, one fifty to twohundred is is proper utilization for a single
(58:15):
shift.
Anything below a hundred and fifty hours,though, it's underutilized.
And you better be accounting for thatunderutilization in your costs and your
depreciation costs.
So a lot to dive in there.
I could talk about this all day.
I'm actually gonna go talk about this today inthe office, but that's what I got.
I hope that answers the depreciation part ofthe question for the caller or the texter.
(58:39):
I think he text in the question, actually.
That's what I got.
Hope that was some value.
You got two podcast episodes dropped today.
Two for one.
I wasn't gonna let this one end on a bad note.
So I gave you an extra hour.
Hopefully, that brought some value.
If you're one of these guys that you're like,man, I don't care about any of that.
I just run the equipment.
(59:00):
Well, you you should freaking care about it.
If you're running equipment, you should careabout this.
Because if you stick your head in the sand andpretend you don't know what equipment costs per
hour to run, you're not very valuable to yourcompany.
And guess what?
If you're not very valuable to your company, Idon't think you go very far.
So that's what I got.
(59:20):
Pray you're killing it.
Pray you're getting your per diem.
Pray you tune back in tomorrow.
You didn't think I was gonna bounce back?
You thought I was just gonna lay down and cryabout it?
Just drop one ten minute episode about how badmy day was, and that was it?
You you guys know me better than that.
(00:56):
This is a follow-up to this morning's episode.
I've I've never done this before.
I have never dropped two episodes in one day,at least not intentionally.
But but I couldn't let I couldn't let thesomber mood and me crying about my bad day be
(01:17):
the last thing you guys heard today.
So I'm I'm gonna I'm gonna go ahead and dropthis one today, and and I've bounced back.
I feel phenomenal this morning.
I feel amazing.
I'm on cloud nine.
Yesterday was a valley.
Today, I'm I'm right back up on themountaintop.
It's amazing how quickly that can happen.
I gotta give a huge shout out.
(01:38):
Well, first and foremost, welcome back to thePurdium Podcast.
I think you know what you're listening to.
I am Keaton Turner, and and we're doing thepodcast another day, twice today, actually.
This is a follow-up from yesterday's recordingthat dropped this morning.
Yesterday was not a phenomenal day.
(01:59):
A few guys have already sent me a message.
And and one of the guys that has sent few guyssent funny messages.
But one of the guys that sent a real message, aserious message, was David Kellerstrasse.
And I I David, I appreciate your your kindwords, brother.
David sent me an audio to two two and a half,three minute long audio message, set a prayer
(02:22):
for me, and just made me feel phenomenal, a,that I got people like David in my corner that
that not only listen to the podcast andsupport, the journey that I'm on, but but also
actually care about another human being they'venever actually met.
This is this is the one of the coolest partsabout this podcast is getting messages from
(02:43):
dudes like David.
David, I know I owe you a coffee mug.
I know I do.
David's one of these guys that's been patient.
I think he paid for his coffee mug a week morethan a week ago, and I haven't shipped it yet.
David, I'm gonna ship it, I promise.
Several of you guys are in the same boat.
So I I apologize for that.
Life's just been man, it's been crazy the lastfew days and then work stuff and and everything
(03:06):
else.
So so, David, thanks for the message, brother.
Let's see.
The Viking himself, he he he sent me a messagethis morning, called me kitty cat.
I don't know if that's I don't know if that'slike a a flirtatious thing or not.
We'll have to figure that out later.
But I've totally bounced back.
(03:27):
And and how I bounced back from from just aterrible day yesterday to a what I'm hoping to
be a phenomenal day today is really justmindset.
Nothing else in my life has changed.
All my circumstances today are identical towhat they were yesterday.
(03:47):
But to me, mindset's a big one.
Gratitude, being grateful, all the things youknow, we've talked about this a ton.
But but man, the mind is, I believe, the mostpowerful weapon on the planet.
And and I just, you know, honestly, really puta lot of effort in to get my mindset right for
today.
Being positive, being optimistic, beingthankful for what I have.
(04:11):
To be honest with you, in a weird kinda morbidway, being honest for the challenges that I
have.
So many dudes, you guys see this, you hear it,you read about it online, They run away from
the challenge.
They run away from the leadership hurdle that'sin front of them.
(04:31):
They run away from the hard days, the hardtimes, the big, hairy, meaty problems.
I remember back when I first started, I would II swear to you, I remember this vividly, like
early days, year one, year two in business.
I was like, man, I pray for the big problems.
I want the biggest problem.
(04:52):
I was at I was kinda like teasing God.
I was like, those are the biggest problems yougot at me.
Dude, I'm legit.
I'm I'm a boss.
I'm gonna build this freaking thing.
You know, throw any problem you've got at me,Lord.
I'm gonna knock it down.
Little did I know, I was kinda leaning on myown understanding and leaning on my own, you
know, my own humanly, worldly knowledge.
(05:15):
And turns out, when God throws a big problem atyou, what he really wants you to do is turn to
him, not turn to your own superpowers or lackthereof.
And so that's been a lesson I've had to learnover the years.
But I remember I remember praying for the bighairy problems.
Like, give me the give me the $10,000,000problems.
(05:36):
You know?
Give me the huge issues that I have to gofigure out how to solve.
And and, you know, for better or for worse,he's thrown some problems my way, you know,
over the course of eight years.
And and I've never gotten through any of themon my own on my own knowledge or power or skill
(05:57):
set or any of that, not to get preachy.
You know, I'm a I'm a firm believer.
If he brings you to it, he will figure out away to bring you through it.
And and so, man, just mindset.
That that's really like, when guys ask, how doyou go from really bad day to springboarding
into a really good day?
It's 100% mindset.
