Own or contract machinery

A new machine is exciting. It's reliable, it's there when you need it and it can make the job faster. But owning gear costs money every year, even when it sits in the shed. Sometimes a contractor is cheaper.

The costs of owning

When you own a machine, there are two kinds of cost.

Fixed costs happen whether you use it or not:

• Depreciation: the value the machine loses each year. A simple way to estimate it is the price less what you'd expect to sell it for, divided by the years you'll keep it.
• Interest: on the money borrowed, or the interest you could have earned or saved if you'd used your own cash.
• Insurance and housing: cover and a shed to keep it in.

Running costs go up with use: fuel, repairs, servicing, and your own or your staff's labour.

The costs of contracting

A contractor usually charges per hour, per hectare or per unit, such as per bale. You pay only for the work done. You avoid the fixed costs, but you may wait for the contractor in a busy season.

Compare on the same unit

Work out your cost per hour, per hectare or per bale if you owned the machine:

1. Add up the yearly fixed costs.
2. Add the running costs for the work you'll do.
3. Divide by the hours, hectares or bales.

Then compare that with the contractor's rate.

The break-even point

Fixed costs are spread over the work you do. The more you use a machine, the cheaper each unit gets. So there's a break-even point: below it, the contractor is cheaper. Above it, owning is cheaper. Be honest about how much work the machine will really do.

It's not only about cost

• Timeliness. Getting hay baled or a crop sprayed at the right time can be worth more than the cost difference.
• Labour. Do you have the people to run it?
• Risk. A machine is a fixed cost in a dry year, when you may do less work.

Our own or contract calculator runs the numbers, and the machinery register helps you track what you own, its age and what it's costing. The before you buy machinery checklist covers the questions to ask first.