What Are Maintenance Costs? (With Definition and Examples)

By Indeed Editorial Team

Published April 25, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

A vital aspect of managing a business is to compare operating expenses to revenues. It's important for both companies and individuals to keep their assets in good condition to maintain their long-term usability and minimize the cost of maintaining them. Learning about the cost of maintenance can help if you're seeking a role in management or operations. In this article, we define maintenance costs, discuss their components, review the different type of costs for maintenance, examine the difference between these costs and capital expenses, identify tips to minimize costs for maintenance, and highlight an example to help you better understand the concept.

What are maintenance costs?

Maintenance costs refer to any expense incurred by an individual or corporation to keep its assets in operating condition. These expenditures may be necessary for routine maintenance, such as installing anti-virus software on computer systems or preventing degradation, such as repairing a vehicle. These costs are in addition to the asset's purchase cost. It's vital for people and businesses to incur them to keep their assets in good working order. Customers who acquire serviceable assets usually anticipate paying costs for maintenance in the future if they intend to use them for an extended period.

The amount an individual pays in maintenance charges varies according to the type of asset and the frequency with which maintenance is necessary. People usually spend money maintaining their houses, vehicles, appliances, and gadgets, and companies are responsible for maintaining their fixed assets. Regular maintenance can help keep costs down by ensuring that the item receives servicing. Neglecting assets and servicing them at the last minute may increase maintenance expenditures. If the owner doesn't maintain the asset properly, it may eventually be necessary to replace it altogether.

What are the different components of maintenance expenses?

Businesses classify maintenance expenditures into three main categories. This enables them to differentiate between these expenditures, which helps in financial analysis and audit. Here are the three components of maintenance expenses:

Fixed costs

Fixed expenses are the continuing expenditures associated with maintaining a business's equipment, facilities, or other assets. These are usually permanent costs that businesses incur to conduct business. They're only one of the several types of expenses. Productivity and performance have little bearing on these costs, which helps businesses to budget for them properly. Several businesses track the following fixed costs for maintenance:

  • Periodic maintenance

  • Recurring materials

  • Salary maintenance of employees

Related: How to Calculate the Cost of Goods Manufactured (COGM)

Variable costs

Variable cost is a manufacturing expenditure that changes in response to variations in the manufacturing capacity of a business. For instance, the cost of raw materials necessary for manufacturing a product is a variable cost, as this expense usually varies in proportion to the number of units produced.

Variable expenses frequently fluctuate in response to production amount, so increasing output results in a rise in these costs, whereas decreasing output results in a decrease in expenses. In comparison, fixed expenses stay constant independent of output or production. Many people regard variable costs as the direct costs of production volume, as it increases and decreases in proportion to the production.

Semi-variable costs

Fixed and variable costs for maintenance are part of semi-variable costs. These expenses, like variable costs, vary according to the productivity of the business. Similar to fixed costs, it's vital for companies to pay these charges regardless of productivity. Several businesses consider the following to be semi-variable costs for maintenance:

  • Maintenance of employee overtime hours

  • Maintenance invoices and expenses

Related: How to Calculate Variable Cost with Examples

Types of costs for maintenance

Several maintenance charges are applicable to maintain a business's property and equipment. Here's a list of the various kinds of maintenance charges:

Property

Property maintenance charges assist a business in maintaining its facilities. Regardless of whether a site is a manufacturing plant or an office building, companies incur property upkeep expenditures. Some examples of property upkeep charges that businesses incur include:

  • Changing the air filters at the facility

  • Inspection and repair of roofs

  • Housekeeping costs and expenses

  • Smoke and carbon monoxide detector testing

Transportation

Vehicles and automobiles require routine maintenance to remain functioning and safe. Regular maintenance, such as oil changes and tire rotations, may help extend the usable life of a vehicle and its utility for a business. Some of the components that technicians frequently replace or maintain on a vehicle include:

  • Wiper blades

  • Tires

  • Vehicle fluids

  • Oil filter

  • Engine belts

  • Brakes

Related: What Is Process Improvement and How Can You Utilize It?

