A crew-and-machine hourly rate is one number that adds two costs: the machine's ownership cost per hour and the crew's cost per hour. The two parts come from different records and change for different reasons, so set each one on its own and add them only at the end.
Key takeaways
- Set the crew part and the machine part separately, and add them only at the end.
- Start the machine part from a documented cost, and give salvage value a reason you can state in a sentence.
- Divide each year's depreciation charge by that year's expected working hours, not by one average.
- Keep tax write-offs out of the bid rate, and test the rate against low and high hours before you bid.
This post is for estimators who build that rate and want to see where each part comes from. If you know your crew's wages cold but have never worked out how a machine's purchase price turns into a number per hour, this is the gap it fills. It is also for anyone who has inherited a rate file and cannot tell which figures are current.
Most estimators set the crew part quickly from payroll they already keep. The machine part is where a rate tends to drift. Each estimate can be off, and the errors compound when they are multiplied through the arithmetic. A rate that looks precise to the last cent may rest on a guess made years earlier.
The steps below follow the order you would take them. They use a worked depreciation example from the OpenStax accounting textbook so you can watch each figure move through the arithmetic. The example is not your machine, and its numbers are not yours to copy. What carries over is the method. The post does not cover markup, overhead, fuel, or repairs.
1. Gather what the machine cost to get working
Start with the machine's cost. Use what you paid for it, plus the other amounts you spent to make it ready to work, such as delivery and setup charges that your records show. When a customer, a lender, or your accountant asks where a number came from, you want to point to a page rather than rely on memory.
Keep purchase costs apart from anything you paid later. A charge that was part of getting the machine into working order belongs with the purchase. A charge for keeping it running belongs somewhere else. Mixing the two makes the starting figure impossible to check, and it makes the next person who opens the file guess at what you meant.
Used machines and rebuilt machines need one more decision. If you bought a used machine and then paid for a major overhaul, decide whether the overhaul belongs in the machine's cost or whether it is a repair you charge to the work as it happens. Write that decision in the file, along with the reason. Your bookkeeper or tax preparer may already treat these items a certain way, so match the rate file to the method the company uses for its books. Consistency across jobs is worth more than any one clever choice.
The total you arrive at is the starting figure for everything that follows. In the OpenStax textbook's example, a company buys an asset with a total cost of $58,000 ( OpenStax), and the rest of the example builds from that number. Your figure will be different. It should be the one you can document, not the one that makes the rate look right. For the wider job cost picture, see Job cost breakdown: 3 parts to check before you bid.
2. Estimate the salvage value
Salvage value is what you expect the machine to be worth when you stop using it, whether you sell it, trade it, or scrap it. It is the part of the cost you expect to get back, so it should not be charged to your work. If you leave salvage at zero when you actually expect a resale, the rate will carry more cost than the machine will really use up. If you enter a large salvage figure with no support, the rate will look cheap, and you will come up short when the machine has to be replaced.
The salvage estimate also works in a direction many people do not expect. A higher salvage value means a smaller pool to spread. In the example, if salvage were $0 instead of $10,000, the amount to spread would rise from $48,000 to $58,000. An optimistic resale number quietly lowers every hourly figure that depends on it.
Be realistic and write the basis down. Base the estimate on what similar machines sell for at the age you expect to sell this one. You do not need a formal appraisal for a rate, but you do need a reason you can state in a sentence. "Resale value for this model at about the age we plan to sell" is a reason. "Probably worth something" is not.
Check the estimate against your own history when you can. If you have sold or traded machines before, pull those records and see what they actually brought in. A machine you run hard until it is worn out will have a different salvage picture than one you rotate out early, and the file should reflect which pattern your company follows.
The textbook presents its figures as assumptions for the example, not as values for any real machine. In its case the salvage value is $10,000 against the $58,000 total cost ( OpenStax). Treat those numbers as a sample of the arithmetic you will repeat with your own figures.
3. Estimate the useful life and working hours
The useful life is the period over which you spread the cost. For a crew-and-machine rate, it helps to think in working hours as well as in calendar years, because a machine that works every day wears differently than one that sits for half the year. Estimate two things: how many years the machine will stay in service, and how many working hours you expect it to deliver in each of those years.
