Ask a contractor what a job cost and you will get material invoices, sub invoices, and labor hours. Ask what the skid steer cost on that job and you usually get a shrug. The machine is paid for, the trailer was bought in 2019, the impact driver came out of the truck — so none of it hits the job. The work still happened, the machine still wore out, and the replacement still has to be bought out of somewhere. That somewhere is net profit.

Equipment cost recovery is the discipline of assigning what you already own to the jobs that use it. It is not an accounting exercise for its own sake. It changes what you bid, which jobs you take, and whether you can afford to replace a truck without financing the entire thing.

Why Owned Equipment Vanishes From Job Costing

Three things hide it. First, the cash already left — you paid for the excavator two years ago, so there is no invoice this month to code to a job. Second, depreciation lands in your year-end tax return as one lump number nobody connects to work performed. Third, the loan payment, if there is one, is a fixed monthly debit that feels like rent on the business, not a cost of production.

The result is a company that looks profitable on paper and never has money for equipment. You bid dirt work at a rate that assumes free machine time, win the job because your number is low, and then discover at year five that the undercarriage needs $9,000 and there is no reserve for it.

For a typical residential remodeler or small site contractor, owned equipment and small tools run 4–8% of revenue once you count trucks, trailers, compressors, generators, saws, ladders, scaffolding, and the annual tool bleed. On $900,000 of volume, that is $36,000 to $72,000 a year with no home in your job costs.

If a cost recurs every year and scales with the work you do, it belongs in job cost. Only genuinely fixed overhead — rent, insurance, your bookkeeper — belongs in the overhead rate.

Calculating Ownership Cost Per Hour

The standard approach separates ownership cost (you pay it whether the machine runs or not) from operating cost (you only pay it while it runs). Add them and you get a rate per operating hour.

Ownership cost per year:

  • Depreciation — (purchase price − expected salvage) ÷ useful life in years. A $52,000 mini excavator with $16,000 salvage at year seven is $5,143 per year.
  • Interest or opportunity cost — actual loan interest if financed; if you paid cash, use 6–8% of average book value. On an average value of $34,000, that is roughly $2,400.
  • Insurance, registration, and property tax — pull the real numbers from your policy declaration page. Call it $1,100.
  • Storage — yard space, container, or the portion of shop rent the machine occupies. Often $300–$800.

That machine carries roughly $9,100 per year before it turns a track. Now divide by realistic annual operating hours — not calendar hours, not the hours you wish. Most small contractors run a mini excavator 400–800 hours a year. At 600 hours, ownership alone is $15.17 per hour.

Operating cost per hour:

  • Fuel — gallons per hour × price. A 3.5-ton machine burns about 1.2 gph; at $4.10 diesel that is $4.92.
  • Lubricants and filters — typically 15–20% of fuel cost. Add $0.90.
  • Wear parts — tracks, teeth, cutting edges. Track set at $3,200 every 1,800 hours is $1.78 per hour.
  • Repairs — budget 40–60% of depreciation for a machine past year three. At 50% of $5,143 over 600 hours, that is $4.29.

Total: about $27 per operating hour, before the operator. Most contractors guessing at this number say “ten or fifteen bucks.” They are off by half, every hour, on every job.

Small Tools: Use a Percentage, Not a Ledger

Nobody should be tracking a $180 reciprocating saw to a specific job. The overhead of the tracking exceeds the value of the data. Use a small tools and consumables allowance expressed as a percentage of direct labor.

Pull two or three years of tool and consumable purchases — blades, bits, fasteners not billed to jobs, batteries, blades, layout supplies, replacement hand tools — and divide by direct labor dollars for the same period. Most residential and light commercial shops land between 2% and 4%. Trim carpenters run lower; demo and concrete crews run higher.

Then apply it: every job gets a small tools line equal to that percentage of its labor cost. A job with $28,000 of direct labor at 3% carries $840 of tools. Do this and two things happen. Your bids stop understating cost, and you build an actual replacement fund instead of raiding operating cash every time a crew destroys a chop saw.

Track the applied amount against actual purchases quarterly. If you are applying $14,000 a year and spending $21,000, your percentage is wrong — raise it. If you are consistently over-applying, lower it rather than quietly pocketing the difference in one job’s margin.

Ready to put this into practice? Download TrestleBook Free — it’s free and works offline.

Setting an Internal Rental Rate

Once you know true cost per hour, set an internal rate you charge to jobs. Two rules keep it honest.

First, never set it above local market rental. If a rental yard will deliver the same machine for $340 a day, your internal daily rate cannot be $420 — you are penalizing your own jobs and hiding a bad ownership decision. Most contractors land at 60–75% of market rental rate, which recovers cost and a modest return while staying defensible.

