The equipment rental industry is expected to reach USD 58.49 billion by 2029, up from USD 42.64 billion in 2022. The constant industry growth means it is ripe for investment. Creating a robust plan can help you start your business in this industry today.
If you are looking to start your own equipment rental business, there are numerous aspects to consider before you jump in. From finding the right niche to targeting the right audience, and from buying the right equipment to marketing it correctly – we cover every step.
Here are 7 steps for you to follow to get your equipment rental business up and running :
1. Get started with your equipment rental business
The first step towards starting your equipment rental business is to understand the market, industry, and technical jargon. Get the idea down on paper or create a digital mindmap to get a clear picture of the business roadmap. Connect all the relevant dots to verify your idea and its realistic implementation.
Conceptualize and refine your idea
Once you have the first machine rental business idea drafted, sit down to refine it further. Funnel it repeatedly through different filters like industry saturation, niche saturation, local competition, etc. This will help you refine the exact idea that will work best for you.
Here are a few tips that will help you:
- Find the right equipment
You can find different types of equipment to rent out for different purposes. For instance, if you have enough capital, you can build a fleet of heavy construction equipment like bulldozers, loaders, etc. You can also get portable and handheld equipment like drills, chainsaws, etc. that cater to a specific industry.
You can buy everyday tools and equipment to rent out to customers in your neighborhood. So, choose the equipment that you are well-informed about as having ample information will help you at every step of the equipment lifecycle.
- Target a specific niche
Find a niche within the umbrella of the equipment rental business that you either have some knowledge of or have experience in. This will give you a competitive advantage from the get-go.
Some of the popular niches in equipment rental are:
- Construction equipment
- Heavy equipment
- Tools and small equipment
- Machinery equipment
- Road equipment
- Dumpster rental equipment
- Lawn and garden equipment
- Carpentry or metalwork equipment
- Determine the demand
The next step is to research the demand in the market you are targeting. Make sure that you choose the right equipment rental business that has ample demand. For instance, if you are in a small city or town, you can offer a one-stop-shop rental solution.
Get everything under your roof, buy equipment that is used regularly, and sign an agreement with other vendors for low-utilization equipment. If your city or town is rebuilding its infrastructure, you can primarily, offer construction equipment. Research what is in demand and stays in demand for a good chunk of the year.
- Identify gaps and opportunities
Once you know what equipment you will be renting out, find your competitors. Research them. Find out any business gaps that you can fill in. For instance, their business may not have specific high-utilization equipment, or maybe it is always rented out. Find these gaps and fill them in. As the saying goes, if you can’t beat them, join them.
So, find partnership opportunities with competitors. If they have a high-revenue customer that they can’t fulfill the demand for, step in and become their vendor. There are always multiple opportunities that can be utilized to stand out from the competition. Find them and use them to your advantage.
Equipment rental industry terms and metrics
Every industry has its unique jargon which has evolved to be commonly used and understood by those belonging to that industry in the equipment rental industry, this jargon has officially been listed by the American Rental Association (ARA) to keep the industry standardized.
Here are a few terms and metrics you need to be aware of:
- Original Equipment Cost (OEC)
OEC measures the size of a rental fleet expressed in a base currency. Consistent with the concept of gross book value under U.S. GAAP, it represents the undepreciated cost of acquiring a piece of equipment.
- For assets bought off lease, OEC represents the cost paid to buy out the lease
- OEC includes the cost of any refurbishments that can be capitalized under U.S. GAAP
- Time (Physical) Utilization (TU)
TU is the time an equipment unit is rented divided by the total time available. Fleet-wide TU is weighted by OEC and is a measure of fleet efficiency expressed as a percentage of the time the fleet is on rent.
- TU per equipment unit = (OEC on rent during the period)/(Total OEC for the period)
- Financial Utilization ($U)
$U is a function of annualized rental revenue exclusive of ancillary fees weighted by OEC.