Use real records for both. The machine's service history, your job records from the last few years, and any hour-meter readings are the best sources you have. If the machine is new to your fleet, base the estimate on the work you plan to give it and say so in the file. It is also useful to write three figures instead of one: a low, an expected, and a high hours estimate. Then you can see how much the rate depends on the guess.
The textbook is blunt about this step. It criticizes management teams that fail "to invest either time or attention into making or periodically revisiting and revising reasonably supportable estimates of asset lives or salvage values, or the selection of depreciation methods," and it calls that failure "not an ethical approach to properly accounting for the use of assets" ( OpenStax). You do not need to follow the textbook's accounting rules to take its point. An estimate that is set once and never revisited keeps pushing every hourly figure in the same direction.
The same text shows that an estimate can change when the facts change. In its Kenzie example, after five years and $48,000 in accumulated depreciation, the company estimated it could use the asset for two more years, at which point the salvage value would be $0 ( OpenStax). Your rate file needs the same willingness to revise. When hours go up or down, or when a machine lasts longer than you planned, update the life and salvage figures and note the date and the reason.
4. Spread the depreciable amount into a yearly figure
The depreciable amount is the total cost minus the salvage value. It is the pool you spread over the years of service. In the OpenStax example, $58,000 minus $10,000 leaves $48,000, which the textbook calls the depreciable amount. The table that follows pulls the example's figures together, with a note on what each one means for your rate.
The first year is usually a partial year. The textbook's first-year depreciation is $7,200, which it writes as $9,600 × 9/12 ( OpenStax). Nine months of a twelve-month year gets nine-twelfths of a full year's charge. A machine you put into service in the middle of a year follows the same logic: charge the part of the year it was actually in service, not a full year.
After the first year, the example's schedule shows $9,600 for four more years and $2,400 in the sixth year. Those figures, added to the first-year charge, reach the depreciable amount of $48,000 ( OpenStax). That sum is a check you can run on your own file. Add up every yearly figure across the full life, and the total should match the depreciable amount. If it doesn't, a year has been dropped or counted twice. For the same yearly-to-hourly step laid out on its own, see Press yearly depreciation: 3 steps for bid rates.
A flat yearly charge is easy to explain, and the example uses one. If your machine's hours swing a lot between years, the yearly charge stays the same while the hourly figure moves. That is exactly why the next step divides by hours for each year rather than dividing the whole life by one average.
5. Turn the yearly figure into an hourly figure
A yearly depreciation charge does not belong in an hourly rate yet. To convert it, divide the yearly figure by the working hours you expect in that year. The result is the machine's ownership cost per hour. If a year's charge is $9,600, you divide $9,600 by the expected working hours for that year. The hours figure is the input you have to defend from your records, and any change to it changes the result directly.
Use working hours, not calendar hours. A machine that sits on the site during a weather delay should not be charged the same way as one that is working. If you bill the machine by the shift, by the day, or by some other unit, convert the hours into that unit before you divide, and keep the conversion in the file so the next person can follow it.
Think about the years, not just the average. Suppose one year has heavy use and the next has little. The yearly charge is the same in both, but the hourly figure for the slow year will be higher, because the same cost is spread over fewer hours. If you use one average hours figure for the whole life, you hide that swing. A rate built on the average looks fine on paper and loses money in the slow year.
Do not take the easy route of using the highest hours you have ever logged. A high hours figure makes the ownership cost per hour look small. The rate then comes out too low in a slow year, and the difference falls on the company. Use an expected figure, and check it against the last several years of job records.
Decide how many decimal places to carry, and carry the same number everywhere. Rounding the yearly charge early and the hours late can move the final rate by enough to matter on a large job. Write the rounding rule in the file so that two people running the same numbers get the same answer.
Last, label the result correctly. Writing the unit on the line prevents a confusion that is easy to make later, when someone copies the figure into a spreadsheet and multiplies it by the wrong amount.
6. Keep tax write-offs separate from the rate
Tax depreciation is a separate question, and it has its own rules. The IRS describes a permanent 100% additional first-year depreciation deduction for qualified property acquired after January 19, 2025 ( IRS). The same publication sets a dollar cap on the Section 179 expense election for tax years beginning in 2025 ( IRS). Those rules decide how much of a machine's cost a tax return can deduct and in which year.
