How To Calculate Equipment Rental Rates Right

Knowing how to calculate equipment rental rates is a valuable skill for anyone in the events industry. It’s not just about doing the math – it’s about understanding what goes into those numbers.

The purchase price isn’t the whole story. Equipment loses value over time, so it’s important to factor in depreciation. You’ll also need to consider maintenance and repairs to keep things running smoothly, plus extras like insurance and storage costs to protect your gear.

Then there’s how often the equipment gets used. This utilisation rate helps you work out a fair rental price that not only covers your costs but also keeps your business profitable and competitive. When you put all these pieces together, you’ll have a solid plan for setting rates that work for you and your clients and for deciding which rental industry software to purchase.

The steps below outline the steps to fine-tune your equipment rental rates for sustainable success:

Step #1: Figure out what owning the gear really costs.

The starting point for understanding equipment ownership costs is the upfront purchase price.

When you first acquire a piece of equipment, the initial expenditure is the clearest and most immediate cost you incur. For businesses managing extensive inventories, keeping accurate records of purchase prices helps maintain clarity and consistency in pricing decisions. Whether it’s a camera, sound system or lighting rig, this upfront cost should always inform your financial calculations.

Next, factor in depreciation for informed long-term planning.

Depreciation reflects the decrease in equipment value over time, a reality of gradual wear and tear. Calculate this by subtracting the estimated residual value from the initial purchase price and then dividing it by the expected lifespan in years. This method gives a year-by-year expense profile, ensuring you’re accounting for the declining value and making informed decisions about equipment turnover.

Maintenance and repairs are also inevitable costs to consider.

Regular upkeep is crucial to maintaining equipment longevity, allowing you to avoid unexpected disruptions. Handling minor repairs and routine maintenance based on previous experiences or manufacturer guidelines can save you from costly emergencies down the line. These expenses, although variable, should be anticipated and budgeted to keep your gear operational and reliable.

Step #2: Evaluate utilisation rates based on historical trends.

Past usage patterns provide valuable insights into how often equipment is rented.

Analysing historical data helps you identify high-demand items and adjust availability or pricing as needed. This can give you insights when you’re using booking software for rentals.

Calculate utilisation by dividing the hours equipment is used by the total hours in a year (8,760). Multiply by 100 to express this as a percentage. This rate offers insights into efficiency and highlights opportunities to increase bookings during underutilised periods.

You should also adjust for busy and slow seasons. Events and demand often fluctuate throughout the year, with peaks in schedules such as summer for outdoor gatherings or the festive period for holiday events. Recognising these high-demand periods and slower seasons allows for more strategic resource planning, from maintenance scheduling to promotional efforts.

For example, if your sound systems are consistently rented during peak event seasons, ensure they’re priced to reflect demand. Establishing utilisation rates from actual data rather than estimates allows for more precise planning.

Step #3: Break down hourly ownership and operating costs.

Divide total ownership costs by annual operating hours to find hourly ownership costs.

Determine the total cost of owning your equipment, which includes not just the purchase price but also depreciation, maintenance, insurance and any other related expenses. This total gives you a comprehensive view of the financial demands associated with ownership.

By dividing this figure by the number of hours you expect to utilise the equipment each year, you come up with the hourly ownership cost. This value is crucial as it breaks down your comprehensive ownership expenses into manageable, hourly segments.

Next up, consider the costs that come with each hour of operation, including the cost of running rental management software if you have one.

These expenses include variable factors such as fuel, operator wages and any other expenditures that fluctuate with usage. Accurately tallying these costs provides insight into the true operating expenses incurred during each hour of use. This allows you to make adjustments to ensure efficiency and cost-effectiveness.

Finally, combine your hourly ownership cost and hourly operating cost. By adding these two figures together, you receive a comprehensive hourly cost of using your equipment. This total is not merely an expense figure; it’s an invaluable tool, just like equipment rental software, because it sets rental rates that cover your costs while ensuring the sustainability of your business.

A clear understanding of total hourly costs is vital for setting effective and profitable rental rates.

Step #4: Regularly review and adjust your pricing strategy.

Even for longstanding businesses, pricing strategies should keep evolving based on market conditions and demand.

If you have speakers that are in constant demand yet priced competitively, it might be time to adjust your rates upwards to reflect their popularity while maximising revenue. Conversely, if your disco balls rarely see the light at events and sit idle, offering them at a discounted rate could incentivise rentals, turning your inventory into active assets.

Interacting with your customers also helps you better understand their expectations. Engage with them through casual conversations or structured surveys to glean insights on perceived value. This feedback guides adjustments in your pricing strategy – and might even help you decide which party rental software to invest in – ensuring it aligns with what customers are willing to pay.

Keeping up with market trends offers significant competitive advantages. Regular benchmarking ensures your rates remain attractive while reflecting the quality and reliability your business is known for.

Key Points to Remember

• Leverage your operational data to refine ownership costs, including depreciation and maintenance.
• Use historical trends to determine utilisation rates and anticipate seasonal demand.
• Combine ownership and operating costs to calculate precise hourly rates.
• Reassess pricing periodically to align with demand, trends and client expectations.

Gecko simplifies rental business operations by connecting your inventory to your website, allowing customers to book and pay conveniently online. With features like real-time inventory management, delivery coordination and automated invoicing, Gecko helps you save time and grow your revenue.