Second, pick one unit and stay with it. Hours work for machines with meters. Days work for trailers, compressors, and anything that sits on site whether it runs or not. Trucks are usually best handled as a per-day or per-mile rate rather than trying to allocate by hour.

  • Mini excavator — $27 true cost per hour, internal rate $38/hour or $285/day.
  • Dump trailer — $2,400 annual ownership, 110 use-days, internal rate $65/day.
  • Crew truck — $14,600 annual all-in, 220 working days, internal rate $66/day charged to whichever job it serves.
  • Compressor and gun package — $1,900 annual, 130 days, internal rate $22/day.

Publish the rate sheet to whoever estimates. A rate that lives in your head is a rate that gets left out of bids.

The rate sheet is not about billing the client more. It is about your estimate telling the truth, so you know which work actually makes money.

What Your Contract Lets You Bill

Recovering cost internally and billing it to a client are different questions, and contract type decides the second one.

  • Lump sum — equipment cost is baked into your price. You never show it separately, but if you left it out of the estimate you eat it. This is where most of the damage happens.
  • Cost-plus — owned equipment is only reimbursable if the contract says so. Many standard cost-plus agreements define reimbursable cost as “amounts actually paid to third parties,” which excludes your own machine entirely. Add an explicit clause with your rate schedule attached as an exhibit.
  • Time and materials — same issue. Your T&M rate sheet needs an equipment section, or you are donating machine time.
  • Unit price — equipment is embedded in the unit. Make sure your unit derivation included it.

The fix for cost-plus and T&M is one paragraph: “Contractor-owned equipment shall be charged at the rates set forth in Exhibit C, not to exceed prevailing local rental rates for comparable equipment.” That cap language is what gets it approved without argument.

Capturing Hours Without a Telematics Budget

None of this works if nobody records use. You do not need a fleet management platform. You need the crew to note which job the machine was on and for how long, the same day.

The simplest version that survives contact with a real crew: a daily entry per piece of equipment with job, start meter, end meter or day count. Ten seconds per machine. Attach it to the daily log the crew already keeps — a separate tool nobody opens is a tool nobody uses. Apps like TrestleBook let you log equipment days against a job from the field and keep it tied to that job’s cost record, so the data lands where the estimate can be compared to it later.

If you run a mixed operation — some contracting, some billable consulting or service work — the same discipline applies to non-construction time and assets, which is the kind of thing Stintly is built for on the freelance and small-business side. Contractors who also hold rental property have the identical problem there: the truck and the tools used to turn units over are a real cost of the rental business, and tracking them per property in something like KeyLoft keeps your contracting margins from quietly subsidizing your landlord side.

Rent or Own: Run the Break-Even

Once you have real ownership numbers, the rent-versus-own question stops being a gut call. Compare annual ownership cost to what you would pay renting for your actual use.

Take that $9,100-per-year mini excavator. Rental is $285 per day delivered, and you used it 42 days last year. Renting: $11,970. Owning: $9,100 plus operating costs you would pay either way. Ownership wins, but not by a landslide — and if usage drops to 28 days, renting is cheaper and carries no repair risk.

Rough break-evens for most small contractors:

  • Under 35–40 use-days a year — rent. The idle ownership cost and repair exposure are not worth it.
  • 40–80 days — borderline. Own it if the machine is core to your work and availability matters; rent if the need is seasonal.
  • Over 80 days — own, and make sure your internal rate is actually being charged to jobs so you fund the replacement.

The number that makes this decision is annual use-days, and you only have it if you have been logging equipment to jobs all along. That is the real payoff of the tracking discipline — not the individual job numbers, but the fleet decisions they enable at year-end.

Closing the Loop at Year-End

Run one report annually: applied equipment cost (what your jobs were charged) versus actual equipment cost (depreciation, interest, insurance, repairs, tool purchases). If applied exceeds actual, your rates are slightly high — fine, that surplus is your replacement reserve. If actual exceeds applied by more than 10%, you are still eating equipment cost, and every bid you wrote last year was low.

Adjust rates once a year, not job by job. Mid-year rate changes make comparisons between jobs meaningless, and comparison is the entire point. Keeping a year of equipment days alongside labor and material actuals in one place — TrestleBook or whatever system you use — is what makes that annual true-up a fifteen-minute exercise instead of a weekend of receipt archaeology.

The contractors who replace a truck with cash instead of a five-year note are not making more per job. They are charging their jobs for what the work actually consumes, including the assets they already bought, and letting the reserve build quietly in the background. Ownership cost is not free just because the invoice is old.