When you’re establishing a business in the equipment rental industry, a lot of your success is going to come down to what your pricing strategies are.
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 equipment you’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.
Timeframes for Breaking Even and Making a Profit
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.
A Complete Equipment Rental Platform
Quipli provides an effective solution for all of your inventory management, scheduling, and rental business website needs. You can set up your equipment rental business to thrive with our versatile tools and effective support.
Reach out to our team at Quipli to Book a Demo Today!