Maintenance costs significantly impact profitability, productivity and machine performance.
Effectively calculating and tracking these costs, however, can be challenging. According to the National Institute for Standards and Technology (NIST), maintenance spending ranges from 15% to 70% of the cost of goods sold. Lower costs drive higher ROI—provided quality and reliability remain uncompromised.
Well-managed maintenance plans can improve machine uptime, enhance overall equipment effectiveness (OEE) and reduce the total cost of ownership (TCO). Complete visibility into maintenance costs reduces emergency repairs, optimizes spare parts inventory and extends asset lifecycles.
Here’s what you need to know about how to calculate maintenance costs for a facility and creating data-driven maintenance budgets that reduce the risk of reactive spending spikes.
What contributes to maintenance costs?
Maintenance costs fall into multiple categories. They include:
- Labor — Labor covers internal technicians, external contractors and overtime to address issues or fix problems.
- Parts & materials — Both spare machine parts and consumables fall into this category. Parts may include belts, arms or gears, while consumables cover fuel, lubricants and cleaning supplies.
- Tools & equipment — This category includes both specialty tools and the calibration of these tools (and the equipment they fix) to get them back up and running.
- Technology systems — Technology systems cover computerized maintenance management systems (CMMS), connected sensors and monitoring software.
- Training & workforce development — Training teaches staff how to use and fix specific machines, while workforce development provides employees with cross-functional skills to help reduce downtime.
- Vendor/OEM support & warranties — Depending on the equipment and services used, you may pay for both warranties and support. For example, OEMs and vendors often provide a basic warranty but charge to extend its length or coverage. When it comes to support, meanwhile, 9-5 ticketing or emails may be included, while 24/7/365 service comes with a cost.
- Downtime costs — Downtime represents lost production opportunities and, for critical assets, can cost 10 times more than repairs.
Key formulas for maintenance costs
Maintenance costs are not a single source. Instead, they’re a combination of money, time and effort. Here are four key formulas used by leaders to benchmark and track maintenance spending.
Total maintenance cost
This formula calculates the complete cost of maintenance to help companies understand how much they spend.
Total maintenance cost = Labor + parts + contracted services + tools + technologies + other direct costs
Maintenance cost as a % of replacement asset value (RAV)
This formula shows how much you’re spending on maintenance each year as a percentage of the cost to replace an asset. The lower this value, the better, with maintenance costs at 2-4% of RAV considered industry best practice.
Maintenance cost % of RAV = Total maintenance cost / Total RAV
Maintenance cost per unit produced
Using this calculation tells you how much to spend on maintenance per unit produced and helps link reliability to business value.
Maintenance cost per unit produced = Total maintenance cost / Units of output
Cost per operating hour
This formula is useful for critical equipment lifecycle management. If your cost per operating hour increases over time, maintenance may be required.
Total maintenance cost / Runtime hours per machine
Data sources for accurate maintenance costing
Accurate maintenance costing relies on data, but today’s interconnected production lines generate so much information that identifying reliable sources can be challenging.
First on the list is CMMS work order history. This provides context for other data sources. How many work orders were submitted? How many were completed? How many experienced issues with quality or completion?
Next is the storeroom inventory spending. Here, both over- and under-spending can lead to cost challenges. For example, spending too much on replacement parts you don’t need means wasted capital and wasted space. Spending too little, meanwhile, puts you at risk of extended downtime as you wait for replacement parts to arrive. Tracking each invoice associated with spare parts and vendor services also improves visibility into true maintenance costs.
It’s also worth tracking human resources (HR) and labor cost data. This includes the amount you’re paying workers day-to-day and how much of that time is spent on upkeep. Injury time may also play a role; if unmaintained machinery poses a safety risk, it can lead to unplanned (and expensive) labor costs.
Next up are production output systems. These measure exactly how many products or components come off your line and what percentage have defects or other quality issues. Finally, it’s worth tracking RAV data through capital asset registers: What would it cost to replace some (or all) of your machinery, both in terms of capital spend and money lost to delivery, setup and testing time for new equipment?
Pro tip: Prioritize standardized cost coding across worksites and maintenance cost sources to help scale insights.
Benchmarking and KPI visibility
Just because you’re spending a lot, it doesn’t mean you’re spending too much. Benchmarking and KPI visibility can help managers determine if current spending is healthy and identify ways to reduce total manufacturing costs. Facilities teams may also calculate maintenance cost per square foot to compare efficiency across buildings or production areas.