- $U is calculated by dividing ‘pure’ rental revenue by the average OEC
- ‘Pure’ rental revenue excludes ancillary fees such as environmental fees, damage waivers, delivery charges and re-rent revenue
- Fleet Age (Age)
Age is the OEC-weighted average age (expressed in months) of the equipment in the fleet.
- The in-service date is used to calculate fleet age
- No adjustments for refurbishments
- Change in Rental Rate (%RR)
The period-over-period change in rental rates measures the change in average contract rental rates. Rates vary depending on contract type (daily, weekly, or monthly) and the equipment rented.
- When reporting period-over-period rental rate changes, rental companies measure the average change in contract rental rates weighted by the prior period revenue mix
(These terms have been taken directly from the ARA Rental Market Metrics)
2. Research your market and locality
Conducting a detailed analysis of your target market and locality will give you meaningful insights that will help you make informed decisions about your equipment rental business. Analyze and understand the competition to effectively offer better rentals to your customers.
Do an in-depth analysis
This is where pen and paper or a digital notetaking app will help you. Write down everything your competitors are offering, learn how they offer it, what prices they have, and how they’re able to retain their customers. These small details will significantly help you in the long run.
Take these steps to set up Northstar for your equipment rental business:
- Conduct thorough market research
In in-depth market research, try to find your competitors locally, county-wide, and in your state. The wider your scope of research, the more insights you will get. Keep in mind that if you’re starting a heavy equipment rental business, you may have to shorten the radius since logistics will be an important financial aspect to consider. However, you can bypass that by offering delivery and pickups as an additional service.
- Analyze pricing strategies
The next step will be to check the average pricing for the equipment you are planning to rent out. The price may vary depending on factors like availability, time of the year, weather conditions, etc. For instance, the weather-specific equipment will be priced differently during high-utilization and low-utilization months. Consider all factors before finalizing the pricing for your equipment.
- Figure out your USP
The unique selling point (USP) of your business will be the decisive factor for customers to come to you rather than your competitors. So, stand out among the competition with a meaningful USP. For instance, you can offer to rent during days when all other competitors are closed. You can add extra services such as logistics, on-the-spot maintenance of your equipment, etc. Find something that solves crucial challenges your customer base is facing.
3. Plan your equipment rental business
The next phase in starting your construction rental equipment business is to plan it in detail. Take the initial concepts to the next stage. Define a future-proof business plan, estimate and set budgets, and keep all financial aspects in mind.
Chalk out a future-proof business plan
If you want to future-proof your business, you start with a roadmap that accounts for all factors that may affect your operations. You will have to define a proper business plan including deep dives into operations, finances, and marketing.
Here’s what to do:
- Detail the business plan
Outline a business model that covers all aspects of your operational workflows. Understand how your business will operate, which equipment rental software to use, what a single workday will look like, etc. From day-to-day operations to monthly reporting, and from quarterly projections to yearly goals – write down everything.
- Define business goals for your target market
Once you have your unique value proposition in place, you will have a clear picture of what your business goals should be. Consider your target market. If you’re targeting construction equipment rentals, what value will your rental business provide to construction companies?
If you are starting a small equipment rental business, why should your community come to you instead of buying their own? Have clear goals regarding what you want to achieve, and highlight the value you’ll add for your customers.
- Outline marketing strategy
Once your business plan is ready, you will then have to figure out how you will market it to your customer base. Define a few ideal customer profiles (ICPs) that will help you provide more value to individual customers. For instance, if you are a small equipment rental business, one of your ICPs may be a hobbyist who enjoys making wood furniture as a side gig. Define your ICPs and market your business around them.
Set a budget for your equipment rental business
Once you’re done with the business plan, move on to budgeting your rental business. This will help you forecast all kinds of financials you need to be aware of. A robust financial plan will include equipment, startup, leasing, permits, insurance, logistics, marketing, and operational costs.
These tips will help you create a solid financial plan:
- Calculate all initial business costs
Anticipate and note down every kind of cost that you will have to bear from the start of your rental business to when it’s operational. If there’s anything you think will have a price attached to it, note it down. It is always better to be prepared.
