Studio owners help me out please: How to calculate life expectancy of gear ??

[Big_Bang]

Hey guys, more advice needed.

I've been coached into how to actually run my business financially. Wow, its a real eye opener!

One of the things I need to do is to calculate the life expectancy on each piece of gear, so as to then have a proper spread-out of costs.

I have no clue how to do this!! I mean, yeah, on some valve equipment you know how low before changing them... but what about monitors, preamps, compressors, mics, etc?

Thanks!

[saggsy]

consider it more like planning a budget - something's you need to just put a number against just so you can begin to paint a better picture - ultimately it is more of a living document. Just go with some numbers that you think might be right, then when you have done this for 3, 6 or 12 months you may want to review it and make some adjustments to the numbers to suit your business a bit better.

Hope this helps in some way.

saggsy

[Big_Bang]

Thanks there saggsy.

Seems quite logical, in fact that was my first guess. but I was specifically told that I can find this out.

I have gear that went bust still under warranty, and gear that has 30+ years without hick-ups...

But for investment purposes, I was told there was a "formula" based on type of circuitry, wattage etc... But I've never heard of such things

[Jim Williams]

It depends on how it's used, treated and serviced. New stuff can be crap in less than a year. I have 1960's guitars and amps that still look brand new. Most think my 1966 Deluxe Reverb is a re-issue. My 1967 Trini Lopez 335 is in showroom new condition, I take care of it. Same with the rest of the stuff. The 1980's rack gear looks and operates as new.

Take care of it and it will take care of you.

[Big_Bang]

Thanks Jim, but that is besides the point here.

As I've been coached, when setting up a business you have certain calculations to correctly allocate resources... fixed and operational costs, variable costs, revenue streams, etc. and how they play with each other.

In the cost structure, so as to "predict" how much to manage your income, one of the variables is the life expectancy of gear. I treat my gear better than I treat myself, that is besides the point.

Like for instance, lets say a supermarket. The corporation KNOWS that 1 discrete fridge will last on average say... 5 years. So they're investment must take this into consideration in the "formulas" so as to account for maintenance, buy X brand instead of Y brand etc...

Same goes for cars in car rentals or taxi companies. Same goes for Optimods in radio stations, same for computers in any business, etc...

Some things are relatively easy (PC's, cars, moving parts mechanisms, valve amps, etc)

I'm scratching my head on transistor, well maintained, humidity controlled environment. My "coach" says 20 years, as I've shot at him, is totally irrealistic and a business-suicidal-tendency

[Stevil]

Originally Posted by Big_Bang

I have gear that went bust still under warranty, and gear that has 30+ years without hick-ups...

this is a common scenario. most studios i've worked with over the years seemed to replace montors every year or so. weather this is because they found something they liked better or a customer had blown them out varies. most reputable hardware hangs in there for many years, hence the reputation.



i'm just a home studio guy but i've blown 2 sets of speakers over the past 15 years due to fatal errors by people I let mess with my gear. one set i installed replacement tweeters for & theyre fine, the others are just a keyboard stand for my Rhodes. hope for the best & plan for the worst. the more repairs you can do yourself the cheaper your cost & the faster the turn around should be.


in your shoes i'd take inventory & pick a % of the total cost that seems reasonable & see how it measures up to reality your first year. hopefully some more experienced studios will chime in.

[Fletcher]

If its computer based equipment be sure to have it shipped FedEx [or UPS - or DHL] overnight so it will still be relevant when you install it... within 6 months to a year, plan on it being antiquated.

Analog gear? If its good - well made equipment you should experience it being valid for anywhere between 3 and 65 years [3 if its really just a "flavor of the minute" kind of thing -- 65 years if its tried and true and an amazing piece of kit]... if its cheap crap you pick up in a local banjo selling store... figure 6 to 9 to 18 months before you outgrow it... which just means that your ears grew to realize its crap gear and you end up selling it to the next sucker down the line.

That any help?

[Stevil]

Originally Posted by Fletcher

If its computer based equipment be sure to have it shipped FedEx [or UPS - or DHL] overnight so it will still be relevant when you install it...

[Papanate]

Okay...what you want is to calculate a ROI - Return on Investment.
You base your ROI on the costs of doing business over the
revenue returned.

Hardware is a one time investment and can be calculated
with a purchase price against the total yearly rental hours.
Most hardware can be assigned a value based on a number of things...
But the easiest is to look at a rental companies price for the gear
rental over a month. That gives you a baseline value.

Software is different - it has a baseline cost and a update cost.
It's straightforward. A DAW costs you X...and you can look at the history
to see what upgrading costs.- which you can then calculate how many upgrades
you actually need.

Then you have maintenance costs which are configured separately. That's easily calculated
by the figuring the cost of paying someone to maintain your equipment. If that kind of person
is available part time at $18 per hour...then figure 8 hours a month for a busy computer based
studio or 40 hours a month for a busy Tape Based Studio. Repairs are different - the simple way
to calculate is to call a repair shop and ask about your gear - how often they see a given piece
and what is usually wrong with it. It's vague...but it's better than nothing.

Consumables like tubes, tape, coffee, markers, and others can be calculated based
on how those items are used. Tubes in a Preamp for instance will come with a definite
length of use...say 3500 hours before degradation. You build that into a yearly budget.
Coffee is the same - and you calculate that trust me. It's part of your costs.

Miscellaneous costs...like the aforementioned Speakers being blown. It happens but there is no way
beyond using a general FUBAR budget that accommodates an unknown. But if you have a FUBAR budget
then you also need written contracts that state explicitly that if client X FUBARs a piece of gear they
are responsible for the cost of replacement or repair.

