Rental equipment utilization, or rented equipment utilization (a truer perspective for an equipment renter), is critical to the successful, financial operation of a rented fleet.
Contractors rent equipment for multiple reasons, but the most important reasons generally include:
- No capex requirement
- Supplement the owned fleet
- Controllable, variable cost
But executing on the financial promise of equipment rental requires close monitoring of time-based rental utilization, so one can understand the true, effective cost per hour. When compared to the owned equipment ownership and operating cost per hour, it becomes a critical performance KPI.
Why is It Important to Monitor Time-Based Rental Utilization?
Great question! It’s all about understanding the effective cost per hour. Let’s illustrate why, via a formula example, below.
Let’s assume you rent a scissor lift for one month with a total all-in invoiced cost of $1,000 (nice, simple numbers).
Before renting, your organization likely had an estimate of use of that rented asset, which would have driven cost estimation assumptions. Let’s assume you assumed 20 hours of use.
The estimated cost per hour = Total All-In Invoiced Cost / Estimated Hours to be Worked = $1,000 / 20 = $50 per estimated hour of utilization.
But as we all know, actual often varies from estimated. Let’s assume utilization was lower than expected and ended up at 10 hours of use.
The effective cost per hour = Total All-In Invoiced Cost / Actual Hours Worked = $1,000 / 10 = $100 per effective hour of use.
Low utilization leads to a negative financial outcome – a higher effective cost per hour.
Who Should Manage Rental Utilization?
The answer: anyone who cares about the financial performance of the organization. This is not the unique responsibility of equipment management, for sure.