How to Place a Value on Another Person’s Machine

How to Place a Value on Another Person’s Machine


From time to time a person has the opportunity to use another person’s machine. The challenge is to determine the value of that machine. A machine's value is established by first determining the machine’s cost per hour. Once you know the cost per hour of your uncle's (or the owner’s) machine, you can start to put a price or value on that machine.


One method is to find the “Equivalent Value” of the machine. This helps to make sure that you are not over paying for the borrowed machine. There are times when it is cheaper to rent a machine than to own or borrow a machine. Likewise, some people are renting when they should be owning.


Determining the cost of a machine is not particularly hard. But, the first time you cost a machine it does take some time to collect all of the necessary information. This is an estimate. It is not perfect but it is lot better than guessing or using someone else’s numbers.


All too often people try to take a very dangerous a short cut by using rental or competitor prices for the purpose of setting the price they charge for a machine. It is natural (but wrong), to think that; "They must know their cost, because they are a large operation". Remember being bigger does not automatically mean better. It just means that they can get away with mistakes (like poor cost calculations), longer than the smaller guy.


The value of a borrowed machine has a lot do with the Owning Costs of a machine. These are the fixed costs of owning a machine. An older machine’s Operating Cost is first determined by Fair Market Value (FMV) of the machine. A visit to Ritchee Bros. web site  Auction Results, will give you a quick (but rough), idea of the machine’s FMV.


The more hours you use the machine in a year, the less these hours will cost you (or the owner) per hour. A machine that get used 1,000 hours a year will cost about 66% less Owning Cost per hour,  than a machine that only gets 333 hours of use per year. This is because the fixed costs are spread over the hours the machine is used.

People are shocked to find out that the old machine they keep around for occasional service is perhaps costing them more per hour of use, then a new machine that gets used regularly. It is an absolute fallacy that a machine which is paid-off, only costs you for fuel and grease.


Operating Cost must include not only fuel, oil changes and grease but also many other costs for future expense of:

• Major component or parts repair and replacement
• Ground Engaging Tool wear parts
• Tires or Track and Undercarriage
• Many small repairs costing less than $500.00.

The Life Cycle of these components and parts are directly increased or decreased by the Job Conditions or Work Application where the machine is used. (See here).


Here is a link to a free online costing tool which you can use to bring many of these costs together. (Click here). Send me a message if you would like to get more information on machine costing.


Dan Rooks
Decisive Systems, Inc.
www.DecisiveCost.com