Cold Asphalt Milling For Profit

By John Hood | September 28, 2010

Edited by Loren Faulkner

Whether it's a city street that's been overlaid once too often, or under-road utilities that are well beyond their 30-year life spans, or pavements that have simply failed, the cold milling machine has become a vital tool for removing asphalt layers, performing utility maintenance cuts and tearing out roadways to repair weak foundations. In fact, it's this combination of multiple capabilities and an infrastructure that isn't getting any younger that has contributed to a major boom for mill sales in the past five years.

Despite the growing demand for milling on today's jobs, only 20 percent of paving contractors in the United States currently own and operate their own cold milling machines. That leaves 80 percent that choose to subcontract this work to others.

Why The Milling Gap?

There seems to be wide concern as to whether the investment, effort and worry associated with cold milling is really worth it. Therefore, most choose to pay someone else to do the work rather than incur the expense of purchasing, operating, transporting, and maintaining their own equipment. But while most of these contractors think they're saving money and hassle by subcontracting instead of owning, in reality many are actually leaving money on the table. But think through the common objections:

#1. Initial Cost

By far, the biggest objection that most paving contractors have when considering the acquisition of a milling machine is the initial purchase price. Without a doubt, at $300,000 or more, the price is high. Take this concern a step further and realize the biggest equipment investment for many paving contractors up to this point may have been $100,000 for their bread-and-butter machine, the paver. Now they're being asked to spend three times as much to invest in a piece of equipment that addresses a need outside of their primary paving function.

Few contractors get past this obstacle. Successful contractors understand that there is no reward without risk, but for many this feels like they're really sticking their necks out. Therefore, most choose to let someone else take the risk and they hire a subcontractor to do the milling. What these contractors fail to see is the relatively quick return on investment that can be experienced with a milling machine.

When objectively looking at the initial purchase price of a mill, contractors should first consider the amount they typically spend on subcontractors over a 12-month span. On average, subbing a mill costs between $3,500 and $5,000 per day, with the former being a very conservative estimate. Depending on the paving contractor's size of operation and scope of jobs, they may be subbing a machine anywhere from twice a month to twice a week. And at a minimum of $3,500 per day for these services, that's at least $84,000 spent annually.

Now think about what it would take to finance a cold milling machine. With smaller contractors, typically it makes the most sense that they finance over a five-year (60-month) period of time. At today's terms, a $300,000 machine financed over 60 months would come to about a $5,800 monthly payment — or $69,600 annually. Looking back to that $84,000 spent yearly on a subcontractor compared with the annual payment to purchase the equipment, that's $14,400 of potential profits that they are simply giving away to another contractor.

#2: Why Mess With Milling?

Owning a cold milling machine gives a contractor extra flexibility when bidding jobs. For the contractor who is using a sub to do the milling, there is a fixed, unbending cost associated with that service. But for those with their own machine, there's a greater ability to lower a bid because they don't have to contend with as many fixed costs. The potential result of this flexibility is a leg up on the competition during the bid process.

Some may still see owning and operating a milling machine as a "hassle." But when it comes to production efficiency, the true "hassle" may be experienced by not owning a milling machine.

When using a subcontractor, the prime contractor is dependent on someone else to arrive on schedule and do the job in a timely fashion. And because milling is nearly always the first step in the project, the overall productivity and efficiency of the prime contractor's operation is effectively riding on the sub.

#3: Material Off-Haul

There is concern about what to do with the material once it's milled. But recycled asphalt is an excellent base material that can either be stockpiled or sold back to asphalt producers for use in their re-mix blends. Additionally, asphalt is a petroleum product, which only continues to rise in value given today's oil prices.

#4: Operational Issues

Learning how to use a milling machine is quite easy. In some ways, operating some mills is much like a video game. With a basic joystick control for common operations, one needs to simply type into the machine's computer how much material to remove. If the job calls for taking 2 inches out, the operator simply types in "-2" and the machine does the rest. All the operator has to worry about is steering straight.

But what about that operator? Regardless of contractor size, the idea of increased labor costs scares everyone. No one wants to add labor if they can help it. But most paving contractors, even small ones, already have a person on staff acting as the equipment transport driver. And though this person's primary responsibility is to simply transport trailered equipment to and from job sites, anyone with equipment experience can quickly learn how to operate a milling machine — especially someone like the transport driver. This is person many smaller paving contractors use for an operator when adding milling services. Not only does it save on labor costs, but it also takes a person who's normally part of an operation's cost center and turns him into a contributor to the profit center, because he's now doing production work.

The Final Objection

There are many good reasons for getting into the milling business and many contractors are doing that. Yet, demand continues to outpace supply. Fortunately, as more contractors get comfortable with the process, realizing the potential profits, milling may eventually become a common component of most paving operations. The irony is that with all the objections paving contractors have when thinking of buying a mill, there is usually only one that they have after purchasing one: "Why didn't I do this sooner?"

(Editor's Note: John Hood is product manager, Milling & Paving, BOMAG Americas, Inc.,