What's new
What's new

Value of machines as a turn key package?

ewlsey

Diamond
Joined
Jul 14, 2009
Location
Peoria, IL
A customer asked me about buying some of my machines with tooling and programs to run their parts in-house as a turn key package. Theses are old machines, so it's not a $ million deal.

3 machines. I figure fair market value is about $20,000. The tool holders and tooling are probably worth another $10,000 to $20,000, depending on what they end up wanting.

Now the tricky part. How do I value the fixtures and programs? I didn't charge a programming or tooling fee when I took the jobs, but those costs have long ago been amortized by repeat work. I think they do have a value, but only to me and them. No one else would ever want them.

Any thoughts? There is going to be a lot of hand holding to get them running, so I need to cover my ass.
 
they do have a value, but only to me and them. No one else would ever want them.
..
.
There is going to be a lot of hand holding to get them running, so I need to cover my ass.

First part, pick any number you and the buyer can agree on without using up last year's goodwill, or poisoning next year's well. Both parties should see it as minimal risk or loss, better-yet a 'win'.

Second part, offer a flat fee for "X" hours, time and materiel at "Y" rate thereafter, rather than a 'not to exceed' - which, for 'safety' would have to be a much higher number. That, too, should be seen as minimizing uncertainty, and hopefully 'win-win'.

As a buyer, that would represent a fair balance of 'probable' costs I could take upstairs for a sign-off without pissing-away potential savings I'd lose if the vendor was driven to be overly cautious and over-priced.

Cooperative sharing of risk/benefit, and presumes the entities both expect to remain open to other business over long years - whether yet in view or not - and that neither wants to damage the relationship for small immediate advantage that cannot be assured, anyway.

"Business, as usual", IOW.
 
Figure out a way to charge for the "handholding" Maybe X hours included in the package price, but after that a $/hr. charge for phone support and a higher $/hr. if you have to travel to their facility.
 
Whats your liability if their guys cant run the parts to spec even though its been a "turn key"?

Probably near-zero. Wes 'thinks out of the box', but I see no evidence he traffics in Franken-setups. Too pragmatic to want to do that when he need not.

Ox would be far the harder act to follow. I don't think the boxes HE "thinks out of" even have all their dimensions conveniently anchored in but one, single, universe.

:)
 
I've personally seen the carnage of a turn key that was guaranteed to produce a result and failed to do so. Many lawyers were involved. Be sure I will cover my ass legally.
 
I've personally seen the carnage of a turn key that was guaranteed to produce a result and failed to do so. Many lawyers were involved. Be sure I will cover my ass legally.

Yup. And 'in advance', as part of the package, not after the fact.

"Ve gang too soon elt, und too late schmart." DAMHIKT.

:)
 
With extensive corporate finance experience and valuation expertise, I would say that valuing something like this it is almost always done via the WAG method.

I agree with the liability concerns - can you package it as machines, tooling, software and so many hours to setup and integrate?



















WAG = Wild Assed Guess


More seriously, one approach to maximize value would be to position it slightly less than it would cost them to do....so there is a value proposition in buying it from you. I'd estimate how many hours are into both and apply discounted hourly.... and see the result just reasonable or nuts.
 
In pricing the programs, fixtures, etc...

How would a machine tool dealer value these things, if they were selling "new" machines, tooling, toolholders, fixtures, etc...? They'd cost out new items, estimate how long it would take to do the programming, work instructions, engineering, etc, mark all of it up, and submit a quote.

Now, most of that is behind you, but I bet you have some idea what it would cost in time, to write the programs & design the fixtures, order material, make the fixtures, run-off the parts, etc. Put a reasonable hourly figure on the time, and quote it. Same as any other business that does turn key machine tool projects for a living.

If they balk at the price, remind them that your programs, fixtures, toolholders, etc are not "new & un-tested," but rather have already been proven, and guaranteed to work in your facility, with your people. Remember yourself, that you will be losing any revenue from running their parts in the future. And the equipment to run other jobs, etc... (I'm sure you've already thought of that and have your reasons for considering this, just don't forget that fact going forward.) For these reason alones, you should consider a premium for yourself...

Make sure they understand that once they assume responsibility for taking over, that you are cleared of any responsibility. This is where it could get messy, as now they'll have every excuse imaginable to point the finger at you if things don't go perfect. Even if they have Joe-Blow running the parts, checking critical dimensions with beat-up calipers, loading stock that hasn't been de-burred, etc...

