Rental companies need to determine their total equipment value for various reasons, whether it be for buying and selling equipment, auditing your rental inventory, or getting it insured.
Equipment values will vary based on your business, but our used equipment value calculator is a great first step in creating a construction equipment price guide.
Reasons for Valuation
The reason you’re looking to value your equipment will play a role in which equipment value estimator and approach you’ll use. Are you looking to buy or sell a piece of equipment? Assessing the value for insurance purposes? The valuation methodology you’ll use depends heavily upon the reason you’re trying to determine a value for your equipment in the first place.
When it comes to valuing equipment for buying or selling, there are three key valuation methods.
1. Fair Market Value
Fair market value is a valuation method in which both a buyer and seller are willing to partake in a transaction. Say you’re looking to start a rental business: To get an idea of the costs involved, you can use a fair market value calculator. Equipment you’d need can be entered into the calculator to determine the price you’d pay.
If you already have a rental business but are looking to upgrade your equipment by selling some older items, then the fair market value is likely what you’ll use to get a rough idea of how much you could sell your equipment for.
2. Orderly Liquidation value
The orderly liquidation value is what’s expected when a seller is forced to sell an asset with some time constraints. This method gives a reasonable amount of time to find a willing buyer. This valuation is generally less than the fair market value.
3. Forced Liquidation Value
A forced liquidation value is the asset’s value if sold almost immediately at auction. This valuation assumes the assets or equipment are sold as soon as possible and is generally lower than the orderly liquidation value.
If you’re looking to value your equipment for insurance purposes, such as filing an insurance claim or purchasing a new insurance policy, you’ll use one of the three methods below.
1. Actual Cash Value
Insurers may use the actual cash value to determine the value of your equipment. This value is calculated as the replacement cost of the equipment and incurs less depreciation.
2. Replacement Cost New
The new replacement cost is the value of purchasing the latest version of the same piece of equipment, brand-new.
3. Reproduction Cost New
The new reproduction cost is the valuation for a piece of equipment based on the costs involved in reproducing the equipment with the same specifications, based on current prices.
Financial Reporting and Financing
If you’re valuing your equipment for financial reporting or to raise funding for your business, there might be specific requirements. For example, a lender may base its valuation on the market price of the equipment for calculating the loan-to-value ratio.
How to Calculate Your Equipment Value
Regardless of the reason, if you’re looking to calculate the value of your equipment, you’ll need to do the following.
Identify and Compile the Relevant Information for Each Piece of Equipment
To get a proper valuation done, you’ll need to gather key information for each piece of equipment you have, such as:
Keep a file with this information readily accessible.
Determine the Right Valuation Methods
There are three different methods that are generally used for equipment valuations: the sales comparison approach, the cost approach and the annual straight line depreciation method.
Sales Comparison Approach
The sales comparison approach looks at the current market for new and used equipment — what are the current prices for similar equipment between willing buyers and sellers? A sales comparison approach is used when sales data is readily available.
The age and condition of the property are taken into account when looking at used equipment. This may involve looking at recent auctions, dealer listings, and conversations with vendors to assess the market.
The best way for this approach is to start keeping track of what similar equipment is being sold for so you can gauge your own equipment.
The cost approach (also known as the cost method) uses the new replacement cost. This method is generally used when there’s not an active market for the equipment. For example, you have a specific type of excavator that the manufacturer no longer sells, and as such, there’s no real market for it. Your heavy equipment valuation calculator should point you toward using the new replacement cost for a new version of a similar piece of equipment.
When there’s not an active enough market for the sales comparison approach, that’s when the cost approach is used. It is also suitable when the product is highly customized.
If you have a rental business that uses custom equipment, the cost approach is what you’d use for your valuations. The cost approach may include reaching out to manufacturers and vendors to appraise the custom equipment needed to reproduce the asset and may also involve checking published price lists.
If the equipment is no longer made, the cost approach may include reaching out to the previous manufacturer to see if they can provide an estimate of what the equipment would cost to build today, factoring in present technology and current prices for supplies.
Calculate the Equipment Value
Now that you’ve nailed down the reasons for your valuation, you should have a general idea of the best method to conduct it. If you’re using the sales comparison approach, look at the buy-and-sell market for new or used equipment like yours. The cost approach means you’ll need to find equipment that’s similar to yours and factor in depreciation.
Build Your Quipli Rental Business with Quipli
Quipli is an all-in-one software solution for rental businesses. Our equipment rental software helps rental companies track their inventory to maximize revenue-generating opportunities and integrates with our reservation & scheduling tool for a seamless customer experience. Reach out to the Quipli team today to learn more.
