The arithmetic of adding a truck, a crew or a chair

Capacity decisions are all the same shape whatever the business. You add one unit — a van and two people, a chair, a bay, a machine and an operator — and it carries a fixed weekly cost from the first day while producing revenue only when it is used. The question is how used it has to be.

The payment on the asset is the smallest part of that cost, which is why the decision made on the payment alone is usually wrong.

Build the weekly cost of one unit

• Wages: 2 people at 22.50 an hour, 40 hours, plus 24 per cent burden — 2,232 a week
• Van payment 1,180 a month and insurance 620 a month — 415 a week
• Fuel — 340 a week
• Consumables and small tools — 90 a week

Weekly cost: 3,077.

The van payment is 273 a week of that, under 9 per cent. Everything else is the people and the running costs. A decision framed as "can we afford 1,180 a month" is answering a question that is not being asked.

Contribution per productive day

Revenue per billed day is 1,150. Materials run 18 per cent of revenue, so each billed day contributes 943.

Break-even is 3,077 divided by 943 — 3.26 billed days a week, or 65 per cent utilisation on a five-day week.

That single number is the decision. Not the revenue the crew might generate, not the payment, but: can this unit be busy 65 per cent of the time, every week, including the weeks with rain, a sick day and a cancelled job.

The ramp

New capacity is not immediately busy, and the cost is fully present from week one.

• Month 1 at 45 per cent utilisation: -4,141
• Month 2 at 60 per cent: -1,076
• Month 3 at 75 per cent: +1,988
• Steady state at 85 per cent: +4,032 a month

Cumulative over the first three months: -3,229. That is the cash the decision costs before it starts contributing, and it is the number that should be financed, alongside the asset itself.

Steady state at 85 per cent produces 48,000 a year of contribution against a van costing 58,000 — a payback inside eighteen months, which is a good use of capital. The same unit stuck at 60 per cent utilisation loses about 13,000 a year, indefinitely. Utilisation is the whole distribution of outcomes.

Evidence that the demand is there

The forecast is the weakest input, so replace as much of it as possible with a record of demand you already refused.

• Declined jobs. Count them and value them. Sixty-three declined jobs at an average of 780 is 49,140 of revenue you turned away, and at 41 per cent contribution that is 20,147 — real evidence, not a projection.
• Overtime paid. 620 overtime hours at a 12 an hour premium is 7,440 spent serving demand expensively. Capacity that removes the premium pays for part of itself.
• Lead time. If you quote four weeks and competitors quote one, you are losing work you never see as a decline.
• Waitlist and booking density. For chair-based and bay-based businesses, occupancy by hour of day and day of week tells you whether you need a chair or better scheduling.

If you cannot produce any of the above, the unit is being added on the expectation that supply creates demand. Sometimes it does. It should be funded as a bet, in an amount you can lose, not as an expansion with a payback schedule.

One correction to make before trusting the break-even: a five-day week is not five billable days. Travel between jobs, vehicle maintenance, a day lost to weather, holiday and sick cover all reduce the denominator. If the realistic ceiling is 4.4 billable days a week rather than five, then break-even at 3.26 days is 74 per cent of achievable capacity rather than 65 per cent of theoretical capacity. Compute utilisation against what a unit can actually do, not against the calendar.

Choosing the finance

• Match the term to the asset. A van financed over five years and replaced at four leaves a balance against nothing.
• Prefer facilities you can exit. If the unit does not reach utilisation, the fastest repair is to sell the asset and clear the debt. Check prepayment terms and whether the payoff is the balance or a fixed total — see what early repayment saves on each product type.
• Do not fund capacity on a daily remittance product. A fixed daily debit against a unit that is only 45 per cent utilised in month one takes cash from the rest of the business during precisely the period the new unit is losing money.
• Ask for a deferred first payment or a seasonal structure that aligns with the ramp. This is a normal request on equipment paper and costs little to ask.

The decision procedure

1. Build the full weekly cost of one unit, including the people. Not the payment.
2. Compute contribution per productive day from actual jobs, using real material percentages.
3. Divide to get break-even utilisation, and compare it honestly to the utilisation your existing units achieve. If the existing crews run at 70 per cent and break-even on the new one is 65 per cent, the margin for error is five points.
4. Count the declined work and the overtime. Put dates and amounts on it.
5. Model the three-month ramp and finance that cash alongside the asset.
6. Write down, now, the utilisation level and the date at which you will conclude it has not worked and sell the unit. Capacity decisions fail slowly and quietly, and the exit that is defined in advance is the one that gets taken.