(06:19):
It has nothing to do with money today that Ididn't have yesterday.
It has nothing to do with making a customerhappy today that was mad yesterday.
It has nothing to do with an employee.
It has nothing to do with any of that.
It has nothing to do with whether your wife ishappy or whether she winks at you or, you know,
like none of that.
It is your mindset, and I think we can decideto have a good day.
(06:43):
So today is is a different day.
It's a new mindset, and and I'm dropping afollow-up episode to this morning's kind of
somber pouty episode.
I was doing a little bit of pouting for all youguys.
But again, this is real.
This is transparent.
I'm gonna have good days.
I'm gonna have bad days like all you guys.
(07:06):
What's happening in my life today, we we gotour big proposals sent out.
One of them went out on Monday this week, andand the other one went out last week.
Man, there's been some news kinda in and aroundthe industry.
You guys have probably seen MP Materials gets a$500,000,000 investment from Apple, the phone
(07:29):
maker Apple.
Kinda wild.
I I read a Wall Street Journal article thatbasically, in a roundabout way, said mining is
sexy again or mining is on the map.
I forget what the headline read, but but butmining is getting a lot of attention, not only
because of our current administration trying todo what they can to onshore, you know, domestic
(07:50):
production of of base metals and and criticalminerals and all those things, rare earth
elements.
I think mining has been overlooked for way toolong.
I I think construction, you know, trades hasbeen overlooked for way too long.
I think they're the sexiest businesses on theplanet.
You know, there was there was another article Iwas reading last night.
(08:12):
It was like it was like I forget I forget thepublication, but the guy was basically an
adviser, financial adviser, saying, look.
If you're overlooking these mining companiesfor your investment portfolio, you're going to
be missing huge upside, huge gains in themarket.
And he listed out several several miningcompanies.
(08:33):
And so, you know, I for those of you guys thataren't paying attention to mining, especially
mining here in America, It's something I thinkyou should start paying attention to.
Companies that are doing really cool thingshere in America.
I don't know.
I think it's something to pay attention to.
In in the opposite news, copper dropped adollar a pound last week.
(09:00):
A dollar a pound.
It was it was, like, $5.40, $5.50 a pound, alltime high.
It dropped a dollar, and it dropped the dollarfor a lot of reasons.
I mean, there's macroeconomic, you know, globaleconomy at play with copper.
But that's something that that mining companieshave to be aware of is these these crazy spikes
(09:27):
and drops in commodity prices.
We see it in frac sand.
Of course, we've always seen it in gold.
You know?
Gold was just a few years ago sub $1,000 anounce, and now it's, you know, $3,500 an ounce
or $3,400 an ounce.
And so you you just gotta be very careful inmining.
You gotta pay attention to the small details.
(09:49):
You gotta pay attention to the macroeconomicsand supply and demand.
But it's been really fun to see mining make,you know, national news, global news, headline
news in in publications like The Wall StreetJournal.
What a time to be alive and be in mining.
What else is happening?
(10:10):
I got a question from a guy.
I'm not gonna mention his name, so I, you know,I don't know if he wants his name.
He didn't say not to mention him, but I'll keephis name out of it.
He was basically asking how to cost equipment.
He runs a small company.
And and I say small, you know, twenty, thirtythirty man dirt crew.
(10:32):
They run pipes.
They run sewer.
They run underground utilities.
And he was like, man, we're we're having a hardtime with equipment.
We're having a hard time costing it both from,like, when when we bid projects, knowing what
our true cost is to run the equipment, but thenalso, you know, we go to sell some equipment
and we're upside down on it.
(10:54):
And then we can't go buy new equipment becausewe're too upside down on the equipment we have.
And then we get these accounts from QuickBooksor these reports from QuickBooks or reports
from accounting, and we don't feel like ourequipment rates are being accounted for
properly.
And so, you know, he he asked how we think orhow I think about equipment.
(11:18):
Oh, phone call.
I'm gonna decline that one.
Hartsville, Tennessee.
And and the reason I'm picking this guy'squestion, there's I I know I gotta get caught
up on the hotline, guys.
I I sincerely apologize.
But the reason I'm taking this guy's questionis because I I have been dealing with this one
recently, and and there's a lot more nuances tothe equipment question than you might realize.
(11:47):
I have lived through this equipment strategy.
I'm gonna call it equipment debacle for, Idon't know, fifteen years since I entered the
industry as a young as a young guy.
I'll never forget, like, when I was especiallywhen I was working for my uncle, like, trying
to figure out, like, what does a haul truckactually cost us?
(12:12):
I mean, sure, we know what the rental rate is.
We get a price from the dealer, but there's allthere's all the time hidden fees, and and there
are costs that are tacked on at the end of therental cycle, or maybe we didn't use all the
hours in the rental cycle that we should have.
And so we actually if you if you think aboutit, if you're paying $20,000 a month to rent a
(12:34):
haul truck and you only use a hundred hoursthat month instead of the hundred and seventy
six hours the dealer promised you, well, yourcost per hour is a lot higher than if you would
have used a hundred and seventy six hours.
And so there are a ton of nuances to thisequipment gain.
(12:56):
I think first and foremost, as a disclaimer, Ido not pretend to be an expert in equipment.
I have to say that.
Nothing I'm about to give you is advice thatyou should go put to use in your business
because I don't know your business.
I don't know I don't know the the nuances ofyour business.
(13:19):
I'm gonna tell you how I think about equipment,the whole game of equipment, the strategy that
is equipment.
But I don't you know, I'm gonna paint with somebroad strokes here, and and I don't want you to
take any of this as the gospel.
This is what I've learned over the lastfifteen, sixteen years, whatever it's been,
(13:39):
trying to figure out how to play this equipmentgame.
