Passing on equipment rental costs to customer

[sw_ross]

When you need to rent a piece of equipment for a specific job task because you don't own that piece of equipment do you just pass on the costs of the rental plus additional related costs associated with the rental (insurance, etc)?

If you're putting together a bid for a job would you include that amount? You would add a mark-up to that cost would you?

I'm trying to think about the costs difference on a bid (as well as a T and M job) of just renting the piece of equipment versus the costs related to owning that piece of equipment (depreciation, maintenance, storage, insurance) and how each might affect the bid price.

In other words, if you already own the piece of equipment (example - scissor lift) are you able to put together a less expensive bid price (example - lighting upgrade) since you own versus rent?

I definitely think there's a convenience factor associated with owning since you don't have to schedule the rental, pick up and drop off piece of equipment, especially if you budgeted (reserved) the equipment for 3 days and the job ends up taking 4 days. Or you end up only needing it for 2 days but you paid for 3.

Mostly wondering how you deal with the costs of renting equipment.

Thanks

 

[MAC702]

Insomuch as your bid would include the amortized cost of your own equipment you own that is needed for the job, yes, to a degree that still keeps you a competitive and fair bid.

If owning it makes you far more competitive, than try to own it. If renting it does, then you get the bonus of not having to own it.

Everything else is dependent on details.

Bidding jobs is more about who else is bidding, and how hungry you are, than it is about actually arriving at a fair price for all.

 

[Hv&Lv]

I think owning versus renting is also dependent on job size of course. I don’t own a scissor lift. I wouldn’t rent one or bid on a job that wasn’t large enough to make a good profit with rent included. I’ve got a buddy that owns an mini excavator. He rarely uses it, except for home projects around his house. But when he does he puts an hourly price on there for the equipment. I can’t compete with that.

 

[sw_ross]

Insomuch as your bid would include the amortized cost of your own equipment you own that is needed for the job, yes, to a degree that still keeps you a competitive and fair bid.

If owning it makes you far more competitive, than try to own it. If renting it does, then you get the bonus of not having to own it.

Everything else is dependent on details.

Bidding jobs is more about who else is bidding, and how hungry you are, than it is about actually arriving at a fair price for all.

Agreed. It's hard to justify putting a bid together for a service call to fix 2 light fixtures (small job) that require renting a scissor lift, versus the idea that if you already own a scissor lift you'd have more incentive to pursue this work to spread out the cost of owning the lift.

On the other hand, if you are the only option for the customer to get their project done (example - trench underground cable in a remote rural location) the customer will have to pay the cost of you renting the equipment to get the job done.

 

[Besoeker3]

I was in the industrial sector and we made variable speed drives and associated controls. We had pretty much all the tools and instruments we needed. The only thing I recall hiring was a Dranetz harmonic analyser when we had to do a continuous 24 hour supply voltage analysis. On a slight tangent, the supply was out of spec before we connected our drives and no worse when we did run them.

 

[kwired]

Agreed. It's hard to justify putting a bid together for a service call to fix 2 light fixtures (small job) that require renting a scissor lift, versus the idea that if you already own a scissor lift you'd have more incentive to pursue this work to spread out the cost of owning the lift.

On the other hand, if you are the only option for the customer to get their project done (example - trench underground cable in a remote rural location) the customer will have to pay the cost of you renting the equipment to get the job done.

Case by case can change how you may handle things.

Say you have a longer term project and rent equipment that is there for at least a long duration even though it isn't necessarily used daily while it is there. If you own that equipment, it cost you the same whether you are using it or not. If renting, it cost you each day whether it is used or not. Both cases it probably not worth bringing it back to rental center or the shop if it is going to be used again in just a few days. If you have another job you can bring it to for a couple days that is different.

How convenient access is to rental place factors in as well. I don't have much within 100 miles for rental stores. Renting a trencher for a 2 hour dig gets expensive when it means at least 2 day rental plus time to pick up and deliver the machine. Getting someone else local to subcontract the trencher might be easier option - but then you also have to work with their scheduling which can be a pain sometimes as well.

If you have another trades person that you are good enough friends with, you might be able to make deals and/or do each other favors over equipment and certain services at times.

