Deciding on the right price for your rental equipment can be tricky, but not impossible! Rental pricing strategy is all about maintaining the right balance between your revenue and the cost of equipment.
Rental business owners, like you, commonly face challenges setting the right price as they navigate the rental landscape, trying to price their equipment in the most efficient yet profitable way possible.
To maximize rental income, start by crunching the correct numbers. Factor in purchase costs, depreciation, maintenance, storage, shipping, and delivery expenses. Pair this with thorough market research and industry trends to drive profits and encourage customers to keep buying from you.
In essence, a winning rental pricing strategy begins with accurately calculating your equipment’s true cost, then fine-tuning your prices based on market demand and customer behavior. In this blog, we break down the essentials of rental pricing, elaborate on how it’s one of the revenue-driving factors, and provide ways you can set optimal prices for your equipment rental business.
Top 6 factors impacting your rental pricing strategy
Rental pricing strategy is not only about attaching a monetary value to your equipment. It’s about balancing operational costs and analyzing market trends to charge your customers comparatively better than your competitors.
Intelligently managing your rental fleet is tough and involves finding the right spot between your pricing and your competitors’ pricing. Additionally, pricing in the rental industry is highly dynamic; the external factors, including market trends, supply of equipment, and seasonal factors, impact the final rental rates.
Let’s look at some primary factors impacting your rental pricing strategy:
1. Utilization Rate
A key metric for determining rental prices is identifying your equipment’s utilization rate. This is the percentage of the amount of time an equipment is available for rent versus when it is not out on rent. Here are two main factors that determine the utilization rate:
- Low Utilization: If a specific line of equipment has consistently low utilization, you may need to lower its price to stimulate demand or consider selling the underutilized asset to free up capital.
- High Utilization: If your equipment is constantly rented out, you have the data-backed justification to increase its price (premium pricing) or invest in additional units to meet demand.
Intelligent pricing ensures you maximize revenue from your most popular items, and optimizing the use of every piece of equipment.
The following table provides a breakdown of how equipment prices can be calculated based on your equipment utilization:
| Utilization Rate | Asset Performance | Pricing Strategy | Recommended Action | Goal |
| 0–30% (Low) | Underutilized / Idle | Reduce base price by 10–20% | Offer discounts, flexible rates, or bundle deals to increase rental bookings. Promote online visibility. | Increase utilization and market appeal. |
| 31–60% (Moderate) | Stable but below optimal | Maintain base price or adjust ±5% | Monitor competitor rates and seasonal trends. Use dynamic pricing for off-peak vs. peak periods. | Maintain a steady income and improve turnover. |
| 61–85% (High) | Efficient utilization | Increase base price by 10–15% | Reflect high demand and reduce wear through moderate price hikes. Prioritize preventive maintenance. | Maximize profitability without losing repeat customers. |
| 86–100% (Very High) | Overutilized / High-demand asset | Increase price by 20–30% or consider asset expansion | Acquire additional units to meet demand. Adjust pricing to reduce strain and extend the life of your rental equipment. | Optimize profit margins and balance workload. |
The percentages recommended above are based on rental industry trends and standards, as well as equipment maintenance costs and dynamic pricing models.
2. Total Cost of Ownership (TCO)
The Total Cost of Ownership (TCO) of equipment refers to the total expenses incurred in owning and maintaining a piece of equipment. The equipment’s price is based on its cost of ownership, which serves as the baseline for the rental price. TCO must be able to recover the investment cost, cover expenses, and generate profits.
The TCO is inclusive of the following elements:
- Purchase price: This is your initial investment, i.e., the amount paid to acquire the equipment. It’s the foundation of your pricing because your goal is to recover this cost over the asset’s useful life through consistent rentals.
- Depreciation: Equipment loses value over time due to wear and tear or technological obsolescence. Depreciation helps you estimate how much of the purchase cost should be recouped from each rental to maintain profitability. For example, if a $50,000 skid steer depreciates by $5,000 annually, that $5,000 should be factored into your yearly rental pricing model.
- Maintenance and repairs: Routine maintenance (oil changes, inspections) and unexpected repairs (broken parts, hydraulic issues) are recurring costs that keep assets operational. Including them in pricing ensures you do not erode profits when repair bills arise.
- Storage and handling: Your equipment costs to store, regardless of whether it is being rented out or not. The storage costs are often overlooked but can add up significantly over time, particularly for large or specialized machinery.
- Insurance and licensing: Comprehensive insurance and any regulatory licenses or certifications are mandatory expenses for most equipment categories. Factoring these in protects your margins while maintaining compliance.