So so first and foremost, I'm gonna break itdown.
Equipment in my world and and we run verysimple machines.
None of our stuff, at least most of our stuff,is not, like, full custom built.
Now we have had some some dredges.
(14:00):
That was custom.
We have had some custom machines, some custombuckets.
You guys have seen the XMore buckets.
Shout out to the guys at AMI.
Shout out to Ben Rapple.
We we love AMI.
We love the XMore buckets.
But most of our stuff, for for for all intentsand purposes, is just off the shelf stuff you
can buy from Caterpillar, Komatsu, Volvo,Hitachi, so on and so forth.
(14:25):
And so I I say all that to say there are twocost buckets when talking about equipment.
The first cost bucket is your ownership cost.
What's it cost you to own the equipment?
The second cost bucket is the equipmentoperating expense.
We call it EOE.
(14:46):
Other companies call it something different.
But what does it cost you to own the machine?
And then what does it cost you to run themachine?
For every hour that you run the machine, themachine depreciates, believe it or not.
For every hour that you run the machine, ifyou're if you're actually running it, you have
expenses like tire wear.
(15:08):
You have track wear.
You have ground engaging tools, GET, that wearout as you dig into the earth.
You have liners in buckets.
You have cutting edges on dozers and blades.
There is wear and tear that happens on amachine.
You've got your preventative maintenance, yourfive hundred hour service, your a thousand hour
(15:33):
service, your majors.
This is equipment operating expense.
So those are your two equipment cost buckets.
Again, painting with very broad strokes.
You've got your ownership cost, which just tobreak it down very simply, is your principal
(15:53):
and your interest, and we'll get into residualsand stuff like that and how we calculate
ownership cost.
Ownership cost in our world, we can also userental cost as a substitute.
Right?
You've got your monthly rental payment dividedby and and all associated fees, environmental
fees, stuff that the dealers like to scam youwith.
(16:15):
And, I'm calling out dealers for environmentalfees.
Rental cost divided by the number of hoursyou're gonna run-in a month will also get you,
you know, an ownership slash rental rentalcost.
That's one bucket.
Your other bucket, the other half of yourequipment cost is your equipment operating
(16:36):
expense.
Before I go any further, I wanna give a freesponsorship.
Okay?
I hate to interrupt the podcast.
One of one of my good virtual friends, misterWade Gaines, shout out Wade, who is with an
equipment dealer, told me, don't interrupt mypodcast for sponsorships, but I have to for
(17:00):
this one.
This sponsorship, if you guys like this topic,if you guys are into equipment, if you're into
figuring out how in the world to cost equipmentfor your company, If you're trying to get into
a new role and you wanna learn more about howequipment costing is done, how equipment
maintenance is done.
(17:21):
I would even recommend haul truck drivers,equipment operators, people that want to learn
after hours, after their job is over for theday.
I'm all about continuing education informallyby reading, by learning, by watching, by doing.
I would highly, highly, highly recommend youbuy Mike Vorster's book.
(17:45):
It's called Construction Equipment EconomicsVersion Two.
How to Improve Fleet Management and Get theMost From Your Investment.
Mike is somebody that I got a lot of respectfor.
This is like a comprehensive guide forconstruction professionals on how to manage
heavy mobile equipment fleets.
(18:07):
Anybody that's anybody, and I'm gonna say thiswith 100% confidence, anybody that's anybody in
the industry of mining or construction that ismanaging a fleet of equipment, that is helping
cost equipment, Anybody that's anybody has readMike Forrester's content.
(18:29):
There's a version one of the book, and this isthis is an older book, the version one.
Version two is newer, updated.
It's got some it's got some more information init.
It's a $115 for the book.
Now you might be thinking, well, who sells abook for a $115?
Well, I'll tell you who sells a book for a$115.
(18:50):
A guy that will save your company millions ofdollars.
That's that's how you get to sell a book for a$115.
I think it's too cheap.
If I was Mike's, like, financial adviser, Iwould say, dude, you need to be selling this
book for $5.
There's no reason this book should be a $115.
(19:11):
It should cost $5,000.
And and that's probably like $5,000 per module,like per chapter.
This book will make that much of a difference.
So a lot of the stuff I'm going to talk aboutis is kind of a a distillation or distilled
down version of what Mike really breaks down inthe books.
(19:33):
Our guys have read it, like Patton, Jake.
Jake knows Mike.
Know, Mike's just a legend.
So it's Mike Borster, v o r s t e r.
The book is called Construction EquipmentEconomics.
Go look it up.
You can buy it.
CEMP Central Inc or cempcentral.com.
(19:55):
Go buy the book.
It's I'm telling you, I don't care if you're atruck driver, an operator, a foreman, a
superintendent, a vice president or CEO, youshould know this information.
This is very principled, foundationalinformation.
If you're in construction, if you're in mining,any any honestly, any industry that has heavy
(20:18):
assets, machinery, you have to read this book.
So there you go, Mike.
Free sponsorship.
Michael never listened to a podcast, especiallythis one.
But but that's that's a a key key component ofmy learnings over the years, even back I mean,
but even before I started Turner Mining Group,Mike was putting out this kind of information.
(20:41):
So in the book, he talks about building arobust organization, stresses the need for
clear roles, responsibilities, alignment withinthe organization for successful fleet
management, talks about understanding yourcosts, managing fleet age, managing utilization
of equipment, which is, I mean, critical, maybeone of the most critical pieces, and then
(21:04):
proactive management.
So tons of good information in there.
I can't recommend the book enough.
Gotta go you gotta go do it.
And then catoperatortraining.com has a I thinkit's a course that you can go take, a Mike
Forrester course.
He's an he's an ex cat an ex cat guyCaterpillar guy.
