By Jason Hurdis, Global Market Professional, Construction Materials Industry, Caterpillar Inc.
As the busy season heats up, some fleet owners I work with are looking at their capacity with a critical eye. Do they have the assets they need? And if not, does buying make sense or should they consider rental? There are no easy answers, but if you’re doing the rent-or-buy math, make sure to include these costs in your calculations.
1. Cost of low utilization
Underutilized assets cost you money, so before you go looking for extra capacity, spend some time estimating how often you will actually use it. Industry experts say when the projected utilization rate exceeds 65%, owning is usually preferred. But if it’s less than 40%, think rental. If the rate falls somewhere in between, other factors need to be considered.
2. Opportunity costs
Will buying a machine mean you have to postpone other critical investments — like adding people or upgrading a customer-facing business system? That’s what opportunity costs are all about. Depending on your priorities, it may be better to rent equipment and use your capital in other ways.
3. Maintenance and repair costs
With rental, it’s usually easier to manage maintenance and repair costs. They’re typically factored into the rental payment, so there’s less risk of a budget surprise. Just be sure you rent from someone who can deliver a well-maintained machine and keep it running in top condition over the life of the agreement.
4. Depreciation costs
When you own a machine, its value depreciates over time, making it harder to recover the cost of the initial investment. Although there are many strategies for managing depreciation, renting can be an effective way to avoid the losses associated with aging assets.
5. Storage costs
Equipment that’s not stored properly can develop performance and reliability issues. It can also depreciate more rapidly. But storage space for owned assets is expensive. If you rent, you may not have to incur these costs.
6. Logistics costs
The cost of moving assets from site to site can add up. You pay for transportation and may also incur costs associated with downtime and lost production if you have to wait for equipment to be dropped off. Renting a machine — and arranging timely delivery — can help you avoid these costs.
Run the numbers
There’s a lot to consider when completing a rent-versus-buy calculation. Your best bet is to work with a supplier who knows your business. Together you can explore the costs, add up the benefits and arrive at a decision that’s right for your situation.