 

[Little Bill]

Equipment rental is part of the cost associated with the job. You most certainly pass it on. Whether you mark that up is up to you. I don't really mark rentals up. But here, most times it cost as much or more for the rental place to deliver and pickup as the actual rental. Case in point, a scissor lift cost $100 a day, delivery charge is $65 in town, one way. So that is $130 delivery/pick-up for a $100 rental. What I do is pick it up my self and charge a haul fee. I usually charge mileage plus time, or minimum charge if the distance isn't very far. My minimum is enough to make a small profit (or a tiny bit past break-even) but much less than what the rental place charges. The rental place charge is for "within the area" which means about 10 mile radius. It goes up as distance increases.

 

[__dan]

If it's something bigger the maintenance and capital tied up in it is a big factor. The mini excavator or backhoe can be cheaper to own than rent. It would have to be a machine that you like keeping, but you would also have to put 2 grand / year into the maintenance. If there was no maintenance cost, it would be easier to forget that you own it and let it just sit there.

The mini excavator is especially popular and there's a lot of jobs you can do with them. I would be looking for a 50 hp 16,000 lb rubber tracked machine minimum. But if you're going to job with it, you have to have probably a 12 ton trailer and a 22,000 gvw truck to pull it. That setup is what a local specialty contractor would have to run, a one man or family operation with a backhoe and / or mini ex. Probably key factor is, if there is enough local paying work and he's doing it, he is probably very competitive at it because he would be good with the machine, run older equipment, and fix it himself.

If there is not a local guy that is good and competitive, it may mean that the local demand is not strong enough even if you want to be that guy. Which would bear on the profitability factor. You can always get a hobby that does not pay.

If you're building your own house, owning the machine could be an option. If you're building the house for someone else and you need a fleet of equipment for a short time, dozer, excavator, skidsteer, you would have to rent or sub it out to the local specialist who can keep his fleet busy (and maintained).

One consideration is if owning the machine is something specific that gets you the job. If owning the mini excavator gets you the call to bid. If the machine just sits there still has a big maintenance cost.

 

[__dan]

Let's say you can rent a nice 50 hp mini excavator for $3000 / month. At 160 hours for the month that works out to $18.75 / hr. If you have the right work for it, there's no way you can beat that number.

But you have 1000 hours of work for it over two years, let's say you can put 3000 hours on it over ten years and you're willing to pay $25. an hour for it. You can buy a $75,000.machine for $25 / hr and gamble it doesn't need much for major repairs. After ten years you can sell that 3000 hr machine for $35,000 so your hourly cost goes to almost half, let's say $14. / hr.

No way you can beat any of those numbers but you have to do it right. You need a good model machine that does nice work and then demand, or enough paying work for it. If it just sits there you still have annual maintenance either way. If you can use the machine for your own home projects, that would make it a twofer.

 

[sameguy]

If rented customer pays +
If owned billed out same as a man per hour.

 

[__dan]

I have the 84 JD 310B backhoe in the yard. Nice low hour 14,000 lb machine, built my house with it. 5000 lb front bucket lift. Forward hydro clutch slips, it's a wet clutch stack with a small hyd piston, machine needs to be split to fix it. Reverse is good. One bad pin that I bought the machine with. Good engine and pump, never taken anything major (I do myself).

Paid $12,000. for it with 1400 hours. I would sell it as is for 14 or 15k firm. It just did a major yard clearing and (container moving job). Because of the model ... the JD 310 is a good model, like a Cat 416, it is a collectors item that some guy will give it TCL and put it out by the road with the US flag on it on July 4. It's running and working collectible iron.

I am trying to figure out how to upgrade it but I would need the next job for it. I would have to build another house. Then I would be looking for a 2000 hour Cat 420IT, Volvo BL70, JD 310 again but newer and not needing work. I could keep my machine and put 10k into it or sell it as is for 14 ... paying $35k for the Volvo BL70. The Volvo would be $10k over fixing my machine.

The mini excavators are much more popular, hard to find used. Off lease and off rental fleet backhoes are easier to find.

 

[brantmacga]

I pass on rental cost with markup....