- Transportation and delivery: Delivery, pickup, and logistics costs vary by distance and equipment type. Including an average transportation cost (or offering it as an add-on) ensures you do not absorb these expenses when providing full-service rentals.
Ensure your price accurately reflects these costs and enables you to easily recover these expenses. The rental rate should cover these expenses on top of the profit margin you need for your rental to generate a high ROI.
3. Customer expectations
Certain types of high-value rental equipment, such as heavy machinery, have a high purchase and rental cost. Customers who are frequent users of such machinery, like construction businesses and general contractors, are already aware of the market rates and have similar expectations for the rental price of the equipment.
Therefore, rental prices must align with what your customers expect and are willing to pay. Customers judge your rental price not in isolation, but by comparing it to:
- The value they get (performance, reliability, and convenience)
- The alternatives available (competitor pricing or ownership costs)
- The experience you offer (ease of booking, transparency, service quality)
Your customer might be willing to pay for your rentals if you offer a reliable service. For instance, the construction rental industry is tightly knit, so word of mouth spreads quickly. If you provide a reliable service to one or two contractors, you will get repeat and referral-based customers. Additionally, a contractor may pay 15% more for a loader from you if you guarantee same-day delivery, online booking, and 24/7 support.
Similarly, the psychological impact of pricing is profound and long-lasting. If you are offering a high price, you can guarantee exceptional equipment, high-quality service, and after-sales support. If your pricing does not match your market positioning, you create dissonance.
For example, a high-end equipment provider offering extensive discounts might confuse customers and weaken trust, while a small local rental shop pricing too high may appear unjustified.
Considering these factors, it is essential to remain mindful of your competitors, market conditions, and pricing techniques when setting the prices for your rental items.
4. Bundling and discounts
Bundling equipment and offering discounts has been a long-implemented strategy for equipment rental businesses. It serves as a pricing strategy to maximize revenue and enhance customer retention and loyalty due to its perceived value.
Bundles create the illusion of better value for money, as customers can get more for a lower price. Bundles help stabilize demand and encourage customers to rent multiple pieces of equipment at once, thereby increasing equipment utilization.
How do bundles impact your pricing strategy? With bundles, customers focus more on the value of the equipment than on the price, giving you greater flexibility to price equipment accordingly. You have the edge to set the bundle price higher than the sum of the items, increasing your overall profits.
Offering bundle-based discounts builds loyalty and repeat business. Consistent demand enables you to plan pricing adjustments more confidently and avoid excessive discounting during slower seasons.
For instance, offer a “Site Setup Bundle” that includes a generator, light tower, and safety equipment at a 10% combined discount. This package drives higher-order value and helps maintain steady utilization across multiple asset categories.
Similarly, if you are running a costume rental business, then you can pair up different costumes together and offer them at a discount for repeat sales.
5. Seasonal pricing
Almost all rental equipment businesses adjust their pricing during high-demand seasons. Seasonal pricing involves adjusting your prices based on equipment demand and customer needs. Seasonal pricing lets you raise prices when demand for equipment is highest. This way, you can also forecast revenue based on future demand and stay prepared for a season when demand is likely to be low.
You can attract more customers by dynamically adjusting the equipment price and offering discounts during peak seasons. This encourages customers to book in advance and provides longer rental periods at slightly reduced off-season rates, allowing your assets to continue earning even when market activity slows.
Strategic pricing is about setting equipment prices to maintain your brand identity, attract repeat customers, and maximize ROI. Seasonal pricing is demand-based, giving you the leverage to adjust your pricing by 10-20% to compensate for lost profits when demand is low.
EZRentOut enables you to set prices flexibly. Here’s how the flexible pricing setting looks like in EZRentOut:
6. Equipment depreciation
Every piece of equipment, whether it’s actively rented out or not, depreciates over time. Depreciation costs significantly, and smart pricing accounts for this cost, ensuring that your equipment continues to yield profits. As the age of a piece of equipment increases, its market value drops, requiring price adjustments to reflect its actual value.
Every piece of equipment has a limited earning window before maintenance costs outweigh its rental revenue. A well-structured pricing strategy takes into account both the initial cost recovery and the expected depreciation rate, ensuring the equipment pays for itself early in its lifecycle.
For instance, you might price newer assets higher in the first two years to recover a greater portion of their purchase cost, then gradually reduce prices as they age and their maintenance expenses rise.
This approach ensures that your total cost of ownership (TCO) remains aligned with your pricing over time.