So to sum it all up, there's two buckets withequipment.
(21:29):
I'm gonna talk first and foremost because it'sa it's a more simple concept.
I'm gonna talk first and foremost about theownership portion of equipment cost.
I wanna be super clear here because a lot ofpeople mess this up.
A lot of people think estimating and biddingwork are the same thing.
(21:52):
You hear people like use them kind ofinterchangeably, use the two terms.
Oh, I'm in estimating.
You know, we bid work.
I'm like, okay.
Well, estimating and bidding, in my opinion,are two completely different things.
Completely different things.
And doesn't mean you have to have differentpeople doing estimating and different people
(22:15):
doing bidding.
You can have the same person or the same teamdoing both activities, but they're two separate
activities.
Estimating is an art first and foremost, andit's the art of calculating the true cost of
doing the work.
That's what estimating is.
(22:36):
It's the art of calculating the true cost ofdoing work.
Now bidding on the other hand is also an artform.
I a fan of bidding.
I'm good at bidding.
I am bad at estimating.
I don't like details.
I don't like to get into the minutiae ofcalculating rim pull and cycle times and all
(23:00):
that.
Just not great with it.
So estimating is not my strong suit.
Bidding, however, is the art of figuring outwhat price you can win the work for.
That's what bidding is.
Just because you estimate your cost to be adollar 50 a ton doesn't mean that you add your
(23:25):
margin or markup.
I'm not gonna waste time on this episode totalk about the differences in margin and
markup, but they're two totally differentthings.
Just because you have a cost, an estimated costof a dollar 50 per ton doesn't mean you quote
the work at a dollar 65 a ton.
(23:45):
You might be able to win the work at $2.15 aton or $3 a ton.
Bidding is different than estimating.
Okay?
So I had to clarify that.
Maybe that's a whole separate episode someother day.
When you're estimating equipment ownershiprates, It's very simple.
(24:08):
It's very simple.
And I don't wanna overcomplicate it.
I know there are gonna be people.
Mike Mike Vorster himself would would probablypick my pitch apart here, but it's very simple.
You have your original purchase price.
What is the price you're buying the machinefor?
Add in your taxes and fees and broker fees andwhatever, whatever your costs are, but add in
(24:30):
all those costs.
What can you buy the machine for?
For round numbers, let's assume the machine isa million dollars.
I'm actually gonna make it a a little morerelatable because not many folks that listen
are buying million dollar machines.
Let's pretend for one minute it's a $300,000machine.
Okay?
(24:50):
Brand new, right off the showroom floor.
You go to CONEXPO.
You buy a new machine.
It's $300,000 That machine, when you startrunning it, depreciates.
Now in my world, if I take a $300,000 brand newmachine and I never turn the key on and I leave
(25:13):
it parked in my yard for six months,theoretically, that machine is still worth
$300,000.
The key hasn't turned on.
The odometer hasn't moved.
There are no hours being logged on the machine.
It hasn't depreciated.
Now you can argue again, try not to get intothe minutiae of this all because this will take
(25:38):
three hours.
You could argue that if you let a machine sitfor a year or two and never turn the key on,
it's worth less than when you bought itbecause, you know, hoses start to dry rot, the
tires start to dry rot.
Like, obviously, there are, you know, somelimits to what we're talking about.
But if you park a machine in your front yard,never turn the key on, it should be worth the
(26:03):
exact same amount of money six months later aswhat you paid for it.
A machine depreciates when the hour metermoves.
Okay?
Hour meter's gonna be a critical component hereto calculating the ownership cost.
So in our world, when we buy a machine, wedon't wanna be speculative equipment
(26:24):
purchasers.
We want to buy machines really only when wehave a contract that we're gonna use the
machine for.
I don't wanna go just buy a fleet of trucks andtry to figure out when and where and how to use
them.
I will buy a fleet of trucks if I know we havetwo years, three years, four years, five years
worth of work for them on a specific contract.
(26:46):
And so what our team does is they calculate howmany hours they're gonna use the trucks for
over three years.
So in this case, if we have a $300,000 machine,let's pretend we're gonna use it for three
years, and each year, we're gonna put athousand hours on it, which is which is light.
(27:07):
I get it.
Most machines are gonna run two thousand hoursa year kind of standard.
Some machines, if you're double shifting themor triple shifting them, they might get 5,000 a
year.
They might get more than that.
But for for the sake of conversation, we have a$300,000 machine.
We're gonna put a thousand hours a year on itfor three years.
(27:29):
So at the end of the three year term, at theend of the three year contract, this machine
has three thousand hours on it.
Now what we need to do is calculate theresidual value of the machine when I'm ready to
get rid of it, whether I whether I sell it,whether I trade it in, whatever, send it to
(27:50):
auction.
What is the machine worth at the end of thethree year term, at the end of the three
thousand hours that I've put on it?
For for round numbers, let's say it's worth a$100,000.
So I've I've purchased the machine for$300,000.
I've ran it for three years.
I've put three thousand hours on it, and it'snow worth a $100,000.
(28:14):
That is the residual value.
That's the value left over after I've used it.
So I've got $200,000 now in depreciation.
Again, don't don't think straight linedepreciation and financing and all that yet.
Let's let's just keep it simple.
The machine has depreciated in value by$200,000, and it has done that over the course
(28:41):
of three thousand hours.
Okay?
So all we have to do here is take the $200,000that it's depreciated, divide it by the three
thousand hours we have ran the machine, and weget a depreciation cost per hour of $66.66 an
(29:06):
hour.
Are you with me?
Are you following me?
So if you just paid $300,000 cash for amachine, and I'm saying cash payment, you
didn't finance it, there's no interest expense,there's I'm not getting into insurance yet, You
paid 300,000 for it.