I'm not a lawyer, but I'd be consulting one, thinking of having them sign a waiver clearing you of any responsibility once they accept the project. Put in clear, measurable, terms/objectives that cannot be easily disputed, designed to guarantee their satisfaction & acceptance of responsibility.

That may sound ridiculous, but I can just visually imagine the excuses coming out of the woodwork at the 11th hour, when they're complaining that they don't have good parts because of ____________________________________ . <------ Insert crazy, irrational excuse there.



(I have the words from the book Winning Through Intimidation screaming loudly in my head right now as I read about this "proposal" and all the possibilities. On an aside, ewlsey, I'd recommend it - as it was recommended to me by PM member Oldwrench...)

If you can come up with a worthwhile** number, that you can rationalize with facts & sound reason, and think you can get them to close the deal without going flaky on the final payment, then do it.

All the best.

** Worthwhile to YOU - That doesn't mean it has to be a "bargain" to them, but only "fair" to both of you...
 
You could base it off the ROI of the setup.

See how much it will save them a year, times that by 1.5 ish, and see what they say.
A lot of the larger companies I've dealt with don't give a hoot about the actual $ amount.
If you can say that it will pay for itself in less than two years thats all they care about.
 
Fixtures and programs have been paid for and should be given to the customer if they should choose to purchase the machine. Development costs of said fixtures and programs have been completed through the piece price of previous parts as you stated. Personally I'd never pay for them, but expect them if I'm purchasing the entire production line.

With that said, if it was a role reversal. I'd still let you know dediticated fixtures and programs are on the house, but pad the equipment price slightly. Just a little where it isn't noticed much in the price so they feel they are getting a value on the deal.

IMO - You should be selling the machine, tooling, tool holders (non dedicated equipment) and the guarantee that it is a turn key system because thats what they are looking for. This includes set up instructions or on site training to ensure sucessful transition. Maybe an inconvenience fee that you may need to purchase more machines since I just completely disrupted your value stream to make my life easy.

Good luck with everything.
 
If you can say that it will pay for itself in less than two years thats all they care about.

"Say" Hell. Prove, rather. Not hard on a system already proven on their own work, BTW. They may have DONE that arredy as driver for their wish to own it.

And WhoinnaF**k is so rich nowadays - or can predict the future so well - they can afford TWO years instead of the ONE year I've had to deal with, one Day Job after another?

:)
 
Make sure you don't wager your flat fee support/training on how smart their guy is. T&M for that, now and going forward. A different fee for when they call you in to run stuff because their guy can't. And a higher fee for fixing all the stuff he broke causing you to have to come in to run it.
Chip
 
Million bucks. And if they say yes to that, apologize profusely about your error, and correct the price to a million point two.

But seriously, charge them your replacement cost for all physical items, plus the cost to move everything, plus your design and programming time, and make sure you're not going out to find replacement equipment and tooling on your own dime - it's all part of the same transaction to your watch and bank account. Plus a 20%-40% margin. Why would you sell it for anything less than all that? And any replacement equipment is an unknown to you, and might wind up costing more than what you make on this sale, if you're not careful.

Can they go out and buy the exact same setup from someone else for any less money? Could they go out and find someone reliable to replicate your setup (machines, fixtures, programs, etc.) for even twice as much as what you're going to charge them? Four times as much? I honestly doubt they could find anybody to even come close to what you're likely going to charge them, and still make money on the deal. It doesn't matter that the 1962 Ferrari 250 GTO I have in the garage was paid off 60 years ago - it's still worth $34 Million dollars, because that's what somebody is willing to pay for it. (Obviously not my car there boys.)

As an automation and machine tool guy, a dirt cheap turnkey solution for something like this is pushing well into 6 figures, even with used everything (which of course, none of us would ever do.)

Oh, and any agreement you make with them ahead of time (i.e. 160 hours of training in the 3 months following the installation of the equipment) has to be agreed upon as part of the sale, and whatever your hourly rate is for those 160 hours had better be included in the price. Or just quote them your daily rate for training (no hourly there, and go weekly if you can.)
 
Like I said, let's keep the expectations realistic. I'm sure they can get someone else to make the parts for them and carry on like always. They won't bite on a turn key without a chance to save money.

I was just wondering if there was a rule thumb for this kind of thing.
 
Whats your liability if their guys cant run the parts to spec even though its been a "turn key"?

I would set up the contract to include a "Site Acceptance Test". Agree that you will get the machines running and make a certain number of parts to spec, over some reasonable period of time, with the level of intervention that you and your customer agree to. At the end of the sucessful test, they sign off to agree that what you delivered is technically correct. Since the machines are old and used, I would make sure it is expressly clear that there is no warranty on the machines themselves, and any repairs are strictly on their side. That is part of the risk of buying used machinery, and that is why you pay less for them than brand new.

