More than 60% of construction businesses that opened in 2012 didn’t make it to their 10th anniversary, according to the U.S. Bureau of Labor Statistics. To beat those odds, you have to make smart financial decisions, especially when it comes to efficient fleet management.
“A piece of equipment is a tool, and that tool is there to provide a positive return on your investment,” said Andrew Cowherd, EquipmentShare’s fleet operations manager. “So is this tool providing you a positive or negative return? You’d be shocked how many people cannot answer that question.”
The first step to figuring out if your fleet is making you money is calculating the utilization rate of each asset. A machine’s utilization rate is the percentage of time in a workday it is being used. There isn’t a one-size-fits-all target utilization rate — it varies depending on the cost of the machine and what you bill for its services — but a general rule is about 60%.
“Around 60% utilization or better should provide cash flow for the machine so you can justify owning it and not renting,” Cowherd said. “If you can consistently maintain your utilization between 60 to 80%, that would be ideal. If your utilization rate is too high — exceeding 80% — you experience increased service exposure and you might want to consider fleet expansion.”
If you know a machine’s utilization rate and how much you bill per hour for its usage, you can determine how much revenue it produces annually. From that number, subtract the yearly lease or loan payment, plus insurance, depreciation, fuel, maintenance and service. If you don’t see a minus sign in front of the number at the end of that math problem, you’re on the right track.
The T3 operating system can remove the guesswork from fleet management calculations by tracking your machine’s usage, maintenance and service. As one of the biggest users of T3 — with more than 100,000 assets throughout the country — EquipmentShare relies on the tech platform to get real-time visibility on fleet utilization. That translates into the best rental experience for customers, as their equipment is always in tip-top condition.
Deciding whether to rent or buy new equipment often boils down to short-term vs. long-term need. If your current equipment has high utilization rates and you’ve had to turn down jobs because equipment isn’t available, it might be a more sound long-term investment to buy. Renting might make more sense if you need a piece of equipment for a specific job but don’t need it year-round.
“Many growing and established companies will rent equipment as a way to expand the type of jobs they are capable of completing,” Cowherd said. “This is a great way to build up experience and opens up more opportunities in more markets. And EquipmentShare is here to be a partner in every aspect.”
If your equipment has a low utilization rate — below 50% — and is losing you money, then it’s obviously smart to sell that asset to reduce the size of your fleet. The more complicated selling decision is when to replace a machine. If your machine has a good utilization rate but still loses money because it frequently requires repairs, it might be time to upgrade.
“As equipment ages, the exposure to maintenance costs increases, so there are a lot of factors to consider,” Cowherd said. “And, finally, always make sure you have an idea of the residual value of your fleet.”
Learn about more ways to optimize your fleet.