How to Calculate Equipment Rental Rates

Apr 30th, 2024

Payment Processing General Event & Equipment Rentals

Every equipment rental business needs to have a good idea of how to set its rates to maximize earnings and get a great return on investment. The only problem is that setting those rates isn’t as straightforward as it sounds!

There’s a lot to consider when it comes to setting your rates. If you're trying to figure out what to charge, here are our tips on how to calculate equipment rental rates.

How to Set a Base Equipment Rental Rate

Are you at a loss for how to calculate equipment rental rates? The good news is that there’s a clear step-by-step framework you can follow to boost profits and earn back your investment. Here is what you need to know to set a base rate for your equipment rentals.

1. Calculate How Long the Equipment Lasts

First, understand how long you can expect to own this piece of equipment and how long you’ll be able to rent it before you need a replacement. If it has a lifespan of roughly five to seven years, you will need to take advantage of rentals during that period to fund the cost of a new model when it reaches the end of the line.

This means you not only need to cover the cost of your initial investment, but you also need to start putting money toward a newer and better model for the future.

2. Consider the Cost

How much did you really spend on that equipment? Take a look not just at the initial investment required to make a purchase but also the related expenses. Consider things like fuel, insurance, storage, and maintenance. If you know how long that equipment will last you (which should have been taken care of in step one), tally up all associated costs over its lifespan.

Divide the total number by the number of months you expect it to last and you’ll have a good idea of what you need to set rates at monthly to break even and secure a small profit.

3. Set Your Daily Rates

With the lifespan of your equipment and its estimated costs accounted for, it’s time to turn your attention to setting daily rates. There are two methods you can use to calculate an equipment rental rate: using a percentage of the value or a breakeven point.

First, you could consider charging a percentage of the value of the equipment. Most businesses will charge anywhere from three to five percent of the value each rental day. That being said, you may choose to set higher daily rates if the gear is more expensive, has a shorter lifespan, or requires more frequent or expensive maintenance.

To earn back that initial investment, you may charge up to ten percent of the value each day.

The other method to consider is a breakeven point. Many rental owners want to break even on their investment during the first year of renting. Consider how frequently you will rent the equipment out and work backward to figure out what you would need to charge to hit that one-year breakeven point.

4. Perform Market Research

The next step in calculating equipment rental rates is making sure your number aligns with what the market will bear. Spend some time researching the rental rates of your local competitors to stay in line. Price yourself too high and it could damage your reputation and lead to fewer customers, while too low will hurt your bottom line.

5. Account for Extra Expenses

While you might have a good idea of what your equipment costs to rent out regularly, you may need to account for other expenses. For example, do you need to factor in any rental software or website maintenance fees, marketing expenses, or payment processing fees? Don’t forget miscellaneous expenses like phone bills or new computers to manage your bookings.

Estimate your annual operating costs and factor some of that cost into your daily rental rate.

Other Equipment Rental Rate Factors to Consider

After calculating your base equipment rental rates, you may find that your rates will flex depending on specific situations. Here are a few other factors that could influence your pricing.

Fixed Rate vs Flexible Rate

Two more considerations could affect the rental rates you set: fixed-rate rentals and usage-based pricing. You might even decide that one method makes more sense for some equipment while the other is better suited for other equipment pieces.

Fixed-rate rentals are great if you have a clear idea of the cost associated with a piece of equipment. You can set straightforward rates that you hold year-round.

Flexible, usage-based pricing is harder to nail down but accounts for seasons when equipment is used more heavily. If you have a piece of equipment that requires more maintenance, this might be a great way to cover the time it will be out of commission following a lengthy rental period.

Time-Based Promotions

As part of your business strategy, you might consider offering a deal to those who book your services for longer periods.

For example, you may have a fixed rate for a single-day rental. But if someone wants to rent for several days, a week, or even a month, you could offer a discount for the longer rental. It’s a similar mindset to “bulk pricing.”

While you may earn less by offering this discount, you also have to do less heavy lifting to market and find customers for that duration.

It’s best to have a flexible rate for long-term rentals but have an idea of what you can afford to charge for continuous business. Advertise those rates because repeat business is your bread and butter!

Package Deals

It's not uncommon for individuals to need more than one piece of equipment to get the job done. You could choose to bundle multiple equipment pieces together if they’re typically used in tandem.

While you may earn less compared to if they rent each piece individually, it better guarantees that they rent all the pieces from you instead of someone else. Think about what might be best for your customers and create a great deal they won’t be able to resist.

Additional Expenses

While you already accounted for many of your hidden costs earlier, it’s important to think about fuel, shipping, and installation costs too. Cover mileage-based delivery fees, the cost of staff to install the equipment, and the wear and tear, fuel, and insurance on the vehicles that make the delivery.

You’ll also need to decide how exactly these costs are paid for. Baking them into the base equipment rental rate will display a higher upfront cost to customers, but they may appreciate the all-in-one price. Meanwhile, listing them as line items on the invoice may surprise or annoy customers, but it also provides better transparency into exactly what they’re paying for.

Peak Season Charges

When you expect a busy season, consider adding a premium surcharge for rentals. This ensures that you maximize potential earnings when people are all clamoring for your service and rentals. A peak season charge takes advantage of demand and makes up for the fact that you won’t be able to rent to everyone interested.

Handle Complex Rental Payments with Ease

Unlike one-time retail purchases from a store, managing payments for equipment rentals has a lot more to consider. If you want to implement a flexible, profitable pricing strategy that accounts for all the complexities of the rental industry, you need a payment processor that can keep up.

Ascent Payment Solutions has over 20 years of experience in the rental industry, and we understand exactly what rental businesses need from a payment processor. Our solutions can handle collecting and refunding deposits, escrowing funds, and managing every aspect of the payment acceptance process.

Our customer services team offers more than just technical support. With our experience in the industry, our experts can offer tips and advice to streamline your business operations and save time and money in the long run. Reach out to us today to see how we can help you make more in your rental business!