- Identify operational costs
It is important to be aware of all costs associated with running your equipment rental business. Depending on the type of equipment you offer, you will have to consider the cost of regular maintenance, servicing, repairs, and even breakdowns. Have a strategy in place to recover damages easily. Include costs for rental software, staffing, overheads, and marketing in operations as well.
- Set revenue targets
Once you have decided on the rental prices for your equipment, it will be easier for you to forecast your regular expected cash flow. Set revenue targets for every quarter and plan your business strategies accordingly. It is easier to set a revenue target first and then try to achieve it rather than jumping in and hoping for the best. Revenue targets will help you align your marketing and rental strategies.
- Review quarterly and align
Consider the first year of your rental business as a trial period. You will be testing out various strategies to find the one that works for you. Schedule weekly, monthly, and quarterly reviews to nudge your business in the right direction. This is crucial.
Highlight what is working for you, what can be improved, and what needs to be eliminated. If you’re using holistic rental software, it will highlight which equipment is performing well and which has low utilization. You can add and subtract equipment to your rental assets to retain and increase revenue every quarter.
Financial aspects to keep in mind
For an equipment rental business, there are a few key financial aspects that you need to consider. These can easily make or break your business. Think them through properly, and come up with a strategy customized for your rental business and your customers.
Here are the crucial financial metrics to consider:
- Rental rates
You can set your rental rates for your equipment depending on the market, locality, demand, and customers. The rental rate for one specific piece of equipment will also vary depending on its type, the time of year, and the condition of the equipment. Generally, all equipment rental businesses offer a daily, weekly, and monthly rate. As a rule of thumb, the longer your equipment is rented, the higher the profit will be, even if the daily rate for that period is lower than the average daily rate. This is because you will have fewer costs added to it like maintenance, downtime, and delivery and pickup.
- Utilization
Keep in mind that equipment with high utilization will always yield a higher profit. But to cater to this high demand, you have to add more rental equipment to fulfill the demand. You can very easily lose business to a competitor if your high-utilization equipment is frequently unavailable due to being rented out or maintenance. Your competitors will happily jump in to fill this gap for your customers.
- Seasonality
Depending on where your business is located in the States, you have to consider seasons as a factor that will affect your rental business. The summer months are usually busier and the winter months are slower. You can add a wide range of equipment to cover both seasons. For instance, you can offer construction equipment during the summer and winter equipment during the snowy months.
4. How to buy the right equipment for your business
When buying equipment for your rental business, ensure that you get the best deal. The condition and durability of your equipment will determine how successful your rental business will be. Buy, lease, and get what your customers need.
Think through the equipment purchases
There can be multiple ways you can populate the assets and inventory of your equipment rental business. You should always get the best bargain via payment options that suit your needs and budget.
Here’s what to look for:
- Choose to lease or buy the equipment
If you have enough capital to buy all the necessary equipment at the beginning of your business journey, go ahead and buy it all. If not, you can segment your equipment purchases into high-utilization and low-utilization, and buy the former first and buy the latter down the line. If you’re low on capital, leasing can be a great option to minimize startup costs. You won’t have to dip into too much capital upfront.
- Find out the value of individual pieces of equipment
Evaluate every single piece of equipment to assess its utilization level and profit margin. This way you’ll be able to get the right tools that get you the revenue you want to achieve your fiscal targets. Keep in mind that high-value equipment usually has regular high maintenance costs as well. If you’re only starting out, you can avoid the high-value equipment for the initial 3 to 6 months. As your business grows, you can buy those as well.
- Buy the equipment your customers need
Another best practice is to customize your equipment purchases to cater to the needs of your customers. Rather than buying the equipment you want, you can buy the equipment your customers need. That way, you will ensure regular bookings and rentals for your assets.
Get the best possible deals
Let your bargaining prowess shine through when you go out to buy the equipment you want for your business. It’s a simple game of getting the best deal possible after searching for what’s available in the market and for how much.
