If your business uses heavy machinery for job sites, you more than likely have rented or at the very least considered renting your equipment. It’s not hard to wonder why; for a monthly fee, you can use equipment that would normally cost tens of thousands for an upfront, new construction equipment purchase to get the job done.
So, whether you want to determine if renting is more cost-effective, or you’re simply trying to work a heavy equipment rental into your budget, you’ll need to be able to calculate rental rates.
Math and budgeting are not everyone’s favourite pastimes, so in this blog, we will be running down how equipment rental rates are calculated:
Let's begin understanding what your costs will go towards and if you are getting your money’s worth!
Condition of Equipment
Every business that rents out machinery will provide both new and used heavy equipment for clients to rent. Depending on the quality, times used, and upkeep costs that are necessary to keep it functioning, different places will advertise different prices. Using excavators as an example again, leasing agents will consider whether the model is new or used. New models have numerous benefits as they come with maximum power, top efficiency, and better fuel consumption. However, these machines are expensive for the leasing office to purchase. Used excavators come at a discount due to their naturally occurring wear and tear, so the costs will be calculated based on their depreciation and how many hours they have worked.
Size and Brand of Equipment
When calculating a specific rental rate, the exact cost you will be quoted will depend on the size of the machine and the brand it’s from. Using excavators as an example, a rental company will look at the size of the machines they are leasing as well as the brand it’s from. Quality brand equipment will ensure that the standard wear-and-tear will be able to be withstood, so the rates may be higher as they are valued more. Size is also taken into account considering the difficulty of delivering and picking up the excavator from your site if you are not able to pick it up on your own. Both new and used excavators will have both their size and the brand they’re from factored into their rental costs.
Interest RatesJust as you would pay interest on renting a car, you will also be paying interest when renting heavy equipment. This cost will vary based on the client’s credit rating and the type of equipment that’s being leased out along with size, brand and condition. The percentage can range depending on these factors, so it’s important to be aware of the kind of machine you’re renting as well as your credit rating. New equipment and used equipment (including excavators, soil compactors, asphalt compactors, wheel loaders, graders, and crawler tractors) will have different rates based on their prior factors of condition, size, and branding.
Residual ValueTo properly calculate the rental rate, your rental provider will likely take both the current value and residual value of the equipment into account. Residual value is an estimate of how much the machine will be worth by the time you have returned it, as well as costs to fix anything damaged. For example, if you leased a new excavator for a project taking 12 months, the providers will need to calculate its residual value at the end of the term. The company will subtract the new worth from the initial cost of the machine to arrive at the right amount. This means that newer machines will have a higher residual value, while used machines will be lower.
MaintenanceMaintenance costs for the assets being leased will be another variable that some companies will calculate into the rate. This essentially means that they will be taking the current residual value of the equipment along with the prior variables, and considering the costs that they spend in order to keep the machine running at optimal performance. If the machine is newer, the maintenance costs will be lower as there will be lower wear and tear. If the rented equipment is used, maintenance costs may be higher but this depends if the quality of the asset is optimal.
JAPA Provides Fast Quotes for Rental Rates
Since 1972, Alberta's oil and gas, construction, and road building industries have been provided with high-quality products and professional, knowledgeable service by JAPA. Our rental department can quickly provide a quote for a rental rate and help you determine which is best for your upcoming project. Our company is proud to be a distributor of XCMG, known for its high quality and durability whether you are looking to rent new models or previously used. Whether you’re looking for an excavator, a soil compactor, asphalt compactors or crawler tractors, we have a machine that will run for you. When it doesn’t, don’t worry: our technicians are here to help minimize your downtime and get you up and running again. So contact us today, and let’s help you get to work or get back to work.