Renting vs. Buying Production Equipment
It’s an age-old question that can be asked when weighing some important purchases: Do I rent it or do I buy it outright?
Renting and buying each has its fair share of pros and cons, whether we’re talking about property, vehicles or, in an industrial setting, equipment. And quite frankly, there isn’t really a good, general answer that we can give you on whether it’s better to rent or to buy. What we can do, however, is empower you with information on the pros and cons of both renting and buying so that you can make the decision that makes the most sense for you and your situation. In this piece, we’ll aim to do just that — compare and contrast renting equipment for your production facility versus buying it. Here’s a closer look:
Return on Investment (ROI)
This is usually the No. 1 factor that facility managers take into account when it comes to deciding whether to rent or buy equipment. And if you do some basic math, it can be pretty easy to determine what the better option is. Basically, the return on investment really comes down to a few significant factors:
- How often you expect to use the piece of equipment.
- The cost of renting the equipment.
- A purchased piece of equipment’s total cost of ownership.
For instance, if you only expect to use a particular piece of equipment a few times a year, then it likely makes more sense to rent it when you need it versus purchasing it and having it sit idle for long periods of time while still having to maintain it. But if you’re considering a piece of equipment that you use often, it likely makes more sense to purchase it outright. To truly assess the ROI of a purchased piece of equipment, consider the total cost of the equipment’s ownership (cost of the equipment and maintenance) and the revenue that you expect it to generate for your firm. If you determine that the total cost of ownership is $200,000, for example, and you earn $50,000 in revenue per year, then ROI is 25 percent. This means that the piece of equipment will likely take 4 years to pay itself off. It’s also worth assessing depreciation of the equipment you’re considering and what you may be able to realistically sell it for eventually.
Renting or buying is also largely dependent on a firm’s financial situation and the amount of capital that it has on hand — and is willing — to invest. Every firm should be forecasting financial costs in both the short and long term, which should help influence the decision to rent or buy equipment. For instance, if you’re a new firm that’s still in growth mode, you’re likely more apt to rent equipment than an established firm that has more financial stability.
Despite a lesser initial investment, it will almost always cost more to rent a piece of equipment than it would to purchase it, assuming that you plan to use it on a regular basis. However, renting can make financial sense to certain firms — at least until they can better establish themselves and allocate more capital to such resources.
When many people think of renting vs. buying, there’s the assumption that if they were to purchase equipment, it would be purchased brand new. That’s not always the case. Today’s production equipment is built to last, and oftentimes, firms that are looking to make purchases have their pick between new models and quality used models. This can be a good and bad thing when opting to buy — good because used equipment often comes at a cheaper cost, but bad because you might not be getting the most effective and efficient piece of gear that the market has to offer. That’s one potential advantage of renting — typically, you’ll be working with the latest and greatest piece of equipment to perform your task.
A significant factor in the total cost of ownership is maintenance costs. Heavy industrial equipment must be properly maintained in order for it to operate effectively and efficiently, and this can also represent a significant expenditure. It’s why maintenance and operating costs must be seriously considered before making a decision to buy over rent. One of the nice things about renting equipment is that the vendor you rented from is on the hook for any upkeep.
One of the nice things about owning a piece of equipment is that it’s there for you to use on-demand. That isn’t always the case with rental equipment, as you’re much more at the mercy of what the particular vendor has in stock at the time. Depending on the demand for a particular piece of equipment, you may have to wait days or even weeks for it to become available, which could hamper productivity and lead to unhappy clients. With proper planning, you can typically avoid any bottlenecks in the rental process, but even so, it’s often much more convenient to have equipment ready to use when you need it.
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Like we said in the introduction, there really is no right or wrong universal answer when it comes to buying vs. renting equipment, just what’s best for your business and your particular situation. And while renting tends to cost less upfront and more long-term, and buying equipment tends to represent the opposite, there are many other factors that you need to weigh before making a decision one way or another. For more information on when it’s right to rent a piece of equipment versus buy it outright, contact us today.