At face value, a lower cost machine might seem like a better investment, but it’s important to look beyond the initial purchase price to consider the machine’s total cost of ownership (TCO).
Purchasing a piece of used equipment can be a smart investment, but sometimes it's tough to know exactly what you're getting for the money. If you're searching on a used equipment site or buying at auction, you might find two comparably sized machines with comparable age and hours — yet one is priced lower. At face value, the lower cost machine might seem like the better investment, but it's important to look beyond the initial purchase price to consider the machine's total cost of ownership (TCO).
The costs that go into calculating TCO generally fall into two broad categories — ownership costs and operating costs. While some of the ownership costs can be easily identified before the purchase (e.g., purchase price, taxes, insurance), other ownership and operating costs will require some further estimation based on the specific machine and anticipated use.
Consider these key factors when calculating a machine's estimated TCO before selecting a machine:
Total purchase price of the machine. Make sure to include all options, delivery and setup costs.
The purchase price without tires or tracks. Since the cost of the tires is included in the operating cost, you should remove it from the owning side of the equation.
Residual value is the expected fair market value at the end of your period of ownership. One of the best ways to estimate this is to research comparable used machines at the age and hour mark that match what you would anticipate at the end of your ownership period. A few additional considerations and buying tips for maintaining a good residual value include:
- Reduce idle times: One of the best ways to increase residual value throughout your ownership period is to reduce idle times that burn unnecessary hours on the machine. Look for a used machine that has features such as auto engine shutdown and telematics programs that help track machine utilization.
- Turn to industry resources: EquipmentWatch is a good resource for researching equipment models that have been identified as the best in the industry for retained value and cost of ownership.
Interest rate is the rate to be used in calculating cost of capital. When evaluating used equipment, look for seasonal financing deals from OEMs.
Fuel consumption: While this can differ by application, the manufacturer should be able to provide model-rated average fuel consumption.
Anticipated life (in hours) of a set of tires or tracks. Check with the seller on how many hours the tires/tracks have on them at the time of purchase in order help estimate remaining life.
Repair and maintenance costs for the intended life. This can be calculated by setting up a spreadsheet for the components, their lives, parts and labor cost. This is where the specific machine and the services offered by the seller can make a big difference in ownership costs. A few things you may want to ask the seller include:
- Ask for an oil analysis in order to better predict expected component life spans.
- Ask about receiving the complete vehicle history report, which should be available from their telematics system.
- Ask about parts availability and any guarantees offered by the manufacturer.
- Ask about any warranties offered on used equipment.
- Ask about machine monitoring and telematics programs that can help you better manage how your machine is used.
Keep the basics in mind when looking at used equipment. Have a mechanic look over the machine before your purchase to make sure all the data points being provided to you are accurate. Then be sure you're comparing initial purchase prices to TCO to evaluate which machine makes the most financial sense over the long run.
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