A good equipment payment calculator will allow you to customize all aspects of your loan — helping you figure out exactly what works for you.
Many banks offer equipment financing, and some financing companies specialize in loans for construction and heavy equipment. Before contacting a lender, you can use an equipment finance calculator to get an idea of what to expect.
The key inputs for a heavy equipment loan calculator are similar to those for many loans — the amount financed, the interest rate, and the loan length (also known as the loan term). However, there are some nuances specific to the equipment financing industry that you should know about.
Free Online Construction Equipment Loan Calculator
Here’s a free online equipment finance calculator that can help you see how your payment will change based on the various inputs you choose, such as interest rates and loan terms:
How Equipment Loan Payments Are Usually Determined
Three key inputs will largely determine your loan payment:
The amount you’re financing
Your interest rate
The loan term
When using an equipment loan payment calculator, you’ll find that the more money you finance, the higher your payments will be. This reality is true for interest rates as well — the higher the rate, the higher the payment.
However, the payment amount will go down if you increase the loan term (although you’ll likely pay more interest over the life of the loan).
Let’s look at the three key elements in more detail:
1. Equipment Loan Total Amount
The loan amount will be the amount you’re financing, which is generally the total purchase price of the equipment, less any down payment you make.
Equipment costs in your industry will largely determine the amount you need to finance. Other factors that will determine the amount you can borrow include the lifetime value of the equipment and whether it’s new or used.
Some equipment loans are for $5,000 or less, while some lenders have minimums on the amount they’re willing to lend for equipment loans, such as $10,000 or $25,000. Typically, the lower the amount you’re financing, the higher the interest rate. If you are financing $5,000, the rate will tend to be higher than if you’re financing $50,000.
2. Interest Rates
Interest rates will vary based on the industry and equipment you’re financing. They can be anywhere from 2% to 20%. If you’re required to provide a personal guarantee, your credit score will also play a part in determining the interest rate.
Other factors that play a part in the interest rate calculation are your company’s financials, such as annual revenue and length of time in business. The type of equipment and its lifetime value will play a role in the interest rate as well.
Resale value is also a consideration. If the equipment holds its value well, you may be able to get a lower rate. The lender might see the loan as less risky when compared to one for equipment that depreciates quickly.
3. Loan Terms
The loan term is the length of time of your loan. This duration for equipment loans tends to be between two and seven years. Some lenders may have a cap of five or ten years on the terms they’re willing to offer for equipment loans.
Generally, the longer the loan term, the higher the interest rate tends to be. Thus, if you’re financing a piece of equipment for two years, the rate should be lower than if you selected a loan term of seven years.
Note that you can often pay the loan off early or make additional payments to shorten the loan term (and save interest). However, some financing companies may charge a prepayment penalty if you decide to pay off the loan early. Make sure to factor that cost against any interest savings when you’re considering paying early.
What You Should Know About Equipment Financing
Even the best equipment financing calculator won’t be able to account for your specific situation or the special requirements that a lender might have.
Equipment lenders may have minimum requirements for your business, such as thresholds for annual revenue and length of time in business. For example, a lender may require that you have at least $25,000 in annual revenue and have been in business for at least six months before considering you for a loan.
Other key requirements include minimum credit scores and required down payment amounts, which may vary between 5% and 20%. Also, recall that some lenders may have a cap on the loan term, such as 48 months, and minimum loan amounts, such as $25,000.
Some lenders will also allow for special repayment schedules, such as weekly or bi-weekly payments instead of monthly ones. They may also specify a balloon payment that’s due every 12 months or at the end of the loan’s term.
Other things to watch out for when using a construction loan calculator include upfront charges by lenders, such as origination and application fees. Don’t forget to ask about prepayment penalties or potential discounts for early payoffs.
Examples of Typical Loan Payments for Construction Equipment
So what do the numbers generally tend to look like? Here are a few examples, based on the average cost of common types of heavy construction equipment, based on our calculator.
These numbers assume a 36-month loan repayment period, an interest rate of 7.5%. Total loan amounts are based on the mean average cost for each type of equipment.
Prices can vary significantly, but these numbers can give you an idea of around how much you can probably expect to spend each month. Need more help on pricing? Explore our how to value a rental business guide.
Financing Equipment for Your Equipment Rental Business?
If you’re looking to add new equipment to your rental business and increase your profit, Quipli can help. Quipli’srental eCommerce platform helps manage your inventory and website to make it easier for customers to find what they need.
