There comes a time when purchasing versus renting can offer contractors a cost savings in the long run. But because trenchers and vibratory plows are often very expensive – ranging from $10,000 to $30,000, depending on the manufacturer and model – how do contractors know when it’s time to stop renting (or equipment sharing) and simply purchase the equipment outright? Lawn & Landscape set out to get some answers.
“I think it just boils down to taking a real hard look at your utilization rates,” says Matt Collins, the product manager for compact equipment at Perry, Okla.-based Ditch Witch. “If they find that they’re utilizing equipment on the job site greater than 60 or 70 percent of the time, it might make a lot more sense for them to consider purchasing that piece of equipment as opposed to renting.”
Take, for instance, a $22,000 trencher. If a contractor were to rent that machine monthly for six months at an average of $1,200 per month, that’s a cost in excess of $7,000. Or, say the contractor rented the trencher two days a week for six months on an average of $125 per day, that’s an outlay of $6,000. If that same contractor were to finance this trencher over 48 months at an interest rate of 4.18 percent, the monthly payment would be $500 for a total cost of $6,000 per year.
“So at about 50 percent utilization, the dollars you spend on rental rates are the same as a financed payment,” Collins says.
“In this scenario, at about 51 percent or higher, your money would go further if you purchased something.”
Gary Gleichman, operations manager and account representative at Hobe Sound, Fla.-based Treasure Coast Irrigation & Landscape, points to a job’s size and scope as crucial deciding factors.
If a contractor’s future job size is greater than $50,000 to $100,000 – whether that covers one job or 10 – it’s time to seriously consider purchasing.
“But if the scope of the work requires that you’re on the job site not using the trencher … or one-third of the job detail only requires the use of the equipment, then you can lean (more heavily) on renting that piece of equipment.”
John El Kouri, vice president of Lawton, Okla.-based L & L Sprinkler Systems, recently purchased three Ditch Witch RT 12 walk-behind trenchers. He made the decision to purchase because of the large amount of contracts he had in hand.
Because he doesn’t have to waste the one hour each way to pick up/drop off the trencher at a rental house, El Kouri estimates his business can do one to two additional jobs per week by owning the trencher. On average, L & L installs 200 irrigation systems each year.
Another item to consider, Collins points out, is equipment availability at rental houses. If the right piece of equipment is not available at the right time, it can lead to down time – and lost dollars – for contractors.
“I’m sure availability isn’t a concern, you know, in maybe your larger metropolitan areas, but in some of your smaller cities, there might not be as many opportunities to rent equipment,” he says.
The author is a freelance writer based in Cleveland.