According to a recent market research study, the equipment rental business is expected to record a value of $64.71 billion in 2025, growing at a compound annual growth rate (CAGR) of 5.47% for the time period of 2021 through 2025.
Those companies who are engaged in equipment rental can expect solid earnings if they manage their business well. Our equipment rental cost calculator can help you to anticipate your earnings, as well as predict the number of rentals you will need to break even.
How to Calculate The Price of Your Rental Equipment?
When deciding how to properly price rental equipment, companies should understand the costs of owning their equipment, how often they can expect to rent their equipment per month, and any other costs that may be required.
Pricing for rentals should take the following into account:
- Initial cost of the equipment
- Any maintenance associated with keeping the equipment in good repair
- How often the equipment may be rented each month
- Any additional expenditures, such as staff or storage costs
Before pricing rental equipment, it’s important to conduct market research of other firms in your area that offers similar items for rent.
Find out how much they are charging for the rental of their equipment. Identify if there are any discounts offered for longer rental times or if additional costs associated with the equipment are passed on to their customers.
This article will discuss how to properly price rental equipment. It also includes an equipment rental rates calculator that can be used to help you figure out how long it will take to recoup your initial outlay.
When deciding how to price rental items, you must first figure out the cost of the equipment you plan to rent. The cost of the item should include the initial outlay for the product, as well as any interest expenses and upkeep costs. Upkeep costs can include storage, maintenance, and an allocation of staff wages as a proportion of the product.
Your first task is to understand how long you expect it will take to break even with your initial investment in your equipment. Once you break even, your ROI improves substantially because you are renting your products almost purely for profit (with the exception of on-going costs such as maintenance, insurance, staff, etc.).
Return on Investment Goals
There are two different prices you can rent your product out at: at the break even price, or at a price with profit in mind.
If you rent your equipment out purely at your break even price, your overall rental price will likely be lower than your competitors, and thus will be more attractive for customers. However, recouping your initial investment will take more rental days.
Plus, there’s no reason to completely undercut your competitors, though offering a lower price is a good incentive for new customers to choose you.
With the right calculations, you can layer in an ROI goal while you are still in your break even phase.
An Example Rental Cost Calculation Scenario
Say, you purchased 10 pieces of equipment to rent which totaled $100,000.
You want to break even in 2.5 years.
In order to recoup your investment, you would need to rent out your 10 pieces of equipment about for a total of 200 days during 2.5 years at a price around $200 per day.
However – your competitor rents this piece of equipment out for $400 a day. Even lowering your price $50 underneath theirs would be a nice perk for your customer. If you were rent out your equipment at $350, you could recoup your costs in in around 115 days.
But – if your competitor is renting for $400 a day – they are probably renting at a profit instead of breaking even – as should you.
Back to the drawing board:
10 pieces of equipment: initial cost = $100,000
Break Even Goal: 2.5 Years
Competitor rental price: $400 per day.
Your ROI goal: 250% ie 150K on top of your initial investment.
If you rent your 10 pieces of equipment a total of 350 times in 2.5 years at a price of about $400 per day, you would break even in 2.5 years while making 150K.
The key factor is the number of times you think your market requires during this time period. Is renting 10 pieces of equipment for a total of 350 times in 2.5 years seem possible?
If this seems unreasonable, you have a couple levers to pull.
1) Your ROI goal might be too high. If you lower your ROI goal, then number of days you need to rent lowers.
2) Your Break Even Goal: You could increase your Break Even Goal, so that it takes longer to pay off your initial investment. However, rule of thumb is that you should Break Even with your initial investments at a max of 3 years.
3) Your rental price. If you price below your competitors, you may gain an edge in your market which would increase potential renters.
Some niches – most commonly construction – price their equipment based on utilization rates. During peak seasons, you might expect some of your equipment to rent out for half of a month. Thus – a 50% utilization rate.
A Party / Event Rental company may want to think of utilization rates on a weekly basis. If most parties happen during Friday – Sunday, your weekly utilization rate may be more like 43% (3 out of 7 days).
Identifying a utilization rate requires having a strong understanding of your industry, however can be helpful for planning and maintenance costs.
If you are new to an industry, considering just how many days you need to rent during your break even period may be more helpful in that it simplifies what your goals are. Instead of thinking, “I need to rent out my equipment 50% of each month for 2.5 years”, you can replace this with “I need to rent out my equipment for x number of days over 2.5 years.”
Post Breaking Even Period Profit
Once you have reached the end of your Break Even Period, your profit margins will greatly increase since now you are renting almost purely for profit. With the exception of recurring cost such as insurance, maintenance, staff, etc. your equipment is paid for.
Here – you can calculate further your future profit and the calculation is quite simple.
(Rental Price x Expected Days Per Year it Is Rented) – Annual Costs = Annual Profit
What Are the Advantages to Understanding the Profitability of Your Equipment?
Knowing what items in your equipment rental company are generating a profit can help you better understand the mechanics of your operations. If you are consistently generating a regular income from particular items that you rent, you can decide to purchase more of them.
In contrast, if you have items that aren’t very popular with your customers, you may decide not to keep many of them available to rent. Thus, you’ll be able to have a more balanced approach to managing your event equipment inventory.
The equipment rental cost calculator can give you a lot of insight into understanding what benefits your business and what doesn’t. You don’t want to invest in products that have a high product cost and don’t sell well.
In that case, you’d be left with reduced profits or even losses. Understanding the strength of your product mix can help reduce your spending on unprofitable items.
If you are in the equipment rental business, it’s important to have a full understanding of how to calculate rental rates, as well as ways to increase your profitability. Using an equipment rental cost calculator can help you determine your break-even point for each item of equipment that you have. Once you know your break-even point, you’ll be in a better position to set your rental rates.
Quipli offers lots of insight geared towards assisting equipment rental companies who want help in growing their businesses.
Our software includes equipment reservation management, inventory management, and a reporting & utilization data tool. All of these modules can help you put your best foot forward for your equipment rental business. For a free demo of our equipment rental software, contact our team today!