← Back to the repair-or-replace planner
Almost everybody compares two numbers: what the repairs cost last year, and what a new one costs. That comparison leaves out the number that usually decides it.
A van in the shop is not just an invoice. It is billable days your crew could not work — or a rental, or a job that went to somebody else, or a customer who did not call back. None of that appears on the repair bill, which is exactly why it gets left out: the invoice arrives in the post and the lost day does not.
Put a number on it. If a two-person crew bills $900 on a normal day and
the van was out for eleven days, keeping that van cost you
11 × $900 = $9,900 in lost revenue on top of whatever
the garage charged. For a lot of ageing vehicles that figure is several
times the repair spend that got all the attention.
So the real cost of keeping an asset for another year is:
keep = annual repair spend + (downtime days × what a day costs you)
Use the revenue a day actually costs you, not your day rate on paper. If you can shuffle work to another van and lose nothing, the number is low. If the van going down stops a crew, it is the crew's whole day.
Buying a $42,000 van does not cost you $42,000 this year. Two things change that.
First, the trade-in comes off. What actually leaves the business is the net capital: replacement price minus whatever the old one is worth. Second, that capital buys you several years of service, so charging all of it against one year overstates it badly. Spread it over the years of service you expect:
replace = (replacement price - trade-in) / expected years
+ the replacement's own annual repairs
+ (its expected downtime days × what a day costs you)
That middle line is an equivalent annual cost. The last two lines matter because a replacement is not free to run — a new van still needs servicing and will still be off the road occasionally, and pretending otherwise flatters the replacement case.
Replacing is cheaper when keep is bigger than
replace. The difference is your annual saving.
A 2014 Transit: $6,400 of repairs last year and fourteen days off the road, with a day costing $900. A replacement is $42,000, the old van trades at $4,500, and you expect eight years out of the new one, which should need about $700 of servicing a year and be down about a day.
| Line | Amount |
|---|---|
| Repairs | $6,400 |
| Downtime (14 × $900) | $12,600 |
| Cost of keeping | $19,000 / yr |
| Net capital ($42,000 − $4,500) | $37,500 |
| Annualised over 8 years | $4,687.50 |
| Servicing on the new van | $700 |
| Downtime on the new van (1 × $900) | $900 |
| Cost of replacing | $6,287.50 / yr |
| Annual saving from replacing | $12,712.50 |
| Repair + downtime spend it stops | $17,400 / yr |
| Payback ($37,500 ÷ $17,400) | about 2.16 years |
Payback divides the capital by the spend it stops — $19,000 of repairs and downtime less the $1,600 the new van still costs to run. It deliberately does not use the $12,712.50 annual saving above: that figure already has the capital spread through it, so dividing the capital by it would charge the purchase for itself twice.
Note what happens if you drop the downtime line: keeping costs $6,400, replacing costs $6,287.50, and the decision looks like a coin toss you would probably resolve by keeping the van. The downtime is the whole argument.
And the reverse case is just as real. A 2021 van with $900 of repairs, two days down, and a $21,000 trade-in costs about $2,700 a year to keep against $4,125 to replace. That one you keep, and a planner that could never say so would just be a sales tool.
With one budget and several candidates, the instinct is to start with the oldest, or with the biggest repair bill. Both can be wrong. An old machine with a huge repair bill can still be the wrong first move if its replacement is expensive and its trade-in is worthless.
Rank by annual saving per dollar of capital instead:
saving per dollar = annual saving / net capital
In the example above the van returns $0.34 a year per dollar of capital. A mini excavator saving $7,600 a year on $49,000 of capital returns $0.16 — a real saving, and still the second thing you do, not the first. Work down that list until the budget runs out, then look at what deferring the rest costs you per year and compare it against what the extra capital would cost you to borrow. Sometimes borrowing is obviously worth it; the point is to see the number rather than guess at it.
Strictly, filling a fixed budget is a knapsack problem and ranking by ratio is a heuristic rather than a guaranteed-best answer. With a handful of assets it is almost always the best or near-best split, and it has the advantage that you can see why each asset sits where it does.
The arithmetic is deliberately simple enough to check on paper, because a number you cannot check is a number you should not commit capital on.