[xxArbUtusxx]

I was just reading through the " When to buy" thread and had a question about charging for equipment. Thought I should start a new thread for it.

My question is: How do you guys charge for rental equipment compared to owning your own? Skid steers, mini excavators, mini skids, etc. When you use the machine for only a couple of hrs or minutes, how do you charge for it? Do you include a delivery charge or gas or have a minimum? Can you charge enough for hauling it to a job and only using it for a short amount of time?

I have only rented equipment so far (except for a chipper). I agree that you should only rent if you have enough work to keep it moving. The way I charge now is for the rental price, gas, and the delivery charge if I have them deliver and a similar fee if I am to haul it. Then I charge an hourly rate when the machine is in use. Do you guys think it is reasonable to mark up the rental fee?

I see it that the home owner would have to pay for the rental fee, delivery, gas, and have a truck to haul it if they did it themselves. So when you have your own equipment do you charge a "rental" fee and the others, or, is that calculated in the hourly rate?

Thank you for your help.

John

[TrickyDick]

How we charge for rental equiment depends on the equipment and how big the job is and whether the job is t&m. At the least though you need to charge enough to pay for the cost of the machine, delivery, fuel, etc. If you rent a skidsteer for one day you probably have to charge more than the going rate per hour just to break even on the rental. If you rent it for a month you can probably charge a standard hourly price for equipment/ operator and make a profit on it.

I might rent a backhoe for a month for $2000 including delivery. If I plan to use the machine for only 50 hours then it will cost me roughly $40/hr. That makes the cost of the machine plus operator about $85/hr which is probably an average rate around here. I could probably charge another 5 or 7 dollars an hour and be okay or if I use it more than 50 hours I know that I am making a profit on the equipment at that point. On the other hand if I need to rent a mini-ex for one day and it cost me $400 but I only need it for two hours I can't charge $30 or $40/hr and lose all that money. I've got to charge enough to at least break even on it. I that makes the price too high then I need to either find a better way to do the work or the clients need to hire someone else.

Bottom line is that you may not always be able to make a profit on rental equipment but you should never lose money either.

[tjl]

Equipment and labor are the two most tangible items in any bid. Materials are simple and "overhead" should be straight forward and adjusted annually. The idea that profit needs to be made on "equipment" goes against the idea of knowing your cost. Profit, is an item that should be placed at the end of "your cost" (see Vander Kooi). It is important that you know how much it will cost you to do any particular job. If the rental equipment cost you $200.00 then that is the cost (all items included), this is a seperate line item, treat it like a material cost. Do not worry about delivery, it should be part of the cost, but, know how long you plan to use the equipment and plug in that rate (5 days x 200.00 = $1000), plain and simple.

In the real world it would be nice to charge all of your own equipment at the same rate that rental companies use, however I can tell you, if you do this you will price yourself out of the game. Just like rental companies lower there rate over time, you also need to calculate any piece of equipmennt over time. Vander Kooi recommends 5 yrs. I like this because it is usually the life of a loan and at the point it makes a lot of sense to trade it in and capitalize on trade-in. Even if you do not trade it in, the cost of repairs go up and it may or may not be a wash.

I personally believe that if you where to rent all equipment to do a job and your competitor uses his own, your bid would be higher. This is not to suggest that you need to buy every piece of equipment to do any job you bid on. As a contractor you need to evaluate "how often" that piece of equipment will be used. If it is for one specific job, then rent, if however, you plan to do the type of work, then buy. For instance, if you plan on mowing lawns, then you need to buy rather than rent. Can you imagine the cost of a cutting if you had to rent every piece of equipment to perform that task.

Hope this helps.

[Matt Kulp]

TJL,
I think charging for a larger piece of equipment on every job, and charging the same rates as a rental company will not price yourself out of a project. All of our hourly rates for our equipment are based on rental rates, and we have not had any issues. We recover the cost of the machine in our overhead, so charging for it by the hour is how we get replacement money.

I also am not quite sure what you mean by "The idea that profit needs to be made on "equipment" goes against the idea of knowing your cost. Profit, is an item that should be placed at the end of "your cost" (see Vander Kooi)."? Why should profit not be made on equipment? Am I missing something?

[Mac]

Matt, I can see why you would want to but to budget your profit off equipment is somewhat variable, no? Its the same way with markup off of materials; yes some do it but those who do, that I know of, do not plan for the profit in their company budget - its simply gravy when it comes along. If you want to turn a profit of 150k for 08, and you budget 20k from equipment markups, what happens when your projects are "equipment light" and your markup only comes to 10k - you only make 140k for the year.