You ran it for three years, and you sold it fora 100,000.
You took 200,000 in depreciation on themachine.
(29:29):
You ran it for three thousand hours.
The cost of depreciation, that's all, justdepreciation, is $66 an hour.
Now I'm assuming you did not pay $300,000 incash for the machine.
I'm assuming.
I'm assuming you got a loan.
I'm assuming you called up Cat Finance orKomatsu Finance or one of your friendly bankers
(29:55):
in town and they gave you a loan.
Right?
Today, you can borrow money on a machine for,you know, if you got if you got a smoking deal,
maybe maybe 6%.
If you got a bad deal, maybe it's 10%, but it'ssomewhere in that range.
Those of you guys that are borrowing money atless than 6%, call me.
I'd love to talk to you.
Those of you guys that are lending money atless than 6% right now, call me.
(30:18):
I'd love to talk to you.
So let's assume you're paying a nominalinterest rate of 7% on a $300,000 purchase for
three years.
You can calculate I don't have my interestcalculator right here in front of me, I'm not
the best in the world at math.
But then you can do the same equation to figureout how much interest costs you per per hour of
(30:42):
run time.
So again, you've borrowed 300,000.
You borrowed that money for three years.
Once I get parked, I will I will push pausehere and do some simple math to get you kind of
a real number.
But you can also go online, Google equipmentcalculator, like I'm sure quicken.com.
(31:03):
The same way you can go Google a mortgagecalculator.
You can Google an equipment calculator.
You can put in exactly what you bought themachine for, what you're assuming the residual
value is, how many hours you plan to run it inthat period, what your interest rate is, any
fees.
You can also put your insurance costs in therebecause insurance is a real cost.
(31:24):
Every hour you run a machine, you've got someinsurance costs on the thing, and it will spit
you out a number that is really close.
Now the one big variable when calculatingequipment ownership cost, the one big variable
that you can screw up and it will throw allyour numbers off, that's your residual value.
(31:48):
And here's how that works.
If you buy the machine for 300,000 and you putthree thousand hours on it and you assumed you
could sell it for a $100,000, but you actuallyonly sold it for $50,000, what that means is
(32:08):
you've got 200,000 doll $250,000.
Excuse me.
What that means is you've got $250,000 indepreciation costs now spread over the same
three thousand hours you ran the machine.
Your cost per hour went from $66 up to $83.
Huge difference.
(32:30):
This is where people get screwed up.
This is where I have screwed up.
I can tell you, right now, I've got a I gotseveral of this one specific type of machine.
I'm not gonna say it on here.
I don't wanna get people in trouble, and Idon't need any more hate mail.
I got one type of machine that we assumed aresidual value on a few years ago when we
bought a bunch of them, and we're way off.
(32:53):
We're nowhere freaking close.
The residual value we thought we were gonna getout of these machines is off by a factor of
two.
Big, big problem.
So when you screw up your assumed residualvalues, your cost per hour goes way out of
(33:14):
whack.
Now as equally as painful as it can be on thebad end, if you over assume or you or, you
know, your rose colored glasses, you assume youget more in a residual value than what you can
actually go sell it for.
That's a bad scenario because your cost perhour goes up.
The opposite's also true though.
(33:35):
If if you get more out of a machine, and we'vedone this a few times, if you sell a machine
for way more than what you assumed you couldsell it for, your cost per hour comes down.
So instead of $66 an hour, if I sold themachine instead of a $100,000, I sold it for a
$150,000, Now I've only got a 150,000 indepreciation spread over the same three
(34:04):
thousand hours.
My cost went from $66 an hour to $50 an hour.
So you can see very quickly the number you havegot to get right is the residual value.
When you're coming up with equipment rates forbidding, for estimating, for just tracking your
costs on a job, you have got to get thisresidual value right.
(34:29):
And there's a lot of ways you can do it.
There's all kinds of programs out there.
I'm not gonna shout any of them out because Idon't have any real great firsthand experience
with them.
You could you could call Jay Cubble or, youknow, there's a lot of lot of folks in the
industry you could call, but call Jay Cubble.
He's got some experience with which programswork and which ones don't.
You know, I'm a big fan of just getting gettingon Machinery Trader and pulling comps of all
(34:53):
the machines we're trying to build rates forand seeing what they've sold for over the last
year.
That's a quick and dirty way.
It's not a super sophisticated way to do it,but that's you know, if I'm buying a backhoe or
a dozer or you know, something simple, you canget on Machinery Trader, see what all the same
D6s have sold for in the same hour range, inthe same kind of condition, and you can get a
(35:14):
good ballpark.
But this is a quick and dirty on how you comeup with equipment ownership.
This is your ownership rate.
Okay?
I don't know what your insurance rates are, soI'm not gonna talk about insurance.
You can calculate that on your own.
I don't know what your interest rate is, butall you have to do is add in your interest, add
(35:37):
in your insurance, and you have a fully bakedequipment ownership cost per hour.
And why I say per hour and not per month or notper year or not per mile if it's a truck or
something with tires, because hours are whatdrives the value of the machine.
(36:01):
When you're talking about yellow iron, nobodycares how many idle or excuse me.
Everyone cares how many idle hours.
No one cares how many miles your dozer has onit because you can replace the tracks, replace
the undercarriage, replace the sprockets, andyou're good to go.
Whether it's got a thousand miles on it or a100,000 miles on it.
(36:23):
No one cares.
Same thing with same thing with haul trucks.
If a haul truck's got one thousand hours on thetruck, but it's got 50,000 miles on I'm using
an extreme scenario here, but it's got 50,000miles on it, is that truck worth more or less
than the truck that's got a thousand hours and10,000 miles on it.