As for owning vs renting; it’s been awhile since I’ve had to rent anything; we have most everything we need on a regular basis. Demo saws, mini-ex, skid steer, scissor lift, bucket truck, etc..... but, when I price a job, I usually lookup rental rates and bill close to that for our own equipment. This stuff doesn’t last forever, and to me the benefit of owning is that the equipment is always available when we need it. It’s not to give discounts on work. Buy any of this stuff and be responsible for the maintenance and repair and you’ll understand what I’m talking about.

I’ve got what I think is a decently calculated hourly cost of use for all of this equipment and it’s not terribly far off from the rental rates (monthly). The most expensive thing to operate is the bucket truck. I really thought it would lower what I had to bill on lighting service contracts because I was always renting a pull-behind lift, but that was not the case. It’s an absolute money pit between the required inspections and maintenance along with things just breaking, but it is nice to be able to jump in and go instead of coordinating with a rental company and dragging a towable around.

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[roger]

I pass on rental cost with markup....

As for owning vs renting; it’s been awhile since I’ve had to rent anything; we have most everything we need on a regular basis. Demo saws, mini-ex, skid steer, scissor lift, bucket truck, etc..... but, when I price a job, I usually lookup rental rates and bill close to that for our own equipment. This stuff doesn’t last forever, and to me the benefit of owning is that the equipment is always available when we need it. It’s not to give discounts on work. Buy any of this stuff and be responsible for the maintenance and repair and you’ll understand what I’m talking about.

I’ve got what I think is a decently calculated hourly cost of use for all of this equipment and it’s not terribly far off from the rental rates (monthly). The most expensive thing to operate is the bucket truck. I really thought it would lower what I had to bill on lighting service contracts because I was always renting a pull-behind lift, but that was not the case. It’s an absolute money pit between the required inspections and maintenance along with things just breaking, but it is nice to be able to jump in and go instead of coordinating with a rental company and dragging a towable around.

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Exactly !!!!

Roger

 

[hbiss]

x2! When you think about it, what a rental company charges takes into account all the things you should be charging for if you owned the equipment. Aren't you in effect renting it to the customer?

-Hal

 

[LarryFine]

I agree with the "yes" consensus.

 

[__dan]

There are different ways to look at it. The new machine can get promotional 0% factory financing for 3 or 5 years. I ran those numbers in the time value of money calculator. 36 payments for 3 years at 0% on $100,000 of equipment is $2,777. monthly. I am thinking if I run the numbers different ways it is still going to come up ~ $3k / monthly, but you could have a a nice mini ex or backhoe. IDK the actual new cost quote.

I look at it as, the tool set or stockpiled materials is leverage to get me into a particular job type. So I have quite a lot of a tool set to build a house with, concrete form set, staging, ... mostly all bought used over the years accumulated over time. So instead of a series of small jobs for each instance, I want it as leverage to get me into a 1/2 million dollar job building a house.

There are still items to rent or hire out, but as has been said several times already, having the tool to work when the time comes is a necessary factor. Building the next house is the necessary job for me. There is always the profitability factor, but there is a big factor of if it is work that you want to do and equipment that you want to own and run.

It is very competitive either way. The guys who own and run older equipment most likely get their adrenaline going from working it and will keep doing that for as long as they can. You can imagine how hard that can be if there is not enough paying local work to stay busy and profitable. That would be the big factors, how tough the competition is and sufficient market pricing power. We all had to fix the stuff in the dirt because there was no shop to bring it to.

 

[Rdcowart]

If own it or if you rent it you need to charge. If you own it the repairs cost money. You have to factor in the costs of maintaining the equipment oil changes, parts brake, and employee’s tear stuff up. If you rent it the rental company is responsible for repairs and they can bring a new one to you for less down time. But when it comes to charging for it I do it every time. It doesn’t matter the size of the job if you need it you need it. Even if I owned it I would change a nice penny for it. I have cost involved in it every month if I’m using it or not. If they want quality service they will pay the price to have you there. Or they will pay you when the job is missed up and you have to fix it the right way. Remember you are a professional you have to charge professional prices to stay in business.

 

[LarryFine]

Absolutely. The customers are basically doing the same thing when they choose to "rent" an electrician instead of "owning" one (by becoming qualified themselves).