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A Definitive Guide: How to Price Rental Rates for Equipment

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When it comes to pricing, rental companies are presented with an intriguing challenge: creating an acceptable return on your investment, but also maximizing the number of rentals of your equipment.  In this guide, we discuss the considerations that go into the typical rental business’s pricing philosophy.

Although there are various methods for pricing rental equipment, none of them are universally effective. The cost of rental equipment may be predetermined (fixed) or determined by the number of hours, days, or even weeks rented. 

Equipment rental businesses can anticipate healthy profits if they run their operations efficiently. Once you have selected a pricing model, you can estimate your profits and determine how many rentals you’ll need to make a profit using this equipment rental cost calculator.

Basic Formula of Equipment Rental Calculator

Basic Formula of Equipment Rental Calculator

The estimated yearly rental dollars a rental business wishes to attain are calculated by multiplying the total cost of a piece of equipment x 5% / month x 13 x 80%. 

Following this formula would achieve a gross profit of 35% to 40%, which would cover maintenance, insurance, and the modest fuel they use (if applicable). Therefore, in order to get the “actual” rental cost for a year, you would have to cut your results by at least 40%.

Although 40% gross profit can seem high at first glance, there is more to consider. Your margin on rentals must also cover all office and administrative costs as well as interest payments on inventory. 

Just a small drop in rental income to turn a projected profit into a loss. It is very understandable given the significant fixed costs a rental company has on each rental unit. A 20% drop in rental can result in a 50% decline in cash flow.

So, the formula for calculating rental cost should be:

To calculate the expected yearly rental cost, multiply the equipment’s total cost by 5% per month, multiplied by 13 times 80%. Here is an instance:

Equipment cost $100,000.

5 years of depreciable life with 30% residual

5% monthly rent is the rental rate.

Rental intervals: every 13 or 28 days

80% of the allotted time

$100,000 X 65% (5 x 13) —— $65,000 X 80% —— $52,000

$52,000 x 60% (removing rental GP) = $31,000

Which Factors Should Consider to Price Rental Rates for Equipment?

Thinking about what are the proper criteria to take into account when determining a pricing quote? Not only is a standard rental fee required, but also something that can entice clients and provide incentives. 

There are various tips to operate an equipment rental business, you should also know about the pricing strategy. 

This article explains how to determine the appropriate rental prices to increase customer retention, customer satisfaction, and business profitability

So, let’s take a look at these factors.

Rental Equipment Costs

Searching for historical and current average rates is one of the first steps in developing a rental fee. Historical information on how prices have changed over time would be beneficial.  Fortunately, this information is readily available online at manufacturer websites and second-hand marketplaces. It’s never been easier to determine the market value of an item of inventory.

With that knowledge, it is simple to decide if it is required to raise or cut equipment rates. If there isn’t enough information, think about requesting pricing and rules from other event and equipment rental businesses. 

This may be a useful method for obtaining historical knowledge that is also pertinent to the sector. Additionally, it will give the opportunity to assess rates and coverage against local competitors.

Calculate Per Day Equipment Costs

The next step is to calculate the daily cost after rental rates have been established. Depending on the location and type of service provided, the daily average cost of renting equipment might range from $100 to $150. 

Moreover, the clients can estimate how much renting equipment will cost them with this number in mind. The fact that rental costs differ based on the kind of equipment utilized is an important factor to take into account. 

Therefore, customers will request a more detailed price range if daily rates are provided so they can estimate how much it will cost them to hire equipment on an hourly or daily basis. 

Price Comparison

The cost of renting equipment should be compared with that of competing brands from other local providers. You might have to charge less than competitors, depending on the location and type of equipment, to attract clients. 

Without doing so, it will be challenging to determine the ideal rental rates that can draw clients and boost retention. Retail establishments frequently employ this tactic to highlight a certain brand or less expensive goods in an effort to boost consumer traffic and, ultimately, sales or rentals.

Included Bundle Equipment & Freebies

You could also add more things to your rentals without raising the price. When heavy-duty equipment is delivered to customers, freebies like batteries or chargers are included. 

Additionally, you can offer discounts on packages (or “bundles”) of complementary items that provide a discount over the cost to rent each item individually.  You can use the same approach to include incentives (like free or discounted delivery or training, for example, to make your offer more competitive and appealing to customers.

Incentives, Discounts, and Package Deals

If you want to further lower your rental costs, think about providing discounts and other rewards for making early reservations. 

It would be ideal if you could book a specific piece of equipment about six months before you need it for a sizable event. This may be an effective strategy to lower your equipment’s average rental rates, which will help you keep your business profitable while retaining customers.

Mileage-Based Delivery Rates

Consider offering mileage-based prices if rental rates are not established based on how much it costs per day. Typically, the cost of equipment rental will be added on top of the cost of shipping, which can significantly raise the overall cost. 

Moreover, this is one of the main arguments against renting equipment if you don’t have enough storage space. Large pieces of equipment that are rented out over long distances frequently have pricing structures like this.

Residual Value of Equipment

Putting value on the equipment is one of the most crucial aspects of determining rental fees. This is especially true for gear that is hired out for an extended period of time or that is kept after an event is over. 

In order to avoid significant losses for the business, the equipment’s true value must be higher than the overall cost of renting it for a specific term. 

Location of Rental Business

When choosing the optimal pricing strategy for your company, you should also consider the location of your rental store. Offer local rates that are less expensive than those at other stores in the city if you want to draw clients from a certain region.

This tactic will enable you to increase foot traffic, optimize profits (note: we didn’t say “maximize” profits, we said “optimize”0, and reduce any losses from lost clients as a result of excessive prices.

On the other hand, package discounts or bundled equipment may be your best option if you run a store in a busy downtown area with lots of foot traffic to avoid turning away potential consumers. These well-chosen bundles can boost sales and optimize earnings.

Breaking Even

The first thing you need to do is figure out how long you think it will take for your equipment investment to pay for itself. 

Since you are renting your products nearly exclusively for profit once you break even, your ROI significantly increases with the exception of ongoing costs such as maintenance, insurance, staff, etc.

Return on Investment (ROI) Goals

You have two options for renting out your product: at the break-even price or at a price that maximizes profit.

Therefore, your entire rental price will probably be cheaper than that of your competitors if you only rent out your equipment at your break-even point, making it more appealing to clients. 

However, it will take more rental days to make up for your initial investment. Additionally, there is no need to entirely undercut your rivals, even though a cheaper price is a wonderful way to entice potential clients to choose you.

While you are still in the break-even stage, you can layer in an ROI goal using the appropriate formulas.

Adopt a Dynamic Solution to Put a Price on Your Rental Equipment 

There isn’t a single way to choose the ideal rental equipment price. Every company offers a distinct range of goods, and every market demands a distinctive approach. 

Do your research and choose what is best for you and your consumers.  Test and learn, and talk with valued Customers about how they place a value on the equipment rentals you offer.  You can make an informed decision and set pricing for your products once you have a thorough grasp of your company and the industry you serve.

Once you decide on a pricing structure, find a rental inventory booking system that supports your methodology. RentMy offers three pricing options (fixed rental pricing, flat rental pricing (like $x per day or week), and flexible rental pricing (like $x for the first week, and then $y each additional week) which provides a one-stop rental management solution to boost the revenue of your rental business. 

Wrap Up

When developing a consistent pricing policy for your sporting items, it is crucial to properly know how to price rental rates for equipment. 

In other words, if you want to draw in more clients, you must think about the quality of your equipment and how that quality is reflected in your pricing strategy. Always remember that value-added services should be provided in order to compete with other businesses in the sector.

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