(36:45):
It's it's it's not worth any different.
Okay?
And again, people people might wanna argue thisand pick me apart.
We care about the hours on the machine.
When the key is on, when the ignition is on,when the hour meter is running, your machine is
depreciating.
(37:06):
Just just simple as that.
When the when the hour meter is running, yourmachine is depreciating.
And so it you gotta be I've seen a lot ofpeople sit there and idle a machine half a
shift or a whole shift, eight hours worth ofidle time.
And it's like, well, you didn't get any workdone for it.
(37:28):
Maybe if you're on a t and m contract, theowner wants to check the, the odometer, or the
hour meter.
Like, I guess, like, maybe you could justifyleaving a machine idle all day if you're on T
and M, but that's kind of I don't know.
Seems like a scammy way to do business.
Don't idle machines.
(37:50):
Some people believe like, well, I'm notrunning.
I'm not act you know, I'm I'm not my tiresaren't getting anywhere.
The undercarriage isn't getting anywhere.
My GET isn't getting anywhere.
I'm just sitting here idling it.
Do you realize that by idling the machine forfour hours, you're spending more money than you
would if you actually just calculated the GETor the or the equipment operating expense?
(38:16):
Most of the time, not always, but most of thetime, your equipment ownership rate is twice as
much as your equipment operating expense perhour, most of the time.
And it's not a it's not like a true one to tworatio or two to one ratio, but most of the
time, if a haul truck costs you $50 an hour inownership cost, generally speaking, the EOE is
(38:44):
gonna be somewhere around 25 to $30 an hour forequipment operating expense, your EOE figure.
So a big chunk of your runtime cost on amachine is just when the key is turned on.
So idling is costing you $50 an hour for everyhour you idle.
(39:06):
We gotta stop idling.
It's important for people to understand this.
I want my own operations to understand it, butI mean, obviously, for your operations, think
of how many thousands of dollars you can saveevery month by shutting the machine off because
you're paying for that idle time and themachine's depreciation.
(39:29):
Okay?
This is very simple stuff.
Now staying on equipment ownership for just onesecond.
I believe firmly the equipment ownership rate,let's say it's $50 an hour just for equipment
(39:49):
ownership.
And that's again, that's your depreciationcost.
That's your interest cost.
That's your insurance expense.
I believe that number should be the same whenit's in the estimating department.
That number should be the same when you'rebuilding your project budget.
And that number should be the same when you'redoing accounting work to provide your managers
(40:16):
with a project p and l, Project profit and lossreport.
This is where it gets much more detailed, muchtrickier.
This is where there are a bunch of differentschools of thought.
This is where cash flow becomes reallyimportant.
We've had our own internal battles on this fora long time.
I mean, we're right in the middle of switchingour system for the third time since we started,
(40:40):
literally for the third time.
For for a long time, we were just, you know,doing accounting work based on the rate that
the the basically, the finance payment.
If $5 a month came out, the bank pulled $5 amonth a month out for the debt service on the
machine, that's what we charge the project for.
(41:01):
Well, that's fine.
But what if the project was double shifting andrunning the equipment way more and we were only
charging the project $5 a month for it?
What ends up happening is at the end of theproject, when everything's said and done, we've
only charged the project let's say it's ayear's worth.
(41:22):
We've only charged the project twelve months at5,000 a month.
We've charged the project $60 for a machinethat was running double shift or triple shift,
we have improperly costed the job because thatmachine should have been costed way more than
(41:43):
$60 for that year it ran.
It should have been costed a $120 or a $150because again, it's depreciating.
You're running more hours.
So again, there are a lot of different schoolsof thought here, but my belief is usage based
cost accounting for assets is the way to go.
(42:05):
That causes other problems.
I know you again, I don't have a ton of time.
This is already getting too long winded.
If you calculate your machine cost is $50 anhour, I am of the belief you should charge your
projects $50 for every hour that machine runsregardless of how much the interest or or
(42:29):
excuse me, regardless of how much the financepayment is coming out of the bank every month.
And what this looks like is, for round numbers,if a machine if you're gonna if you're gonna
buy a machine, and again, sticking with $50 anhour for a second, if you're gonna finance the
machine on forty eight months, okay, and you'redoing all this math to say, well, two thousand
(42:51):
hours a year, four years worth of financing.
So I'm gonna have eight thousand hours on thismachine over four years and straight line
depreciation.
Here's why it doesn't work.
Because the first month you run and again, twothousand hours a year divided by twelve months
(43:15):
in a year, it's a hundred and sixty seven hoursa month is what you are kinda straight line
depreciating this asset.
You're you're forty eight months, eightthousand hours.
It's a hundred and sixty seven hours a month.
So you're if you pull a finance payment out ofthe bank for the asset and that's what you
(43:38):
charge to your project, you're charging yourproject a hundred and sixty seven hours at,
what do we say, $50 an hour, that's $8,300 amonth is what you're charging the project.
Okay?
So maybe, you know, again, for simple terms,your finance payment coming out of the bank for
(43:59):
your equipment is $8,300, and that gets you ahundred and sixty seven hours of runtime.
Here's the problem.
If you charge a project $8,300, but you ran themachine three hundred hours instead of a
hundred and sixty seven hours, what you'redoing is under costing the equipment for that
(44:24):
month, for that project.
Because, it's $8,300 to burn a hundred andsixty seven hours.
If you burn three hundred hours at $50 an hour,it's $15,000 is what you should have charged
the project for that asset that month.
(44:44):
The opposite is true.
If you run the machine eighty hours instead ofa hundred and sixty seven, eighty hours times
$50 an hour is $4,000 that month.
Here's where it gets a little hairy, and thisis what CFOs hate.