Depreciation also enables you to set tier-based pricing, as newer equipment can be rented at a high price, while the older equipment can be priced lower.
7. Customer segmentation
Customer segmentation is a reasonably straightforward way to price your equipment. The pricing behaviors of each customer segment differ, enabling you to adjust your rental rates according to customer needs.
For instance, long-term contractors often prioritize reliability, consistent availability, and predictable pricing over one-time discounts. Offering them contract-based pricing, with discounts or loyalty incentives, can encourage repeat business and ensure a steady income stream. In contrast, small-scale customers require flexibility as they are more price-sensitive.
By segmenting your customers and customizing rates accordingly, you can:
- Optimize margins for different market segments
- Build stronger relationships through personalized pricing
- Maintain higher utilization by appealing to diverse renter types
Ways to price your equipment smartly
While several factors serve as core pricing drivers, there are innovative ways to price your equipment to maximize profitability. Setting prices is a delicate art, as you need to strike a balance between overpricing and underpricing your equipment.
The price of your equipment determines its value. Based on general perception, your equipment might be priced higher to convey that it is of high quality. In contrast, a low-priced piece of equipment might be perceived as low value. To ensure your equipment is priced correctly, you must build an image of quality while also pricing it appropriately to generate a profit.
Factors influencing the price of your equipment
Here are a couple of factors you should consider when pricing your equipment appropriately:
1. Cost plus margin formula
It is a simple pricing strategy in which you calculate the costs associated with owning the asset and add a profit margin. You base your calculations on the following simple formula:
Price = Cost + Desired Profit
For example, the maintenance, depreciation, and miscellaneous costs of your equipment add up to $50. You decide to add a $30 margin and rent the equipment at $80/day. If it breaks even at 2000 units, it will take approximately 25 days for your equipment to actually break even at $80/day.
This formula works perfectly only if your equipment is well-maintained, serviced, and made available on time for rental purposes.
Additionally, it is beneficial for small rental businesses to continue operating under a cost-plus pricing strategy to remain competitive.
2. Competitive pricing
Rental businesses do not operate in isolation; they always have competitors to focus on.
Competitive pricing occurs when your rental prices are adjusted in response to your competitor’s price changes. Following this rental pricing strategy, you keep your rental prices similar to those of other rental businesses.
Competitive pricing is most effective when your rental business is well-established and has a strong market position. If your business and rentals are well known, customers are likely to pay a competitive price for your equipment.
However, if you are new and charge the same price as an established business, customers may prefer to rent from the known entity. Based on competitor analysis, go for any of the three options below:
- Price = Competitor’s price
- Price < Competitor’s price
- Price > Competitor’s price
All three of these pricing strategies have outcomes depending on multiple factors.
First, if you set the same price as your competitor, you can distinguish your rentals by offering an exceptional experience, product, or service.
Second, if you set your rental price lower than your competitor’s, keep production costs to a minimum. Lower prices will reduce profit margins but increase sales.
Third, if you set rental prices higher than the competition, you can only win if you offer premium rental equipment with a personalized rental experience.
3. Psychological pricing
A psychological pricing strategy involves creating a perception for customers that they are getting a great deal, as the rental price of your equipment is the lowest due to sales or special discounts.
You can create psychological pricing by positioning your rentals with slogans like: ‘Rent for 6 days, get 1 day extra’, ‘50% off for Black Friday’, ‘15% Discount if you rent today’, etc.
However, if you set a low price, your customers will equate it to the actual value and quality of your rentals. If they see a rental being consistently offered or priced cheaply, they may perceive it as of low quality.
It may attract more renters, but it will drive away premium customers who want to rent high-quality equipment with excellent service.
4. Bundle pricing
Bundle prices allow multiple pieces of rental equipment to be packaged together and rented as a single deal. For instance, if you are a construction equipment rental business, you can package your wheel loader with a few gallons of gas for free.
A tool equipment rental business may package a heavy-duty drill with free drill bits and Fischer anchors.
Additionally, you can bundle your equipment with services such as delivery, pickup, maintenance, and servicing.
Your customers would love to rent a complete bundle at a lower price rather than renting every equipment and inventory item separately.
Be aware of your most frequently utilized and rented pieces of equipment, and use bundle pricing to package them together, increasing your business revenue.
Utilize bundle pricing effectively to increase your equipment rental cycle and generate additional revenue.
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How to set the price of your rental equipment?
As discussed above, there are multiple ways to price your rental equipment. However, the technical aspects behind setting the equipment’s price must be considered to price more accurately. This requires math!