Our all-in-one software also makes it easy for you to manage your invoices and orders. You can find out how Quipli makes the sales andinventory management processes easy by booking a 15-minute demo.
If you manage your business well, you can see huge growth fast. Thing is, to do that, you need a plan.
You need to run the numbers. One of the things you can do this with, is the cost of your rental equipment.
How much are your loans? How long will it take, at what price, to repay those loans? How should you ensure that you get a good ROI on your equipment?
To help you answer these questions, we’ve created a detailed online calculator. Just plug in your numbers, and you can find out what you’ll need to do to make sure you make a profit.
Our Equipment Rental Cost Calculator Spreadsheet
To help you crunch the numbers, we’ve created an equipment rental cost calculator.
It’s in the form of a spreadsheet, which you can open and use in Google Sheets, Excel, or similar apps. It’s programmed to do the math for you – just enter your numbers, and you’re good to go.
Using Sheets or Excel, you can calculate the best daily, weekly, or monthly equipment rental rates that will get you the best ROI, while still remaining competitive.
So how do you use it? Below, we have a full rundown of what our calculator does, and how to use this simple but powerful tool to figure out how to get the best ROI on your investment into your business.
What you’ll need:
Purchase cost of equipment
Any other associated costs
Your ROI goal
The period of time over which you want to break even on the loan
Your utilization rate (per day, per week, or per month.)
Your utilization rate percentage (for daily utilization rates, you should enter 100%)
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.
Daily vs Weekly vs Monthly Equipment Rental Rates
In our calculator, you can set your rates by day, by week, or by month.
So which is the best option?
In short, the longer the rental, the better the daily rate equivalent should be. Longer rentals are massively valuable as they limit the number of transactions you have to make, and minimize downtime.
On the other hand, higher rates for shorter term periods means you’ll make more on each rental. Targeting customers that have longer rental periods will generally make for a more profitable and sustainable business that’s easier to manage.
Your administration and handling costs tend to be higher for shorter term rentals – keeping in mind that equipment needs to be cleaned, and undergo routine maintenance, between rentals.
There are different ways you can structure this, but daily rates – with weekly and monthly based off of the daily rate – tend to be optimal for most types of equipment rental, including heavy construction equipment.
A good way to do this is to start with the daily rate, then set monthly rentals based on the number of calendar days total in the rental period, plus a slight discount for the longer period. So if your daily rate is $200 for a piece of machinery, and say you’d be comfortable giving a 10% discount for a monthly rental as opposed to a daily one, you’d be looking at around $5,400 for a month-long rental period – a good deal for everyone involved.
You can also consider things like a discounted monthly rate for high-value recurring customers who rent for long term periods. But generally speaking, it’s best to charge by the day.
That way, calculating your equipment rental rates daily, monthly, and weekly in Excel or Google Sheets is also a lot easier.
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.
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.
The best way to figure out how to price your rental equipment is to price it by day, by week, or by month. (Rather than using a fixed rate structure.) Some of the factors to keep in mind include:
Initial cost and/or loan payments
Your goal for time to break even
Your ROI goal (what percentage you want to make back vs the cost)
What your competitors are charging for the same equipment
How do I calculate my equipment utilization rate?
To calculate your time utilization rate – that is, what percentage of the time a particular piece of equipment is in use – you can use the following simple formula:
(Days rented)/(days available for rental) = Time Utilization Percentage
The best time utilization percentage to aim for, for your fleet or inventory as a whole, is 75%. Keep in mind that equipment can often be under routine maintenance between uses, or can be in the shop for repairs. No piece of equipment is going to have a 100% utilization rate individually, regardless of the time period by which you’re measuring it.
How do I calculate the cost of my equipment?
The initial up-front cost of the equipment – whether you took out a loan, or bought it outright – is only part of its total cost.
Other factors to take into account include:
Maintenance and servicing
Unexpected costs, like unanticipated facility downtime or other issues
Upgrades and improvements to the equipment
Depreciation over time
Here’s a formula that you can use for this:
(Total cost of a piece of equipment) x (5% / month) x 13 x 80%
How do I assess my competitors’ rates?
Market research is a big part of tailoring your equipment rental rates. (Our calculator has a section where you can enter what your top competitors are charging.)
To do this, you want to take a look at what’s standard in your area for a particular piece of equipment. This involves looking not only at pricing, but at how your competitors are positioned.
