Rent or Buy?
What Makes The Most Sense For Your Company?
If you’re a contractor then you’ve considered at one point or another whether or not to purchase additional welding equipment, or simply rent it. You’ve probably spent a great deal of time estimating jobs, projecting upcoming projects, and stressing over what is the right decision…renting or buying. Although I can’t tell you a simple solution, I’ll provide some information and some points to consider that can make your decision easier.
Following are basic factors for consideration:
1) Volume (how many welders do you need?)
2) Utilization rates (how often do you need to use the equipment?)
3) Capital expense and maintenance costs (parts and labor)
4) Technology requirements (what welding technology do you require for optimum performance and productivity?)
5) Depreciation rates and tax incentives
6) Interest rate (if financing the lease or purchase) and the rental rate
7) Transportation and storage costs
When calculating equipment volume, consider situations when you may require a higher volume of welders. For example, plant maintenance, a plant shutdown, or perhaps at the start of a new project where you'll need a larger number of engine drives for their power generating capability to accommodate for the initial lack of power on the jobsite. It may make more sense to rent than to own the equipment in these cases.
Regarding equipment utilization, generally, if you don't utilize an expensive piece of equipment at least 60-70% of the time, you should consider renting that equipment. However, a 30% utilization rate is more accurate for lower priced equipment. Also, consider whether or not you can get the right equipment immediately through a renting source - how much time and money could that cost you when waiting on it? And, consider your operator's skill level and make sure that the equipment you rent is user-friendly, so your operators aren't wasting time trying to figure out how to properly set-up the rented machine(s).
Another important factor that is often overlooked is the total cost of equipment management. For example, if you are a contractor working out of the Chicago area and you bid on a job in St. Louis, consider the cost of transporting your welding equipment 300 miles (cost of truck, the driver, loading and unloading time, fuel and on-site equipment maintenance).
When bidding on a job, you can charge the equipment rental to the estimate as a job cost, and if that rental value compared to the total project is low, then it makes sense to rent. However, if the equipment costs comprise a large portion of the job's budget - a contractor that owns its own equipment will have a significant competitive advantage.
A final consideration, and the advice I give my customers, is that purchasing mid-size engine driven welder/generators, portable feeders, and portable inverters is a good investment - you'll use them often and find that it's less expensive to buy them then to rent them. Also, engine drive technology remains relatively stable, quality brand welding equipment has a long-life, and an engine drive holds its resale value very well. But, when it comes to equipment that you use less frequently and are a higher cost investment - it may be wiser to rent.
Let me know what you think…vote on the poll question and post your comments.
Average (Not Rated)
October 25th, 2006 at 10:17 am
Well, do buy your idea about this; i specifically will want to buy and rent out, at thesame time re-sell, i think all this depend on how much is gething here(Nigeria).
October 26th, 2006 at 5:37 am
Enjoyed the article,well written. Shop Manager Red-D-Arc Welderentals Chicago IL