One of the biggest questions in the construction industry is when is it okay to rent equipment, and when it is not? Both options have their own advantages and disadvantages depending on your business’ needs. Some equipment is only used twice or three times during the whole course of the project, and such cases would benefit if renting. On the other hand, when a machine is being used on a regular basis then we can say it is beneficial to buy. With this in mind, it is important to know what considerations you should look at to make a sound decision.
Calculating the costs per unit will give you a guide in understanding which will benefit your business more. Start by making a list of all the equipment that you own. Compare the revenue versus the costs including depreciation, repairs, delivery and pick up of units, and interest expense. If this calculation shows billing-over-cost then you are able to pay for the direct costs of the unit and best to own it. However, if your calculation would show that the cost per month is higher than the revenue, then you should rethink your current rental arrangement and find an alternative that will suit you.
In a recent article from For Construction Pros, they write: “If you have billing over cost, it means you are covering your direct costs and have the flexibility to own and have the unit available when you need it. But you will incur many of the above costs for the entire year, which could move the billing-over-cost number to a cost-over-billing result. Also, don’t forget to compare your cost to an outside rental rate.”