Technology and electronics

Businesses also incur expenses for technology or electronic maintenance. These prices vary according to the amount of technology or the type of electronic devices a company utilizes regularly. The technological or electronic costs that a business may budget for include the following:

  • Updates to the operating system

  • Improvement in hardware and storage capacity

  • Updates for cybersecurity

  • Screen repair and replacement

  • Keyboard replacement

Office equipment

Businesses also maintain office equipment to improve the aesthetics and comfort of employee workstations. Certain companies may periodically repair or replace obsolete office equipment to increase workplace productivity and ergonomics. Some office equipment that organizations maintain, repair, or replace may include:

  • Furniture, like chairs and desks

  • Kitchen supplies

  • Stationery

  • Storage equipment

Employee costs

Businesses usually spend resources on maintaining employee loyalty. Certain businesses incur expenditures to offer benefits like free leaves, benefits packages, or workplace events. Employee maintenance expenditures may include the following:

  • Meals or refreshments for the company

  • Programs for tuition reimbursement

  • Bonuses paid quarterly or annually

Insurance

Businesses may also invest in insurance coverage for their activities and workforce. They often have set insurance expenditures, which enables the business to budget for these expenses. Here's a list of some common insurance packages for which a company may budget for costs for maintenance:

  • Insurance for general liability

  • Insurance for commercial property

  • Insurance for business income

Production equipment

Manufacturers may also incur maintenance expenditures for their production equipment and machines. These expenses may vary depending on the extent of preventative maintenance programs and the requirement for emergency maintenance. Businesses frequently implement extensive maintenance plans to improve production and minimize equipment downtime.

Related: All You Need to Know About How to Calculate Fixed Cost

Maintainance vs. capital expenses

Maintaining assets, such as buildings and motor vehicles, involves specific expenditures. Both maintenance expenses and capital expenditures are costs that help to keep an asset functional, but they have distinct meanings. You may incur maintenance expenses when you perform regular activities to maintain an asset's original state. Simple electrical repairs, bulb replacement, pool cleaning, and lawn care are all examples of maintenance expenses. Conversely, capital expenditures entail significant component repairs, replacements, and upgrades, which may require time, effort, and money to complete.

Capital expenses in a building include carpet repair, security system updates, painting the exteriors, refurbishing the pool deck, and roof replacement. The primary distinction between the two charges is that while you may incur maintenance expenses to keep assets in good operating order, capital expenditures extend the useful life of an asset. Maintenance expenses benefit the business or owner for 12 months and recur, whereas capital expenditures benefit the asset owner for an extended period and may be onetime.

Related: Important KPI Sales Metrics (With Definitions and Examples)

Tips to minimize costs for maintenance

Here are some tips to decrease costs for maintenance:

  • Use management systems: Deploy a modern computerized maintenance management system (CMMS) solution that enables you to track maintenance charges and schedule the activities with maximum efficiency and savings.

  • Smart inventory management: Use inventory management technology to estimate inventory requirements properly and reduce spare parts inventory costs.

  • Focus on training: Develop a comprehensive onboarding and training process for machine operators to reduce the likelihood of them causing damage to equipment through inappropriate use.

  • Negotiate costs with long-time service providers: You can negotiate contracts with maintenance contractors and suppliers of replacement parts to get a better price.

  • Plan maintenance in advance: Schedule and emphasize proactive maintenance solutions, such as preventive and predictive maintenance.

Example of how maintenance expenses work

Consider the following example of maintenance expenses to have a better understanding of how you may track these expenditures for a business:

Wavewood Industries operates two manufacturing sites equipped with fire suppression systems. The company employs third-party contractors to evaluate and repair its fire suppression systems annually. The business can correctly estimate this yearly expenditure as they have a documented contract that details labour, material, and other maintenance expenses. Once the contractor has completed the system's maintenance, they can give the firm a property maintenance charge. Wavewood Industries reports this charge as a fixed maintenance expense on their expenditure report, as the system is a component of the facility and has a pre-negotiated price with the third-party contractor.

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