O&O Costs: Chain type trenchers

A trencher only has to do one thing, do it well and do it often. So contractors who want to find out how much to charge for their trenching services should have no trouble zeroing in on an accurate number.

To help us explore the owning and operating cost parameters of chain type trenchers we contacted Greg Adkins, trencher product manager at Ditch Witch. Adkins recommended we base our trencher O&O cost exercise on the Ditch Witch RT40 model, the company’s best seller. This rubber-tire, ride-on unit has a 42.2-horsepower engine and cuts to a depth of 5 feet, 3 inches, making it a good size for plumbers and electricians or trenching subcontractors who put pipe or conduit in the ground.

In this example we went with a no-frills model – a tractor with a centerline trencher (no side shift), standard axles without rear steer option and a 6-inch-wide dig capability and four-wheel drive. Adkins quotes a price of $37,700 to $38,500. If you wanted more features, say a traversing boom, a tilting backfill blade and four-wheel steer, those would bump the price up to $43,000 to $45,000. It’s worth noting that if you plug in the price for the fully-featured model into our calculations on page 40 it only bumps up your O&O costs about $3 per hour.

Please remember that in all these discussions the dollar figures provided are not actual amounts, but theoretical, and used for discussion purposes only. Your final tally will be different and depend on numerous variables, which you need to discus with a dealer.

Five-year lifecycle
For the lifecycle on this machine, it’s typical to run one about 600 hours a year for at least five years or 3,000 hours, Adkins says. That’s not to say many contractors flip these machines at five years. The 3,000-hour mark is just where many of the first rebuilds (engine, ground drive, hydraulics) come due. A lot of contractors will do the rebuilds and continue trenching with the refurbished machine. To get an idea of what these rebuilds will cost see “Rebuilding your machine” on page 41.

In our O&O costs series we deduct the resale value of the machine from your total owning costs. Not every method of calculating O&O costs does this. The more conservative models give the machine $0 in value at the end of the lifecycle. And some contractors prefer to treat the cash they get on resale as a down payment for the next new machine. But in this O&O model we credit you with $13,000 in resale value at the end of the lifecycle and assume the machine is in good condition.

In our TopBid auction price guide we found prices for four similar 2004 Ditch Witch RT40 trenchers. The high price was $18,000, the low $7,000; and there was one listed at $13,000 and another for $14,000. For more information on TopBid auction prices go to www.topbid.com.

The working end
The digging part of a trencher, the chain, teeth and sprocket, will require regular replacement. About twice a year, or every 300 hours, you’ll have to replace all three as a set. These are considered wear parts and will run about $3,100 every time you replace them. Individual cup teeth run $7 to $12 and all of them are replaced at one time. Rocky soil, cobble and other tough applications may add 10 to 15 percent to these costs, Adkins says. That’s not a lot, but something you should save back a little money for just in case.

Your two biggest operating costs, fuel and labor, are pretty well set in stone. Apply whatever the going rate is in your area for labor. In our estimate we used $18 an hour and tacked on another 33 percent for taxes and benefits.

The RT40 uses 2.3 gallons of fuel per hour at full throttle, and anytime you have the boom in the ground you’re running full throttle. Other than backfilling with a blade, there aren’t any medium or light duty fuel usage applications, so we’ve stuck with the 2.3 gph figure and priced diesel at $4 a gallon.

Preventive maintenance is relatively easy on a trencher. Adkins recommends following the guidelines in the operator’s manual. This costs about $300 a year for parts if you do the maintenance yourself, which many contractors do, Adkins says. If you have someone else do it, price in the labor.

Return on investment
Trencher work is typically priced by the foot. Prices vary depending on location and depth but for the kind of work done by the RT40, the general range is $0.85 to $1 a foot says Adkins. Once the boom is lowered this size trencher will be able to dig about 3 to 4 feet per minute. If you extrapolate that for estimating purposes over 600 hours a year, that works out to about $204 per hour gross profit or $122,000 gross profit per year.

But you’re not done yet.

The difference between the $204 dollars per hour you can charge for trenching services and the $51.41 per hour it costs you to run the trencher does not mean you’ll make a net profit of $152.63. Additional costs you have to consider (and calculate down to the hour) include:

  • A truck and trailer to tow the trencher. Trucks can be all over the map, but figure at least $15,000 for a used truck, $30,000 for new. A flatbed trailer to hold this 4,200-pound machine will set you back $5,000 to $7,000. And don’t forget to factor in fuel and the cost of the tags and insurance on the truck.
  • Overhead. This is what it costs you to do business, other than the direct costs involved in doing the job that we’ve mentioned above. It includes things like the cost of your office, shop and yard, business licenses, insurance, bookkeeping and other professional services, taxes, fees, cost of capital and your salary (unless you are the one doing the work, in which case that’s taken care of in the wages section).
  • Depreciation. This is money you gain back by reducing your taxes. Normally you can depreciate up to 25 percent of the cost of a piece of equipment each year. This year there are special bonus depreciation allowances provided by the federal government to help stimulate the economy. For more on those see the June 2008 Equipment World article Business Management: Financing to Win. How much you can benefit from any depreciation depends on the profitability of your business, your tax status and a lot of other factors. Consult with your accountant to zero in on an exact figure.

Rebuilding your machine
While many of the major components on a trencher will be nearing the end of their first estimated lifecycle at the five-year/3,000- to 4,000-hour mark, there’s no reason you can’t rebuild these components and get another five productive years out of the same machine. Many small trenching contractors and plumbers and electricians do just that, Adkins says.

To help you estimate what it costs to keep your trencher in service for another lifecycle, Adkins provides these general rebuild cost guidelines. As with any costs cited here, these will vary widely according to labor rates, and the amount of wear or rebuilding necessary to bring a component back up to spec.

Note that major repairs like this (that substantially improve the condition of the machine) can be treated as a capital expense and depreciated over time, just as you can depreciate the cost of buying a new machine.