[Matt Kulp]

Mac,

I think you misunderstood what I was trying to say. I completely agree not to budget your profit off of materials, equipment, snow, etc.., anything that is not controllable. What I was commenting on is the fact that the statement above "The idea that profit needs to be made on "equipment" goes against the idea of knowing your cost.

This statement makes it sound like profit does not need to be made on equipment, that is where I disagree. I think you have to try and make a profit on all of your equipment you own and/or rent.

[tjl]

Matt,
I was not suggesting that profit "not" be put on equipment, what I was saying is that profit should be the last item you add after, materials, subs, equipment, and any other misc. charges related to the job.

My comment was in reference to the idea that profit should be added to equipment, then added to other costs giving you a total. You should know "your cost" before you add profit.

As for my comment about charging rental rates, this is just my experience in my market place and I would not attempt to put rental rates into a bid on equipment that I own. I will however, cross reference the charge for such equipment against rental rates in order to keep me honest with my equipment charges. The reason I do this is because rental companies have equipment cost down pat, and since this is a area that can be subject to interpretations, I feel it is one was to check myself.

Hope this clears my opinion up.

Tom

[TrickyDick]

Matt- I don't know about you but a skid steer costs around $400/day to rent (inc. everything) around here. That means that if the machine is on a job all day, depending on labor cost, someone here would have to charge around $90-100/hr. That is well over what most people are getting. You may be able to hide that in a bigger job but if that equipment charge is a big part of the price I don't see how you can get it if you are bidding competetively.

The trick with renting equipment is that your cost changes depnding on the rental period. With a short short term rental you may have to charge well above going rates in order to cover the cost which might cost you some work. On the other hand if you were to rent a backhoe for a month and use it for 15 or 20 days you would be leaving a ton of money on the table by just charging the renatl cost and a 15% mark -up. I think that to make the most of each rental you have to look at each instance as a unique situation.

[Matt Kulp]

Tom,
Do you add the same profit margin to everything after you know your cost? What is wrong with adding profit to each item in the job and totaling? You still know your cost, and you are able to have bigger margins on certain items then others if your market allows.

Tricky,
I guess it will be different for everyone, but renting a piece of equipment for $400 a day and not making a profit on it seems like you would be leaving alot of money on the table. It does not matter if you only use it for 1/2 day or not, someone is still being charged and you should get paid for it.

Here is what we do, and let me know if we are off base. When we bid a machine on a job and it is one of our own machines, we charge by the day or by the hour. This helps us with the jobs that do not need a machine for all day. However, if we rent a machine for a full day and we only use it for 4 hours, we get paid for that machine's rental plus a profit. If you have to rent a machine for the day and can't get the money plus some for your time, then why take the job. You are loosing money!

We pay for our machines in overhead, so it is built into our hourly rate. We still charge for the machine on site, but it also allows us to use our equipment charges as negotiating tools with the customer. In our area we pay $140-$180 for a large ss and $300 for a track machine per day. We price our ss out using the $140 per day or $40 per hour, and when we rent a track machine for a day, we charge $345 per day. I am not saying you need to make a killing on the rental's, all I am saying is there should be a standard set. Even if you make only $5 on the rental, get something for your administrative time entering the bill. I have had these same debates in the past, and everyone is going to look at it different. tjl mentioned above Vander koi, well I do not follow his methods. I'm not saying there wrong, just different then what we choose to follow. I know plenty of guys that do not bill extra for any equipment they own. To me that is not acceptable. You are in theory renting that equipment to the customer while you are on there property, and should get paid for it accordingly. I hope this all made sense. Good discussion!

[TrickyDick]

If you have to rent a machine for the day and can't get the money plus some for your time, then why take the job. You are loosing money!

I don't think it's accurate to say you're loosing money. You are making the same amount of money on your labor and materials as you would without the machine only you're doing a job that you couldn't do cost effectively without it. The point I was trying to make is that you should always get what you can out of a rental, mark it up if you can by all means. If renting the machine for a day allows you to do a job you otherwise couldn't but marking up the rental is going to risk pricing you out of the job why push it. Do the job. The $400 is a wash.

If other guys are charging $35/hr for the skidsteer and it will be used for 4 hrs on the job then they are bidding that part of the job at $140. If I rent a machine for $400 to do the same job I have to start by effectively charging $100/hr for the same service. Do I really need to add another 15 or 20% when I'm already close to 200% higher? On the other hand I can rent a full sized backhoe for $2500/month. Lets say I use it for 15 days or 120hrs. If I just divide 2500 by 120 and mark it up a generous 25% that gives me an hourly rate of about $26/hr. I know that the going rates in my market are double that so I'm going to charge going rates and make my profit 77% instead of 19%.

