What it means
Asset-heavy businesses rarely think in monthly totals; they think in units of time. A drilling contractor, a charter airline, a plant hire firm and a commercial print works all sell hours, so the cost of one hour is the number that drives pricing, scheduling and investment decisions.
CCPH answers a narrow question: of everything it costs to run this asset, how much is actual cash going out of the door? Fuel, operator wages, consumables, maintenance parts and labour all count, while depreciation and asset write-downs do not, because no money moves when those are booked.
Managers separate cash cost from total cost because the two answer different questions. Total cost per hour tells you whether an asset earns its keep across its whole life, while cash cost per hour tells you whether it is worth switching the machine on tomorrow morning.
In a downturn that distinction decides whether a fleet keeps working or sits idle. If the market rate per hour sits above cash cost but below full cost, the owner is losing money on paper yet still generating cash that helps cover fixed overheads and loan instalments.
Watch for three variations in how the figure is built. Some firms divide by billable hours only, some by every hour the asset was available for work, and some add an allocation of head office cost, which quietly turns a clean operating measure into something closer to a full absorption rate.
In practice
Real-world examples.
Example
A regional charter airline prices a six-hour round trip for a corporate client. Its cash cost per flying hour is $2,400, so fuel, crew and landing fees alone consume $14,400. The sales team is instructed never to quote below $16,000, even for a repeat customer.
Example
A commercial print works is offered an overnight run at a thin price. Cash cost per press hour is $140 and the job needs 50 hours, so $7,000 of cash goes out of the door. Management accepts the $8,500 offer because the press would otherwise stand idle all night.
Example
A haulage contractor compares two tippers before deciding what to replace. The newer truck runs at a cash cost of $62 an hour against $79 for the older one, mostly in fuel and repairs. That $17 gap over 2,000 hours a year justifies replacing the old vehicle even though its purchase price was paid off years ago.
Formula
Calculation
Cash cost per hour = Total cash operating costs for the period / Operating hours in the period
A plant hire firm runs one excavator for 1,500 operating hours in a year. Its cash costs are fuel of $90,000, operator wages of $120,000, maintenance parts and labour of $45,000, insurance of $12,000 and licence fees of $3,000. Total cash cost is $90,000 + $120,000 + $45,000 + $12,000 + $3,000 = $270,000, so CCPH is $270,000 / 1,500 = $180 an hour. Depreciation of $60,000 a year is excluded from CCPH, but adding it gives a total cost per hour of $330,000 / 1,500 = $220. At a market hire rate of $200 an hour the excavator therefore covers its cash costs with $20 an hour to spare while still losing $20 an hour once depreciation is counted.Case study
Seen in the real world.
Brayford Plant Services is an illustrative, entirely fictional equipment hire business with 40 machines and a management team that priced work from a single blended rate card. When a national competitor started undercutting them, the owner assumed every discounted job was a loss and told the sales team to walk away.
The finance manager rebuilt the numbers machine by machine and calculated a cash cost per hour for each one. The exercise showed that the older, fully depreciated machines had a cash cost per hour roughly 30% below the blended rate the sales team had been defending, while two newer, heavily financed machines were the genuine loss-makers at the discounted price.
In this illustrative story the firm kept bidding aggressively with the older fleet, held firm on pricing for the newer machines and moved one underused machine onto long-term hire instead of day work. Nothing about the cost base changed; only the quality of the information behind the quote did.
Watch out
Common mistakes.
- Treating cash cost per hour as the full cost of running an asset and pricing off it permanently, which slowly starves the business of the money needed to replace the machine.
- Dividing by calendar hours instead of operating hours, which makes an idle asset look remarkably cheap to run.
- Quietly including depreciation or head office overhead in the figure and still calling it a cash cost, so two reports using the same abbreviation are not comparable.
Questions
People also ask.
Does CCPH include maintenance?
Yes, the cash parts of it: parts, consumables and the labour actually paid for, though a provision set aside for a future overhaul is not cash until it is spent.
When is it right to accept work below full cost per hour?
When the price clears cash cost, the asset would otherwise be idle and the job does not displace better-paying work or damage your pricing with other customers.
How often should the figure be recalculated?
At least quarterly for fuel-intensive assets, because a change in fuel or wage rates can move the number by more than the margin on a typical job.
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