When looking at local competitors, you should ask:
How is a given competitor’s brand positioned? Are they positioning themselves as a premium offering, or are they catering more to customers who are shopping on price?
What prices are customers willing to pay for renting a given piece of equipment? What are typical minima and maxima locally?
Is price a big factor in your target customers’ decision making process? (This can depend on what kind of equipment rental you’re offering, as well as what particular piece of equipment you’re analyzing.)
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.
If you’re charging too little, you won’t make much profit or could even lose money, whereas if you’re charging too much, customers will avoid you, and your business won’t thrive. There’s a lot to consider when setting industrial tool rental prices.
What to Consider When Developing Your Pricing Strategy
Much of your pricing strategy is going to come down to your profitability goals. Of course, how much money you’re planning on making is going to play a big part in your pricing. You should have a clear idea about what your margins are going to be for specific types of equipment.
Your goals are far from the only factor in your equipment rental pricing strategy. You also need to consider market conditions as well as the supply and demand for the specific equipmentyou’re renting.
If you’re the only game in town, you can charge more. If customers can pick up the same equipment from multiple competitors, you have to be careful not to set prices too high.
Competitor pricing is one of the most effective tools you have to determine rental rates. Other businesses in your region or surrounding regions could have prices that have already been adjusted for local demand, making them a great starting point.
Your company’s expenses also factor into pricing because it doesn’t make sense to have equipment that’s renting for a loss. There are the maintenance costs for the specific equipment to consider, along with the general costs of running your business.
Try Our Pricing Calculator
We built a calculator to help you price your equipment. Try it out by clicking below.
The best way to look at your equipment and how to price it is to view each piece of equipment as an investment. You put in money at the start when you purchase it, and you hope to make a profit by the time the investment is through.
Your investment will have rental income coming in to help you break even and make a profit. There’s also any potential resale value when you’re finished with the equipment as well. You’ll have to consider depreciation when calculating your profit based on your revenues and costs.
Basically, when you purchase equipment, your business has spent money but now holds an asset. This asset has a value that goes down or depreciates over time. US tax codes take this model into account, so you need to understand that you’re not claiming the entire purchase price of the equipment as a cost at once.
When figuring out your prices, you should consider that you’ll have to set them such that a piece of equipment can pay itself off within its expected lifetime. When calculating what your profit can be, you’ll have to take maintenance and other ongoing costs into account over the equipment’s lifetime as well.
Cutting Down Costs
If you’ve found that the local market won’t support rental prices that are high enough for you to make a profit, you’re going to have to look for other ways to make ends meet. Increasing prices won’t help once you’ve reached the market price, so you’re going to have to cut your costs.
Seeking out lower equipment prices is one of the most effective ways to do so. There are plenty of ways that you can find used equipment at significantly reduced prices, although you’ll have to make sure that you have the means to accurately judge the condition of new acquisitions.
Insurance is another area where you should try negotiating to lower your rates. You shouldn’t just take the first offer they give you. Ongoing maintenance costs can also make up a significant part of your budget, so try to save where you can.
Take Advantage of Guaranteed Rentals
You never really know for sure what the future will hold, so it’s best to capitalize on any opportunities you have to the best of your abilities.
This approach means that you should be willing to negotiate to secure long-term orders and understand that this flexibility will help in the long run. While you won’t be making your full rental rate each day on that equipment, you’ll be faring much better than if it’s just sitting in the yard.
You should try to know how much you’re willing to budge on large and long-term orders ahead of time rather than making it up on the spot.
On the other hand, you’ll have to stick to your set rates when it comes to regular orders. Once you’ve set your goals and determined what it takes to break even and make a profit, you’ll have to stick to that with customers who are just renting individual pieces of equipment for a few days.
Using Our Equipment Rental Cost Calculator
Quipli has developed an effective equipment rental cost calculator that can help you determine what your rental rates should be. This simple to use tool can take into account many different factors to give you the most accurate idea of what you should be charging.
Using the calculator, you must enter some specific information. This information includes the cost of the equipment in question and the annual costs that you’ll have to pay for this piece of equipment in terms of maintenance, insurance, fuel, delivery, and loans.
You can then enter your desired break-even period for the equipment and your goal for the Return on Investment you aim to achieve during this period. For the best results, you can enter daily rental rates for the same or similar equipment from competitors in your area.
The equipment rental rates calculator then gives you a breakdown of potential price points based on rental days during the break-even period, along with a comparison to your local competitors. By using the calculator for your most rented piece of equipment, you can generalize and determine price points for other equipment as well.