If you are in the construction equipment rental business, it is important to set the rates at which you rent your equipment to ensure profitability. Construction equipment is one of the more expensive types of equipment in a rental business due to its high upfront costs.
If you own a construction equipment rental business, you likely need staff to ensure that your machinery remains maintained and stored when it is not being used. This overhead can add to your regular costs associated with the rental.
How to Determine Your Rental Costs
There are several factors involved when determining how to calculate construction equipment rental rates.
First, you’ll need to consider the market rental rates for similar machinery in your area. You can do this by checking with other companies located within your region. If they offer construction equipment rental, ask them how much they charge for items that are similar to yours. You may also be able to find their rates online.
If you are the only company offering a piece of construction equipment, you’ll be able to set your own rates.
As you progress, you’ll want to make sure that your rental rates for construction equipment remain competitive but still leave you with a profit after you factor in your operating costs. Typical costs associated with construction equipment include:
- Leasing payments made to the financing company for construction equipment
- Regular costs of maintenance to keep your equipment functional
- Overhead expenses, such as storage or staff
- Insurance expenditures
Once you have an idea of all of the costs that should be allocated to your construction equipment, you’ll be in a better position to determine your rental rates.
There are several other different components associated with determining your rates. These include the product cost and the cost per rental. You’ll also need to determine the number of days required to rent your equipment before you break even.
What Is the Product Cost?
When determining how to calculate construction equipment rental rates, the product cost will be one of the more important pieces of the puzzle. The product cost is the total cost required to purchase a piece of equipment.
For example, if the equipment you purchased costs $1,500, this will be one part of your total product cost. Other costs involve an allocation associated with each piece of equipment that includes maintenance, overhead, and insurance.
For example, if you determine that your yearly maintenance and overhead costs are $250 for this particular piece of equipment, then your total product cost will be $1,750.
What Is the Cost Per Rental?
The cost per rental is equal to the amount that you can expect to charge for the construction equipment each day. If the average market rate for a piece of equipment is $150 in your area, this is the amount that you would set your rental prices to be.
What Is the Number of Rental Days Required to Break Even?
The number of rental days required to break even is simply the product cost divided by the cost per rental. In our example, it will be equal to $1,750 Product Cost / $150 Cost Per Rental = 11.67 Rental Days. Thus, you will need to rent your equipment for 12 days before you break even and begin to accrue a profit.
Examples of How to Calculate Construction Equipment Rental Rates
Provided below are examples of how to calculate construction equipment rental rates for three of the most popular types of rentals:
Scaffolding is a type of construction equipment that is typically needed during exterior renovations. For example, if a client is currently repainting a building, they may need scaffolding to support their contractors to stand on and hold their supplies while working on areas above the ground.
To determine how to calculate construction equipment rental rates for scaffolding, search your local market to determine what other companies are charging.
Averages are generally between $15 and $40 per day but will vary according to location, the type of scaffolding required, and its length. If the market costs align with your product costs, the rental rates will be reasonable.
For example, if your product cost is $1,000, and the cost per rental is $40 per day, you will break even on your scaffolding purchase after renting it for 25 days.
The second most popular equipment rental is a forklift. A forklift requires a lot of outlay to initially purchase but can be quite lucrative depending on the market demand. Since many construction companies don’t require the use of a forklift daily, they will prefer to rent them to save on costs.
The average initial forklift cost is between $15,000 and $25,000, and the market rental rate will depend on your competitors and the amount you can afford to charge without losing profit. In most markets, a forklift can be rented for between $150 and $400 per day.
Assuming that the forklift you purchased costs $20,000, and the additional costs for overhead relating to it are $2,500, your product cost is $22,500. If you charge $400 for the rental, you will break even after renting the machine for 56.25 days.
A trencher is used to dig long, narrow trenches for landscaping purposes. Their initial cost can vary significantly depending on the type of trencher purchased and how it is used. The more expensive models can be over $50,000, while inexpensive versions may be obtained for a little over $2,000.
Assuming you purchase a trencher that costs $30,000, you’ll need to allocate the additional costs that your trencher will incur to arrive at a final product cost. For example, pretend that your allocated costs are $5,000, resulting in a product cost of $35,000.
The average rental rate of a trencher will vary depending on the type of model and the location where you are renting it from. Average rental rates are between $125 and $300 per day. If you choose to rent your trencher for $300 per day, you will break even after $35,000 / $300 = 116.67 days.
Are You in the Construction Equipment Rental Business?
Figuring out how to calculate construction equipment rental rates is just one part of ensuring smooth daily operations for your company. Quipli offers all-in-one software designed to meet your company’s equipment rental management needs. Contact us to learn more about our services and see a free demo today!