You can reasonably expect to get 10 good years of hard work out of new equipment. But how often are you actually using your machines, and how much more time do you spend watching them sit idle?
This is a universal problem with vehicles. Machinery and cars alike spend more time parked – sometimes 90% or more of their lifetime – than being used. When you shell out a large sum of money for business assets such as excavators, loaders or skid steers, you probably look at them as simply a critical business expense. But today, rental services like DOZR can turn your costs into revenue-generating opportunities. Over the lifespan of one piece of equipment, DOZR can help you not only reclaim your initial investment but pull in profit, too.
The best way to see the impact rental services are having for contractors is to use a common example and some back-of-the-envelope math. Let’s say you’ve financed a new backhoe for $85,000. You’ll repay your loan over a five-year term at 4.5% APR, making your monthly payments about $1,580 and your annual expenditure about $19,000.
A decent lifespan for a backhoe is somewhere around 5,000 hours, so let’s assume you’re going to put 2,500 hours on during those first five years of ownership. That means you’ll be using your backhoe for about 15% of the working hours in a five-year period – better than the average, good work!
That also means you’re paying $34 per hour of use for that backhoe. Seems like a perfectly reasonable expense, right? Over its lifespan, this machine should contribute to revenue-generating jobs that offset your initial cost, and by the time you’re ready to replace it you’ll be happy to call it a good investment.
"Through the new lens of cost-effective equipment use, however, you’re missing a big opportunity to generate revenue."
Businesses and their backhoes have an offseason, so our estimate for how often new machinery is used during ownership is likely high. When the ground is frozen or the work is slow, you’re still paying for that backhoe to sit on a lot, when instead you could be renting it out to reclaim those costs and generate additional revenue.
On DOZR.com, we let our lenders set their own rental prices so they can be competitive. As of this writing, daily and weekly rental rates for backhoes are averaging out to slightly more than the $34 you’re spending for each hour your equipment is in use or sitting idle in your lot. But in this business, a one-day rental might not cut it for most. Monthly rentals are the most cost-effective way to put your idle equipment to work.
If you were to rent your backhoe for $2,000 per month, you would cover your $1,580 monthly payment and bring in just over $400 extra dollars each month. Twelve months of renting at that price will cover your annual expense and return more than $5,000 to your balance sheet.
Let’s add some more realism to our example: say you have a four-month offseason when the ground is frozen, but thanks to DOZR you can send your machine south (free of charge) and collect some rental revenue from your peers in warmer weather. At $2,000 each month, you’re bringing $8,000 in and sending about $6,300 out, leaving you with $1,700 in additional profit for your business.
Rent for longer, and you’ll offset even more of the cost of your equipment. If you rent your backhoe at $2,000 per month for 5 months, you’ll shift the majority of your annual payment to renters – they’ll cover $10,000 while you’ll only pay $9,000 each year.
So what's better - paying $19,000 each year for a piece of equipment you'll only use in a cost-effective way for half the year, or paying $9,000 for a piece of equipment that will help your business generate revenue all year long?