Instead of using flat pricing models, intelligent rental companies calculate rental rates using dynamic pricing, with the rates finalized using a rental rate calculator.
Here’s how you can do it using EZRentOut’s rental cost/pricing calculator:
Calculating rental rates for your equipment using the EZRentOut rental cost calculator
Use the following EZRentOut calculator to calculate your rental rates:
Here’s a step by step guide to using the calculator:
1. Identify the metrics (Annual operating costs)
To calculate rental rates accurately, start by mapping your Total Cost of Ownership (TCO). Include every cost directly or indirectly tied to your equipment:
- Purchase price: Your upfront investment for the asset.
- Expected lifespan: The number of years or rentals you expect before replacement.
- Maintenance costs: Routine service, inspections, and repair expenses.
- Insurance and licensing: Compliance and coverage fees.
- Storage and handling: Cost of space, logistics, and staff time.
- Utilization rate: The percentage of time your asset is expected to be rented out.
- Target ROI (%): The profit percentage you aim to achieve beyond cost recovery.
These metrics form the base for all price calculations in your tool.
2. Factor in the Utilization Rate
Not all your assets will be rented 100% of the time. The utilization rate represents the frequency at which a piece of equipment is expected to generate revenue versus sitting idle. A typical target for heavy equipment might range between 50% and 70%.
For example, if an excavator rents out for 20 days in a month (out of 30), its utilization rate is ~67%. This helps you distribute your costs over realistic revenue-generating days.
3. Calculate break-even and ROI goals
Once you know your utilization and TCO, the next step is to calculate your break-even rate which determines the minimum rental price required to recover your investment.
You can then add your desired ROI goal (say 25%, 50%, or 150%) to arrive at a profitable daily rate. This type of pricing helps ensure sustainable growth and justified, reasonable profit margins.
4. Use a tiered pricing model
Not all customers rent items for one or two days; some are more invested in long-term rentals to get a better value from the rentals, and also based on their project deadlines. A common structure is:
- Daily Rate: Base rate (e.g., $200/day)
- Weekly Rate: Apply a 10–20% discount to the equivalent daily rate × 7
- Monthly Rate: Apply a 25–40% discount to the equivalent daily rate × 30
This type of pricing automatically encourages customers to rent equipment for longer periods of time.
5. Consider market conditions
Equipment demand changes with seasonal trends and market fluctuations.
For instance:
- Construction and landscaping rentals peak in spring/summer.
- AV equipment and event rentals spike during holiday seasons.
Use the seasonal multiplier (e.g., 1.1 for high demand, 0.9 for low demand) to adjust pricing using EZRentOut, equipment rental software, automatically.
Similarly, if your competitors are charging more or less, you can apply a market adjustment percentage to stay competitive without undercutting your margins.
6. Use your equipment’s depreciation and equipment age data
Every piece of equipment loses value over time. Depreciation affects both resale value and the price customers are willing to pay. Adding a depreciation factor (for example, 0.95 to represent 5% annual value reduction) ensures your pricing reflects equipment condition and lifecycle stage.
You can even set up tiered pricing based on asset age:
- New equipment → Premium pricing
- Older equipment → Discounted pricing
This keeps older inventory generating revenue until it’s retired or sold.
7. Include additional overheads and hidden costs
Beyond direct expenses, consider costs that can impact your pricing over time:
- Administrative overhead (billing, delivery coordination)
- Cleaning and inspection between rentals
- Transportation or pickup/delivery costs
- Marketing and website fees for listing and managing inventory
- Maintenance costs, including costs associated with replacement parts and technicians’ wages, etc. Using maintenance management software can help track these costs and price your items better.
Why is setting the right rental rates important?
The rental industry is a highly competitive one, requiring rental businesses to consider multiple factors when finalizing pricing. Accurate rental rates help ensure profitability and recover the cost of equipment, ensuring that the equipment is neither over-priced or under-priced. Additionally, the correct rate helps you maintain a steady rental flow and optimize ROI over the equipment’s lifespan. If your rates are too high, you risk driving customers to cheaper competitors; too low, and you hurt your margins.
Finding the right rental pricing is a constant exercise. Regularly adjusting your pricing strategy based on feedback and market conditions will ensure competitiveness and success in the rental industry. Using rental asset management software enables you to manage your rental equipment better and set the prices in the most efficient way.
Setting the right rental rates and using a rental system helps build customer trust while also remaining competitive in the rapidly changing rental market. Price your rental equipment based on operational factors and strive to strike the perfect balance between customer satisfaction and business sustainability. Automate the management of your rental equipment today and improve your ROI!
Happy renting!
