Construction companies and civil engineers always have to face the dilemma of finding heavy material handling machines like excavators and calculating the Return on Investment that purchasing such equipment will have. The good thing is that you can hire an excavator to other customers, but still one has to consider what the Return on Investment buying or renting machinery will have on the company’s cash flow and what the long term needs of the company will be with regards to heavy material handling machinery.
Here are ways you can look at this problem so you are able to make the best decision for your company:
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The ROI of Renting Heavy Equipment
In many cases, renting building equipment makes better sense than buying. If you consider how rapidly technology changes, the flexibility that renting gives you means that you can keep up with new technologies on newer machines that rental companies may have in their fleet. If you are looking for equipment for short-term tasks, you should seriously consider renting.
To work out what your ROI will be for either buying or renting you need to look at the average cost of buying vs. renting. If you are going to use the machine for a long period, then your ROI will get a boost by buying.
To illustrate, here are some common examples (The numbers may be outdated but they work well to illustrate this point):
An excavator within the 15 to 20 ton range can cost $200,000 when you buy it outright. Renting may cost $571 per day or $3,433 over a four-week period.
But What if you Feel you Seriously Think you Should Buy the Excavator?
For a rough estimate of what the ROI is supposed to be. What is the net profit you expect to make from the job and then divide that figure by the total cost of the equipment?
If factoring maintenance costs and other related costs, the equipment brings about $25,000 then it has an ROI of 25%. This means that it will take four years for the machine to pay for itself. When the machine is paid off, only then can it deliver pure profit. This may look like an over-simplication of how to calculate ROI.
There are other steps you can take to calculate the ROI for your equipment.
What is the Depreciation Cycle?
How many years will the machine remain useful. To calculate the depreciation of your machinery, take the purchase price and divide it by the number of months that are remaining in its lifetime.
What is the Machine’s Profitability?
To calculate this you’ll have to estimate how much the machine generates for you every month, then subtract the depreciation value in the step above.
What is the Resale Value?
Find out what the resale value is. This will help you determine whether the depreciation value is worth having heavy machinery like excavators in-house machines.
When it comes to buying vs. renting maintenance should influence your decision. You don’t want to shoulder the cost of depreciation. When you rent machinery, you by-pass the cost of maintenance and depreciation. A lot of small businesses will choose to outsource or rent excavators as excavator hire has become an established industry of its own.