A deduction like that can put most of a machine's cost into one year. A rate built on the tax schedule would show a large cost in that year and almost none afterward. That pattern does not match how the machine is used, and it would make a bid look expensive one year and cheap the next, even though the work was the same. Tax depreciation and the cost you spread over a machine's working life answer different questions. One asks what you can deduct on a return. The other asks what the machine costs per hour of work.
Keep them apart. Record any tax figure in its own column with its own source, and let your tax preparer confirm the rule that applies to the year you bought the machine. The rate file should use the working-life method from the previous steps for the bid, and the tax columns can sit beside it for the books. Mixing the two is the quickest way to end up with a rate nobody can explain.
7. Set the crew's cost per hour
The second part is the crew, and it has its own inputs. Its cost does not depend on the machine's age or on the depreciation schedule, so set it separately and keep it current. List each person who runs the machine or works alongside it during the same hours. Your list is whatever your crew actually is, whether that is one operator or an operator with one or more helpers.
Be clear about who belongs on the list. A supervisor who is on the job for the whole day but never touches the machine may or may not belong in the crew part, depending on how your company prices supervision. Decide the rule once, write it down, and apply it to every estimate. The same goes for a person who joins for an hour to help with a single lift.
For each person, take the pay per hour from your payroll records. If someone is paid by the unit, by a flat amount for a task, or by some mix, convert that pay into an hourly figure from your own records before you add it. Write the conversion in the file. A reviewer should be able to see how the number was built, and an hourly figure you cannot explain will not hold up when a bid is questioned.
Add the hourly figures to get the crew's cost per hour. Then decide which wage-related costs your company pays on those hours, and include them the same way every time. Consistency matters more here than false precision. If one estimate includes a cost and the next one leaves it out, the two rates cannot be compared, and a bid that looks cheaper may simply be built differently.
Think also about hours the crew is paid for while the machine is not running. Waiting time on a job is a real cost. Decide whether the crew part of the rate applies to paid crew hours or only to machine hours, and write down which one you chose. If the crew changes partway through a year, keep a separate figure for each arrangement rather than one average that hides the change. For more on paid crew hours, see Crew hours: 3 paid-time and overtime costs to price.
Keep the crew figure separate from the machine figure until the last step. When a wage changes, you update one number and the machine part stays where it was. That makes the file easier to audit and easier to update.
8. Add the parts and test the rate
Now combine them. Let C be the crew's cost per hour, D be the yearly depreciation charge, and H be the expected working hours for that same year. The crew-and-machine hourly rate is then C + (D ÷ H). Use the same year for D and H, because pairing a depreciation figure from one year with an hours figure from another produces a number that describes neither year.
The table below names each input, what it stands for, and where it should come from in your own records.
The example shows why the pairing matters. Its first-year charge is $7,200, and a later full year's charge is $9,600. Divide each by the hours you expect in its own year. If the first year has far fewer working hours than a full year would, its hourly figure can come out higher than a later year's, even though its dollar charge is smaller. The crew part, C, stays the same from year to year unless your crew changes. If you also carry running costs such as fuel or repairs, add them as their own line, with their own source, so they stay visible.
Before you use the rate in a bid, run three checks. First, change the hours estimate to your low and high figures and see how far the machine part moves. Second, change the useful life by a year and see whether the bid still makes sense. Third, check that the yearly figures in your depreciation schedule still add to the depreciable amount. If a small change in your guesses swings the rate a lot, that is a sign to get better records before you bid, not a reason to pick the number you like best.
Think about how the rate will be read by someone else. A client or a project manager will see the final figure but rarely the steps behind it. Keep the file ready so you can show how the crew part and the machine part were built, and which estimates were revised, without rebuilding the rate from scratch.
Finally, put a review date on the rate. Revisit the hours, salvage, and crew figures on a regular schedule, and rerun both parts whenever the machine's hours change, a machine is replaced, or the crew changes. Then the number stays tied to the work you actually do, and the next estimate starts from a file you can defend.
Your next step today: open your rate file, check the hours figure against your job records from the last few years, and write the date and reason beside any change.
Related guides: Construction overtime cost: 5 inputs for a bid rate · Diesel cost: 3 signs to check before setting a bid rate · Sub quote or own crew: 4 relevant cost checks.
Frequently asked questions
Should I add the crew part and the machine part as I go?
No: set each part on its own and add them only at the end, as step 8 describes.
Can tax depreciation go in the bid rate?
No: a tax deduction can put most of a machine's cost into one year, so keep tax figures in their own column.