For example, if you purchased a $100,000 unit, the debt service and operating costs would be about $27,000 per year. If you do not recover at least $27,000 per year, you produce negative cash flow. Following this logic, I would use a 30% recovery rate to cover financed units.
The next question would be what do you do with units already paid off? Realistically, you could use a lower rate to break even — maybe 12% to 15%, depending on operating costs and depreciation. But no matter how you address this issue, you would like to earn a return on your equipment investment. You just have to track your results and see where they leave you.
Remember that any change from the budgeted utilization may require a change in the Recovery Rate. Second, keep in mind you don’t want to depreciate the units below their orderly liquidation value.
No matter whether you expect a good or a flat 2012, you have to keep your eye on the ball and have control of your business in order to maximize profit and cash flow.