Figure out a way to charge for the "handholding" Maybe X hours included in the package price, but after that a $/hr. charge for phone support and a higher $/hr. if you have to travel to their facility.

Call that training. Give them a fixed amount that you think would be enough to train one of your employees to run it, then put a bit of margin on it in case their guys aren't as good. Don't guarantee that they will be competent after the training. That is up to them to send someone competent for training.

Fixtures and programs have been paid for and should be given to the customer if they should choose to purchase the machine. Development costs of said fixtures and programs have been completed through the piece price of previous parts as you stated. Personally I'd never pay for them, but expect them if I'm purchasing the entire production line.

Hmm, maybe. Did they actually get invoiced for it? Are there changes that need to be made to the fixtures so someone at the client company can run them reliably? Are there hokey bits in there that are tolerated in Wes's shop that will be problematic for the customer? Did they literally get invoiced for fixture design and manufacturing? If they go somewhere else they won't be getting fixtures for free, let alone proven fixtures. I'd charge them for it as though I was selling them custom equipment, particularly if any changes need to be done to make it more user friendly.

Like I said, let's keep the expectations realistic. I'm sure they can get someone else to make the parts for them and carry on like always. They won't bite on a turn key without a chance to save money.

I was just wondering if there was a rule thumb for this kind of thing.

I'd say price it like a custom machine design/build job:
Fair market value of equipment + Cost of design and manufacture of fixtures (as you would charge anyone else who came in to have fixtures designed and made) - The lost value of the fixtures due to wear since they have been used + the cost of improvements to the fixtures + Hourly cost of training package + Cost of written manuals, procedures, etc + $$ for warranty risk + Shipping and installation cost (detailing out what parts of installation are included and not).
 
Look at the yearly profit these parts generate, then go from there. Also what value do the machine and tooling have for running other jobs in your current situation? The machines and tooling if not dedicated part specific have a set value. The value of what to charge for your expertise has to balance out what will be lost by no longer making the parts.
 
Hmm, maybe. Did they actually get invoiced for it? Are there changes that need to be made to the fixtures so someone at the client company can run them reliably? Are there hokey bits in there that are tolerated in Wes's shop that will be problematic for the customer? Did they literally get invoiced for fixture design and manufacturing? If they go somewhere else they won't be getting fixtures for free, let alone proven fixtures. I'd charge them for it as though I was selling them custom equipment, particularly if any changes need to be done to make it more user friendly.
Great points.

Sounds like you and I wouldn't do business then. Universal Machines and tooling etc I get, but don't ever hold fixtures I know I paid for through piece price over my head. I'll take a pricicple position and go a different direction.

See how much you get for the fixtures elsewhere if I don't take them. I say its pretty clear what the value is at that point. We're not talking about a 1960's Ferrari that has value to many people. We are talking about fixtures we all know have been paid for that are unique to the customer's product.

Only the OP knows if he has to address fixture issues so they run reliably at the new location and would be a separate topic of discussion, but OP stated it is about existing machines, tooling, and fixtures. My opinion would still stand.

Don't ruffle feathers on something obvious, make it up elsewhere as this would be a greedy position to take perking up the nerve receptors IMO. Upsell the value of a turn key system if it is in fact, turn key.

Maybe its from dealing with many fun corporate buyers.....
 
Like I said, let's keep the expectations realistic. I'm sure they can get someone else to make the parts for them and carry on like always. They won't bite on a turn key without a chance to save money.

I was just wondering if there was a rule thumb for this kind of thing.

Surely there is. A deal where both sides are happy to keep on working together, and neither feels disadvantaged. That's a 'goal'. Actual PRICE for it needs to be negotiated. Not dictated.

That is as much 'social engineering' as it is bean-counting, with 'technology' and the actual machines and tooling the smallest part.

Look at the Martin-Brower Company and McDonalds. The 'relationship' was key to the growth of BOTH firms. Details and challenges must have been dealt with and smoothed-out multiple thousands of times, still are, 24 X 7 X 365...
 
Look at the yearly profit these parts generate, then go from there.
That's my approach too, I went through a similar exercise.

I took the percentage of EBITDA that the portion for sale represented, and set the price at 3x earnings plus machinery. The price included all programming, setup books, special cutters, and fixturing for the parts, and a set number of hours for training. Additional hours billed at an hourly rate.
 








 
Back
Top