Common benchmarks include:
- Year-over-year trends — By comparing maintenance costs per machine or per production line year-over-year, companies can track and address equipment trends. If costs remain steady, no action is required. If year-over-year comparisons show a steady uptick, further investigation may be required to pinpoint root causes.
- Facility vs. facility performance — It’s also worth tracking facility vs. facility performance. For example, if you run two identical production lines in two different locations, tracking the performance of both can help identify potential outliers and take action on key maintenance items.
- Industry standards — Industry standards help track cost versus value. Maintenance costs should remain below 5% of RAV; higher percentages signal excessive spending and require deeper analysis.
It’s also important to prioritize maintenance performance metrics for the manufacturing industry, such as:
- Percent of planned vs. unplanned maintenance — The higher your percentage of planned (preventive) maintenance, the better. Unplanned maintenance is simply downtime; if this percentage rises, something isn’t working as intended.
- MTBF and MTTR — Mean time between failure (MTBF) measures the average interval between equipment failures. The higher this value, the more reliable (and therefore profitable) your equipment. Mean time to repair (MTTR) measures how long it takes to repair equipment issues on average. Lower values mean maintenance is being completed more quickly and typically at a lower cost.
- Inventory turns and carrying costs. — Effective maintenance balances inventory turns and carrying costs. If you’re constantly replacing parts inventory, equipment may be nearing the end of its lifecycle. If you never use parts or components, meanwhile, you’re spending money to keep them in stock. Ideally, you’re looking for moderation, that is, inventory that moves at a steady pace rather than flying off the shelves or gathering dust.
- Overtime as a percentage of labor hours — More overtime means more money spent on maintenance and repairs. For example, if your company has entered its busy season and 5% of your hours are overtime, the cost makes sense. If, however, demand is stable, but 10%, 15% or 20% of your labor is overtime, excess maintenance costs may be the culprit.
Avoiding pitfalls in maintenance cost tracking
Mistakes in maintenance cost tracking can distort budget data, in turn leading to suboptimal decisions. For example, if companies don’t accurately track the labor hours required for maintenance, they may underestimate the need for skilled maintenance technicians. If machines subsequently fail and teams don’t have experts on-site, downtime may be far longer (and more expensive) than anticipated.
Another potential pitfall is misclassifying capital expenses as maintenance and vice versa. Consider spare parts. Small, often-replaced parts are typically classified as industrial maintenance expenses because they’re used frequently and must be restocked. Larger components that are less frequently required, meanwhile, may be classified as capital expenses. Misclassifying either type can lead to over- or under-budgeting for maintenance expenses.
Manufacturers may also underestimate the true cost of downtime. For example, if a key production line machine goes down, the costs of downtime are both short-term and long-term. Short-term spending is tied to production stoppages, while long-term spending is required to pay for additional production runs and worker overtime to get back on track.
Finally, businesses need to recognize the critical impact of technologies such as production management systems and internet-connected sensors. The pitfall? Assuming this tech is nice-to-have rather than operationally essential. While technology comes with a cost, it also streamlines the process of collecting, analyzing and acting on production line data.
How maintenance strategy reduces cost over time
Formulas, KPIs and technologies lay the groundwork for reduced TCO, but strategy makes savings possible.
Key strategies include:
- Increasing planned and predictive work
- Improving spare parts forecasting
- Prioritizing precision maintenance to reduce wear
- Cross-training operators in basic care tasks
- Tracking equipment lifecycles
When to bring in external maintenance support
Managing maintenance programs in-house is possible, but it often creates resource gaps. Developing new strategies pulls teams away from daily operations, increasing the risk of maintenance issues.
Outsourced maintenance services can bolster your current workforce to reduce the impact of skilled labor shortages. Third-party providers are also well-equipped to help create standardized plans for multi-site maintenance.
Accurate maintenance cost calculations drive better asset management and budget decisions. Benchmarking maintenance activities against metrics such as RAV, OEE and output ties cost to business value, while planned and predictive maintenance solutions reduce overall spending and disruption.
Bottom line? Maintenance isn’t about spending to prevent downtime; it’s about investing in tools and technologies that enable more uptime.
Discover better maintenance management strategies with ATS. Let’s talk.
References
National Institute of Standards and Technology. (2021, June 24). Potential cost savings as U.S. manufacturers spend billions on machinery maintenance. NIST. https://www.nist.gov/news-events/news/2021/06/potential-cost-savings-us-manufacturers-spend-billions-machinery