(45:09):
If you're paying the bank $8,300 a month forthe asset in a straight line depreciation, but
you're only charging your project $4,000 thatmonth because they only ran the machine $80 or
excuse me.
You're you're only charging the project $4,000that month because you only ran the machine
(45:29):
eighty hours.
You have a cash problem coming because you havemore cash going out the door than what you're
costing for the project.
Now, onesie, twosie, like one machine here andthere, not the end of the world.
Right?
Maybe next month, you make up the hours, andinstead of running a hundred and sixty seven
(45:50):
hours next month, you run two fifty, and youkinda catch up and it evens out in the wash.
If you have a whole fleet that's running fewerhours than what you originally based the rate
on, you're gonna have a cash problem becauseyou're paying more money to the bank than what
you're charging the project, and so the booksare gonna look terrible after a year or two.
(46:14):
So you gotta be aware of this.
I I account for this or want to account forthis in a fixed asset report is what we call
it.
It's all the assets in the company.
How many hours did we start with at thebeginning of the month?
How many hours did we end with at the end ofthe month?
That tells us how many hours we ran in amonth's period.
(46:36):
And then we can look at which machines aregetting utilized and which are not.
That's a that's a little bit different issue tosolve.
But but to properly account for machine cost atthe project level, project p and l's, again,
I'm living through this right now.
I'm gonna go in and have a meeting with my teamon this today.
You have to charge per hour of depreciation.
(47:02):
And here's why.
Make this very simple.
If you're a project manager and you pay $20 amonth for all your trucks, all your haul
trucks, That's that's the flat rate the companycharges you on your p and l.
Whether you run it an hour or whether you runit five hundred hours that month, you're paying
(47:22):
$20.
Here's the problem.
As a project manager, I have to plan my day,plan my resources for the day.
And if I can hit my production rates with ninetrucks instead of 10, I should only run nine
(47:45):
trucks that day.
I should shut one of the trucks off.
Doesn't make any sense to run that tenth truckif I can get the same number of loads with
nine.
But what happens is if you're paying for thetruck anyway, if you're paying a flat $20, if
the company's charging you on your p and l $20a month for the truck, why wouldn't I run the
(48:08):
tenth truck?
I'm getting charged for it anyway.
Might as well run it.
It creates bad behaviors.
This is where it's and again, some people mightargue with me.
I'd love to hear some theory on this.
This is where I believe knowing truedepreciation cost of the asset at the project
level and giving the power to the decisionmaker at the project level to pull the lever
(48:34):
and say, hey, I'm paying for every hour I runthese machines.
I gotta shut x y z machines off because I canpull in the same revenue without them, but I'm
only adding more cost to run them becausethey're running every hour.
I want managers knowing exactly what a machinecosts to run for every hour it runs.
(49:00):
If they just think a truck costs $20 a monthwhether it runs or not, They're not making any
decisions in the field in real time to optimizeour costs.
If we're charging them for all the trucks,guess what?
They're gonna run all the trucks whether theyneed to or not.
(49:22):
This is super, super important.
I've lived through this now three times.
I was gonna go into a whole different subjecton how to build an equipment team and then
build an ops team because at one point, we hadan equipment department, like a whole team of
equipment people.
(49:42):
It was a equipment leader, senior vicepresident of equipment, and he had a team.
And the equipment team charged the ops team.
They, like, sent invoices for equipment.
It I don't have time to go through that becauseI'm already what am I?
Oh, man.
I'm already at forty nine minutes.
Maybe I'll save that for tomorrow's episode.
(50:03):
You have to get this depreciation cost per hourright before you even think about anything
else.
Every hour you run a machine, it costs yourcompany money.
Every hour, the key is turned on.
Whether you're producing revenue with the unitor not, it costs your company money.
(50:24):
I have a rule of thumb when I was managingprojects, if you're gonna idle for more than
ten minutes, shut the machine off because youhave to let the turbo cool down.
Like, there's gonna be a bunch of equipmentnerds that are gonna argue, well, you gotta let
the thing cool down and you gotta let it warmup.
And if you're gonna idle for more than tenminutes, shut it off.
Unless the handbook says something different,unless some equipment guru consultant says,
(50:47):
well, yeah, but you're gonna have turbo issues.
Like, maybe it's thirty minutes.
If you're gonna let it idle for more thanthirty minutes, shut it off.
But if you're idling equipment, you're burningmoney.
You think you're saving money because you'renot actually, like, using a bunch of fuel and
you're not actually, like, putting the machineunder a load and burning GET and tires and
(51:11):
everything.
You're lighting money on fire to sit there andidle machines all day.
I'll never forget, quick story, and then Igotta go.
Pulled down into the pit one day, and we hadpit samplers.
This was a project in California with pitsamplers because there were seven different
types of ore that we were grading.
(51:31):
And so we had to have full time samplers, andthese samplers come down in the pit.
It's a big deep hole.
It takes twenty five minutes just to get downto the bottom.
We get down to the bottom of the pit, and twoore samplers are sitting in CAT seven forty
five hull trucks idling, sitting there on theirphones.
(51:55):
I parked the truck.
I get out.
I walk up to them.
I'm like, hey.
What are we doing?
They're like, oh, we're not doing anything.
We're just waiting on the we're waiting on thesamples to come back.
Because the lab was up at the top of themountain, the pit's at the bottom, you know,
you had to run samples.
So they had a guy running samples, and they'rewaiting to get the readout of the ore quality
(52:16):
so they could start painting the colors on theshot to tell the the hoe where to dig.
So I asked the question.
I'm like, okay.
You're waiting on samples.
What are we doing in haul trucks?
What what are you doing sitting here?
And they're like, well, these these thesetrucks were just they were just parked today.