Here are a few tips that will help you get the right equipment:
- Get rates locally and online
Although the same piece of equipment may be available at different prices in different States, you should always be aware of the price differences. First, go out into your local market, browse through the vendors, and compare prices there. Then, tally these prices with online stores even if they’re not from your own State.
This will set a good baseline price for you. When comparing prices, include shipping costs, wherever applicable, in the overall price. Logistically, heavier equipment will be cheaper to buy locally, but you may get a better deal online for small equipment.
- View warranties and reviews beforehand
To make an informed decision when purchasing equipment, make sure you compare not only the prices but also the warranties offered. If you are buying equipment you personally have not used before, it is better to read customer reviews in depth, especially for high-value equipment. Chances are that a similar piece of equipment from two different manufacturers may have different longevity and durability. Also, dive deep into the troubleshooting forums of high-value equipment to find out if customers have faced a similar maintenance issue with certain equipment. It’s good to know all this before making a bad investment.
- Buy in bulk or ask for further discounts
Lastly, if you are purchasing more than one piece, buy it in bulk as it will reduce the overall cost. Find wholesalers who may be able to get you a better deal. Even if you are buying from a retailer, don’t shy away from asking for a further discount. Build good vendor relationships from the start. Let your vendors know you are here for the long run. It will help in creating a lasting customer relationship with them.
Increase the lifecycle of your equipment
Once you have bought the equipment you need for your rental business, the next step is to ensure that you increase their lifetime value. Your equipment will be your bread and butter, so make sure you maintain, service, and repair regularly. Well-maintained equipment will have zero to low downtime since it will keep on running like a well-oiled engine.
Follow these tips to ensure longer equipment lifecycles:
- Schedule and perform regular maintenance and inspections
Great rental software will help you create regular maintenance checkups for your equipment. You can also schedule inspections to check if there is any problem that needs fixing. For heavy construction equipment, you will have to change oil, filters, etc. Maintain a way to schedule these regularly. A best practice is to fix a timeline or use the odometer readings. For instance, you can plan maintenance after every 100 hours or every 100 miles.
- Track and analyze maintenance, servicing, and repairs
Keep track of all your maintenance, servicing, and repairs to quickly assess the health of your equipment. Vehicles and construction equipment that have been cleaned, maintained, serviced, and repaired on time will always have a higher probability of being rented out frequently. Analyze your maintenance, schedule accordingly, and minimize your costs.
- Provide necessary guidelines or train customers
Most equipment breakdown happens when the equipment is not handled properly. To ensure that this doesn’t happen, provide guidelines to your customers on how to correctly operate and use the equipment. If your customer is a first-timer, you can offer to train them on the equipment, for free or with an additional charge. Always be available for support in case an experienced customer faces a mechanical breakdown while using your equipment.
The best equipment to rent
To get an idea of which equipment you should buy for your equipment rental business, you can browse this list. These items are utilized regularly and are rented frequently:
- Construction equipment
- Regular and mini excavators for excavator rental business
- Skid steers
- Wheel loaders
- Backhoes
- Graders
- Bulldozers
- Track loaders
- Multi-terrain loaders
- Wheel excavators
- Trailers
- DIY and everyday tools for small equipment rental business
- Equipment for machine rental business
- Lawn and garden tools
5. Prep your equipment rental business for the web
After purchasing the right equipment for your business, you have to find the right channels to market it. If your target market is local, you can print out flyers and put up a billboard in a strategic location. Apart from this, you can leverage the power of the internet to increase your outreach.
How to rent out equipment online
You can use rental software to manage your rentals online. You can also create a website and webstore to redirect your customers to your online portal. Since the rental software is a turnkey solution, you’ll be able to kickstart your rental business from day one.
Here are a few steps you can take to highlight your online presence:
- Create a professional website and webstore
Start with a professional website for your equipment rental business. Research the available options as some rental software comes packed with the ability to create a website or a webstore directly. You can populate your equipment assets onto the webstore so your customers can book rentals online. An online webstore will take your business to the next level by allowing your customers to check availability and rent instantly. You won’t have to worry about the time and costs involved in booking orders on a one-on-one call.
