Understanding Your Construction Equipment Fleet Needs When Deciding To Rent or Buy
As a dealership, you want to sell more construction equipment. But you also want your rental department to grow. You can increase both overall revenue and customer loyalty by helping your customers decide whether to buy or rent when adding to their construction equipment fleet. They may want to consider leasing, too. It’s not as simple as it sounds.
Buying vs. renting requires strategic thinking
Your customer has to take into account their entire construction equipment fleet, not just the machine in question. To remain competitive and profitable, they need a fleet that is well-balanced, so they can achieve maximum utility and productivity. But flexibility is essential, too. It also contributes to productivity, enabling your customer to take on more jobs and/or complete projects more efficiently.
It’s a matter of cash flow management and ROI as much as jobsite management.
If your customer chooses to buy, will the machine pay for itself?
Generally speaking, it makes sense to purchase construction equipment when it will see at least a 60% usage rate. But there are other factors to consider, as well. Your customer has complete control over owned machines. They are always available. Operators get to know each machine over time, which can enhance comfort and productivity.
Leasing saves money up front compared to buying, and the payments are a business expense. When the lease expires, your customer can replace the machine with a new one, or purchase it as a permanent addition to their construction equipment fleet.
Renting is a simple way to augment any construction equipment fleet.
Thanks in large part to economic uncertainties of the past several years, the rental market has grown tremendously. The American Rental Association says revenue from rentals was up 8% between 2014 and 2015. The rental industry (equipment dealers and rental businesses) is projected to own 60% of all construction equipment by 2025.
Whereas contractors used to rent machines primarily as fill-ins, this option now offers broader tactical advantages. Customers can easily address seasonal, specialized or unexpected needs. They can rent a machine for as little or as much time as needed. They don’t have to deal with maintenance or repairs, or hauling machines to and from the jobsite. And they can write off the cost as a business expense.
And there are other perks. By renting, customers can try out (and benefit from) the latest construction equipment features and technology. They can get exactly the piece of equipment they need, instead of making do with what’s in their permanent fleet.
Or they can try different equipment for specific tasks – for example, replacing a tractor loader-backhoe with a compact excavator and skid steer or compact loader. Two smaller machines can be just as effective (or more so) as one larger unit in many situations, and they can also be used separately. This could boost your customer’s productivity and jobsite cost-effectiveness whether they rent, lease or buy.
On the downside, renting also costs more per day (or week or month) than daily operations cost of an owned machine. So be sure customers know they can count on your dealership for well-maintained rental machines at “friendly” pricing, along with quick response should an emergency or questions arise.
Factors to consider
To help customers think through their decision to rent or buy, suggest they ask themselves these questions:
- How much is the machine likely to be used?
- Do they have enough capital to buy the equipment? Or how would financing affect their cash flow?
- Do the benefits of renting outweigh the higher cost?
- Will projected cash flow be strong and consistent enough to handle both expected and unexpected expenses?
With a clear financial and usage plan in mind, your customer will be able to make the most cost-effective decision regarding whether to rent or buy machines for their construction equipment fleet.