We didn't have drivers.
We didn't need to run all these trucks.
So we're just sitting down here.
(52:37):
It's hot.
We're we're sitting here in the AC.
We were told we're allowed to do that.
I'm like, wait a second.
You were told because we had two extra truckssitting around, haul trucks, by the way,
sitting around that you could drive them to thebottom of the pit, park them, and sit in them
(52:59):
while you're waiting on samples to come backjust so that you could have air conditioning.
Like, yeah.
That's that's actually spot on.
So I did this little exercise with them.
I said, guys, do you know how much those truckscost you per hour to get air conditioning?
Do you have any idea?
I'll walk through it with them.
(53:20):
We did the calculation for the day, how manyhours they were gonna sit there and let those
trucks idle all day.
Because, again, all they're doing is ordercontrol.
It's all they're doing.
They're not driving the trucks.
They're not hauling loads.
They're just sitting with the trucks on idlefor ten hours to get air conditioning.
I said, these two trucks sitting here cost us$1,600 today to provide you air conditioning,
(53:48):
and that's just today.
If you do it again tomorrow, it's another$1,600, $80 an hour per truck.
You do it another day, it's 1,600.
I said, we can go down and rent two pickuptrucks from Enterprise for $500 for the whole
week.
You're burning $1,600 a day.
(54:12):
Why I tell that story?
They were blown away.
They're like, oh, hell.
We didn't know.
We were just we were just trying to get airconditioning.
Well, yeah, you didn't know because you didn'tthink.
And you didn't think because, quite frankly,it's not your job to think.
Your job is to do or control.
It's the leader of the operation's job tothink.
Never did the math.
(54:33):
Never thought of a creative solution.
Wait a second.
My guys need air conditioning.
Is there a cheaper way to get air conditioningthan $1,600 a day?
Oh, I I'm sure there is.
I mean, shoot.
I'll buy you a walk in deep freeze cheaper permonth than what it would cost to sit there and
let those trucks idle.
If the key is turned on, it's costing youroperation money.
(54:58):
It's costing your company money.
And at the end of the day, at the end of theyear, it's fewer dollars to go around.
I know this sounds tone deaf sitting where Isit.
Like, this is one big pitch to shut equipmentoff and people have to sit out there in a
sweltering heat.
That's not what I'm saying.
Go sit in the office.
Go sit in a pickup truck.
(55:18):
Let the pickup truck run.
Pickup trucks are opposite of heavy equipment.
Pickup trucks don't depreciate when you sitthere and idle.
You know why they don't depreciate when you sitthere and idle?
Because when you sell a pickup truck, what'sthe first question people ask?
They ask how many miles are on it, not how manyhours are on it.
(55:40):
Depreciation per hour is the first thing youhave to think about when talking about
equipment costing.
This is my fifty five minute intro intoequipment.
I'm not saying I'm a genius at it, but I amsaying we have done hundreds of thousands of
hours of equipment usage and costingdifferently and different mentalities and
(56:03):
methodologies and monthly costs and annualcosts.
This is the way to do it because it givespeople in the field the power to make a
decision to shut off a machine and save thecompany money.
So if you're not doing this, if you havequestions on it, hit me up on the hotline, 980
(56:24):
(980) 737-3436.
If you got more questions, we will do a parttwo to this talking about equipment operating
expense, maybe even a part three to thistalking about how to build an equipment team,
because again, this is something we'vestruggled with forever.
I told my guys the other day, I'm like, we'venever done equipment maintenance as a key
(56:48):
function of our business as a world classmaintenance team.
We've never done that.
That's something we're working on building.
It's we've got a lot of really good maintenancepeople.
We got guys that bust their balls every day tokeep machines running.
Equipment maintenance is a monster, especiallywhen you got several 100 machines all over the
(57:09):
country.
It's a monster.
It's why companies like Mater exist only to doequipment maintenance on machines.
It's a business.
That's their only thing they do as a business.
Equipment maintenance is tough.
So maybe we'll talk about that one part four.
But first and foremost, you gotta get yourdepreciation cost per hour down.
(57:30):
You gotta make sure your estimating team knowshow to use it.
You've gotta budget the project.
When you win something, you gotta budget theproject with the right number of machine hours
and then apply your depreciation per hour toget your true equipment costs in the budget.
And then you have to have your accounting teamreporting on the number of hours you're using
(57:52):
the machine every month.
What's the depreciation cost for that number ofhours?
And if you're using fewer hours, again, my ruleof thumb is if I'm using less than two hundred
hours a month on a machine, it's underutilized.
Now you could argue, you know, one fifty to twohundred is is proper utilization for a single
(58:15):
shift.
Anything below a hundred and fifty hours,though, it's underutilized.
And you better be accounting for thatunderutilization in your costs and your
depreciation costs.
So a lot to dive in there.
I could talk about this all day.
I'm actually gonna go talk about this today inthe office, but that's what I got.
I hope that answers the depreciation part ofthe question for the caller or the texter.
(58:39):
I think he text in the question, actually.
That's what I got.
Hope that was some value.
You got two podcast episodes dropped today.
Two for one.
I wasn't gonna let this one end on a bad note.
So I gave you an extra hour.
Hopefully, that brought some value.
If you're one of these guys that you're like,man, I don't care about any of that.
I just run the equipment.
(59:00):
Well, you you should freaking care about it.
If you're running equipment, you should careabout this.
Because if you stick your head in the sand andpretend you don't know what equipment costs per
hour to run, you're not very valuable to yourcompany.
And guess what?
If you're not very valuable to your company, Idon't think you go very far.
So that's what I got.
(59:20):
Pray you're killing it.
Pray you're getting your per diem.
Pray you tune back in tomorrow.
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