- Integrate industry keywords and SEO
Research your industry and competitors, and find out what your customers are searching for on all popular search engines. Use a keyword generator to compile a comprehensive list of relevant industry keywords and hundreds of their variations with ranking and traffic potential. Pay attention to such metrics as search volume, competition, and search intent to choose the
most promising search queries.
Once you have a list of keywords they are using, you can incorporate them into your website to achieve higher discoverability. The more eyeballs you get on your business website, the more customers you may be able to do business with.
- Leverage social media to build trust
In this time and age when everyone is present on social media, leverage it for your business. Be present where your customers are, and engage with them frequently. Resolve their issues there, inform them of discounts, attract them to your business, and build long-lasting relationships.
Build your team
For a business to successfully grow, you need to hire a team of specialized professionals who can help you in different aspects of your rental business. To reduce costs at the start, you can be a one-person-army and handle everything yourself. But if you want to grow, you will have to build a team.
These tips will be useful in building a dream team:
- Identify critical roles
Find out what the critical roles are for your equipment rental business. You may not need the conventional roles a regular company has, or you may have the margin to merge two similar roles into one. Plan your business team accordingly. Whatever you can do quickly, do it yourself, whatever else remains, delegate it. You can take ownership of sensitive business roles and hire professionals for all other tasks. This is where powerful rental software will act as another member of your team by automating a high number of your rental workflows.
- Empower your team with knowledge
A great business owner takes a leadership role and enables their team to take ownership of their individual departments. Take time out to train your employees with the right tools and knowledge so they can handle everything on their own rather than escalating every minor issue to you. Train them on the rental software as well or get the help of the rental software company to get your employees onboarded quickly.
6. Consider legal aspects from every perspective
There are certain legal considerations you need to be aware of for your equipment rental business. Safeguard your business by getting relevant guidance online and from related authorities. You will have to get permits, licenses, insurance, etc. before you can actually start your business. Research online, visit helpdesks of relevant government agencies or get insights from similar businesses in your area.
Create robust procedures
To streamline your rental operations and ensure consistency in the quality of your business, get proper and robust procedures in place. Fill the gaps and cover all contingencies by creating a process for every rental business workflow.
Here are a few guiding points to help you get started:
- Write down comprehensive rental agreements, contracts, and policies
Have proper rental agreements and contracts on your rentals. In all of your customer-business interactions before, during, and after renting out, get an agreement document signed. Write clauses in that agreement or contract to cover all your bases. If it is high-value equipment, you can get pre-booking agreements signed by your customers as well. Jot down comprehensive agreements that help your customer understand how and what action needs to be taken in case of a contingency.
- Detailed inventory management
Manage your rental assets efficiently via rental software to always know where every piece of equipment is and for how long. Your inventory management will ensure that you get the best ROI on every piece of equipment available at your rental business.
- Streamlined logistics, pickups, and deliveries
If you are planning on offering delivery and pickup services to your customers, you can charge them for this service. If you want them to manage this on their own, make sure that you have a few logistics companies at your disposal to offer to them. Build trust with logistics and ensure peace of mind knowing your equipment won’t be damaged during transportation.
- Establish maintenance and servicing protocols
Have proper protocols in place for checking in and out of your rental equipment. Ensure that regular cleaning, maintenance, servicing, and repair protocols are followed. The time you spend in creating these protocols will save you time and money you won’t spend on breakdowns and equipment downtime.
- Power up with rental software
Get equipment rental software to automate your workflows. A holistic software will include every workflow your rental business needs. These crucial workflows are order management, customer management, bookings, tracking, invoice management, recurring orders, sub-renting, documentation, analysis, custom reports, customer portal, rental webstore, and much more. Go with rental software that helps you automate as many of your workflows as possible.
7. Launch your equipment rental business
Finally, when you have taken all the necessary steps, get ready to launch your equipment rental business. Market it to your customers through the right channels, book orders, and let the equipment rental business begin.
Happy renting!