Everything is just a matter of calculation based on known facts that are everywhere.

[Draytone]

I do things kinda easy. When I put together a project plan to invest in new gear where I work, I kinda do just pull numbers out of the air a little. If its say some PC based hardware, I'll put a lifespan of maybe 2 or 3 years. 3 - 4 years for a Mac Pro. If its some bit of rackmount hardware, lets say an Eventide effects unit, I'll consider when I might want to replace / update them. 5 - 7 years.

I'n saying that, I work in a large, lots of multi's million dollar broadcast facillity, which views gear a little differently to a recording studio environment.

Apologies if this is a bit off topic.

[neirbod]

I think there may be confusion about what you are asking. Some are interpreting it as a question of return on investment. I interpreted your question as asking about depreciation of your equipment. If the latter is the case, depending on your gear you may take the depreciation as a loss, offsetting your income and reducing your tax burden. Depreciation times vary with equipment, but I have seen people use anywhere from 5-10 years for audio and video equipment, and 3-5 years for computer equipment.

[HiFi Yeah]

Yeah it sounds like the real question is on accounting: useful life of the asset for depreciation purposes. Call it 7-10yrs for hardware and be done.

[The Real MC]

Life expectancy of electronics is a function of heat.

Too much accumulated heat will degrade electronics and shorten their life.

If the noise from cooling fans are a problem, then you need to explore passive ventilation. Everybody knows that heat rises, that's how you have to ventilate heat. Identify gear that generates a lot of heat and position them so that heat can escape to the top. This may mean a blank 1U space between rack devices. You can also arrange rack devices so their depth gets shorter as you rise up the rack, about every 4-8 spaces. The staggered depth allows heat to rise and escape. Blank rack panels with vents allow heat to escape. Leaving the rear lid off a rack goes a long way to passive cooling at the expense of rigidity.

[Papanate]

Originally Posted by neirbod

I think there may be confusion about what you are asking. Some are interpreting it as a question of return on investment. I interpreted your question as asking about depreciation of your equipment. If the latter is the case, depending on your gear you may take the depreciation as a loss, offsetting your income and reducing your tax burden. Depreciation times vary with equipment, but I have seen people use anywhere from 5-10 years for audio and video equipment, and 3-5 years for computer equipment.

You can't depreciate gear if you don't know the ROI.

[HiFi Yeah]

Just curious; what do investment return projections have to do with how the dude does his cost accounting.

[Earcatcher]

In Europe taxes accept a depreciation of 15 years for industrial installations and very heavy (stationary) machines. For heavy machines (like tractors) it is 10 years. For equipment and tools (the category we are speaking about here) it is 5 years and for computers and peripherals it is 3 years. You won't have to calculate the ROI in order to make a good calculation of your burden for taxes. You can simply use the depreciation of your equipment as a cost post.

Example: you buy a preamp for 1500.-. After 5 years it will have some value left, so that will have to be deducted from the amount to depreciate. Let's say it will sell for 300.- after five years. That leaves 1200.- of depreciation costs to spread out over 5 years, being 240.- that you can deduct from your gross income each year. (Just for the preamp of course.)

[Big_Bang]

Bingo Papanate, Earcatcher, that's where its at! And thanks all the rest for your suggestions!

I didn't have the ROI acronym with me when I posted. So much to sink in, and I'm still trying to get a grip on things while running sessions... only get 1h to get my head sorted each day

Like I said, valves has a definite finite lifespan, PC's we also know are worth for 2-5 years.

Obviously I'd expect a BAE 1073 to last a lifetime, if well maintained, and I also *could* expect that from a GAP73, but there is a world of difference between the two, in terms of build quality/robustness.

So basically you guys are saying to average out a *logical* frame of time, say 10 years, and to stick to it?

[Isterpuck]

Here's the formula for your gear's life expectancy:

[Papanate]

Originally Posted by Big_Bang

So basically you guys are saying to average out a *logical* frame of time, say 10 years, and to stick to it?

I should qualify the statements below saying this for the US. I don't know how the tax structure works anywhere else.

For tax purposes I would depreciate your hardware like the BAE over 3 years.
For ROI purposes - 5 years is a very generous length of time. The Business models I use require being in the black within 3 - 5 years - which means hardware like a BAE unit have to be paid off in 3 years.

But then again I'm very black and white when it comes to my companies. I try to keep them cash rich and debt poor.

[Bassmankr]

One of those "X's" needs to be replaced with a "Y" if you record heavy metal. On the serious side if it's a depreciation formula you are looking for, ask your accountant if it's better to depreciate fast or slow for your circumstances.

[Papanate]

You've miscalculated the W value. If you follow this method you will sell off 90% of your stock portfolio to buy a Mackie 1604.

Originally Posted by Isterpuck

Here's the formula for your gear's life expectancy:

[The Real MC]

So if the g terms in the denominators are zero, then the life expectancy is infinity?

Originally Posted by Isterpuck

Here's the formula for your gear's life expectancy:

[Jim Williams]

Originally Posted by Big_Bang

Thanks Jim, but that is besides the point here.

As I've been coached, when setting up a business you have certain calculations to correctly allocate resources... fixed and operational costs, variable costs, revenue streams, etc. and how they play with each other.

Your 'coach' is overthinking this. Look up depreciation. Use it on your gear at tax time. If you are looking for a successful recording studio business model, I'm afraid you will have a very hard time finding one.

Run this biz model by your financial institution. They will tell you things you won't want to hear but should.

[15ips]

Originally Posted by Isterpuck

Here's the formula for your gear's life expectancy:

Nice work, looks like it proofs out ok, but remember to replace M with N if dealing with refurbished or B-Stock.