I should say that I hardly ever fail to mark up a rental. We don't do a lot of 1 or 2 day machine jobs so my rentals tend to be more of the long term variety. Or we'll try to schedule a few smaller jobs at the same time so I can rent a machine for a week and make some money on it. If someone figures out a system that works for them then great. But the bottom line is that you should be trying to maximize your profit without pricing yourself out of the market. Because rental equipment is priced on a sliding scale by duration of the rental it seems to me that the only way to accomplish that balance is to take each situation as unique and price it accordingly.

[xxArbUtusxx]

Tricky,
So if other people are charging $35/hr for their ss for 4 hrs totaling $140, does this cover all the costs of running/owning the equipment, gas, depreciation, insurance, labor, etc?
$35/hr is what I charge for labor alone. I could not add a ss to that rate even if I did own it.

Thanks for the great discussion. It does seem to differ from place to place.

John

[tjl]

Matt,

There is nothing wrong with adding profit to each item, I just happen to add profit after I know "all" my cost. I use a estimating program (Quick Estimator) which is very good at itemizing all your cost and then adding a profit. This software allows you to add separate profit and overhead percentage to labor, materials, subs, equipment and misc items. However, the real work of any estimating software is knowing where all the numbers come from, and I'm really talking about overhead.

But this discussion started with how do you charge for equipment. The method I believe in, as I stated, follows what Vander Kooi preaches. I have set up an elaborate spread sheet for each piece of equipment, then linked to another sheet that gives me a total annual cost for all my equipment, separated by departments, then divided by total labor hrs, in each department for the year, to come up with an average hourly rate. I know this may sound complicated, but for me, I feel as though I am charging out "all" my equipment, big and small, to each department which is tied to the number of hours estimated on any given project. Some might say that if a estimate does not use a skid steer, for example, you are still charging that customer for it and that is over charging. My opinion to that is it is much to time consuming to figure out what each estimate is going to use for equipment and have a separate line item for each, "forget 'bout it." In the heat of battle when estimates need to be fired out in rapid speed, my system works well for me.

If you would like a copy of my spread sheet email me at tom@milestonelandscape.com and I will be happy to forward it onto you.

Tom

[TrickyDick]

So if other people are charging $35/hr for their ss for 4 hrs totaling $140, does this cover all the costs of running/owning the equipment, gas, depreciation, insurance, labor, etc?
$35/hr is what I charge for labor alone. I could not add a ss to that rate even if I did own it.

The $35 was just an example but no it does not include labor. An operated ss here would bill in the $65-$75 range on average. I figure an average price per labor hour is 35 or 40 so 35 is a pretty good estimate to add for a skid. In the example I gave we are talking about a small job between one company billing going rates for ss and another that has to charge more because it is a short term rental. Thier labor rates are probably similar but thier equipment charges are very different.

tjl- I have heard a lot of people say they use the same method as you and I guess that if you really do have to fire out tons of estimates and your work consists of lots of smaller jobs and the type of work you do is fairly consistent then I can see some value in simplying things that way. There is defintely value in a system that forces you to get a really good handle on your costs but there is no getting around the fact that using that system you are putting out estimates that are less accurate, in terms of reflecting the actual cost of doing a job, then a system that treats each job differently. The more varied your work the less accurate your estimating will be. We do include a lot of smaller equipment as well as allowances for purchase of small equipment and small rentals in our labor rate so we do use the same system as you to a point. But for the bigger ticket items I always want to cost them to individual jobs. Besides...how could you possibly know in January when you're doing your annual estimates that you are going to get a big job in september that will require renting a backhoe or a 30k# excavator for a month?

[tjl]

Tricky

There is hardy a time when a construction job does not have all my equipment at the job site, so therefore I figure it is just easier to multiply my total equipment hourly rate by the labor hours on the job. This is not a full proof system and as we all know in construction, no two job sites are the same, thus no two estimates are the same and a certain amount of adjustment needs to be made with each estimate.

Rental equipment is treated entirely different for me and is truly a job by job situation.

Even with the method that I use there is so much guess work that goes into it, that it is hardy perfect. You know as well as I that this business dictates that one be flexible and ready for change. I would dare anyone in this message board to know exactly how long a skid steer will be used on any construction site and to calculate it accordingly, when that piece of equipment is there, it will be used. According to Vander Kooi, even if a piece of equipment is delivered to the site and sits there it should be charged. I personally do not agree with all of that, however since the payments do not stop because the equipment is not running, there is some logic to this.

When I finish with a estimate I always take a final look at it to see if I am comfortable with the numbers. I cross check against any square footage numbers that I may have floating around, for instance paver or retaining wall work.

Equipment and profit are the two items that you can adjust (or give away) in hopes of getting any job and still feel you might do better once on the job. Knowing where the numbers come from can only help in that decision.

Good discussion everyone............................

Tom
Milestone Landscape