Rental Equipment and Dependable Service Protect Profit Margins

I’ve said it before, and I will repeat it now: Renting is a viable business strategy to acquire the equipment a contractor needs during this year’s conditions, marked by high demand and increased business costs. Unlike 2021, where contractors were pushed into renting or buying a used machine due to supply chain issues, this year’s market conditions and strategies learned from years ago prove that renting construction equipment allows contractors to adapt to the ebbs and flows of their business needs. Several market changes influence these strategies as we near this year's midpoint.  

Most dealers' heavy equipment inventories have returned to their pre-pandemic size, and most of the time, if a dealer doesn’t have a specific machine, they can source it from their Original Equipment Manufacturer (OEM) partner. The availability of machines paired with high-interest rates makes buying a less attractive strategy for contractors growing their businesses.  

At a recent equipment conference, I spoke with Alise Moncure, the chief executive officer of Integrated Rental, a heavy equipment rental software company. Moncure said the demand for renting heavy equipment grew tremendously in 2023.  

"Last year, demand for rental equipment was driven by machine supply chain issues and rising interest rates, making purchasing equipment more costly," she said. "In 2024, we will likely continue on the same trajectory, even with machine supply correcting."  

Dealers are drawn to offering rental equipment because it allows them to diversify their revenue streams and protect from cyclical downturns in customer buying habits, Moncure explained. Most dealers provide more options to rent so that contractors can find their desired machine within their budget. Overall, there are more rental machines on any job site than ever.  

“Contractors benefit from renting from a dealer because a regional dealer’s fleet will have machines with lower production hours than a rental company,” she said. This year, equipment dealers are supported by OEMs to ensure their rental fleet has a healthy inventory. Unlike in previous years, when shortages caused rental fleets to have machines with a higher production time at standard rates.  

So, as we look back at strategies to manage a volatile cost environment, renting equipment emerges as the number one solution to protect profit margins. Early this year, construction input prices were 1.5% higher than a year ago, according to Associated Builders and Contractors. And those costs, including fuel, are not expected to decrease. So, at a high level, rental remains a worthwhile option. Now, let’s zoom in and look at some of the specific benefits it can offer.  

Renting Reduces Unforeseen Expenses   

Most contractors' worst nightmare is a downed machine. A machine requiring unexpected service and parts increases costs and decreases productivity. The loss of a machine can sometimes extend a project's schedule by weeks, and this additional time increases labor costs. Renting machines adds another layer of protection against extra costs. If a rental machine requires an unplanned visit to the service shop, a trusted equipment dealer can find a replacement within days instead of weeks.  

"When contractors rent equipment, they can be more confident when bidding on jobs, knowing their equipment expenses and having no maintenance surprises," Moncure said. "More contractors are also electing to rent to remove the burden of transporting and maintaining equipment."   

During this year, when contractors feel the squeeze of increased fuel or labor costs, renting equipment provides peace of mind that the total funds invested at the project’s completion will be close to its initial bid.  

“Renting equipment continues to become a more attractive option to allow contractors to be more flexible with their work,” Moncure said. “With uncertainty in the medium-term economic outlook, renting can make more financial sense than purchasing.”  

Preventative Maintenance Takes Care of Itself   

When contractors own a large fleet, they’ll hire knowledgeable fleet managers to integrate a parts and service schedule, ensuring machines are ready when needed. However, experienced managers are hard to find during the continued labor challenge, so finding a partner to help monitor machines and schedule service is an attractive option. Some dealerships, like RDO, ensure that any machine in their rental fleet is under a warranty program. RDO’s Connected Support team works with store team members to remotely monitor rental machines so technicians can be dispatched to job sites when any machine needs attention.  

Watch this episode of The Track to discover a few tried and true lessons contractors have learned from renting heavy equipment.

Rental Purchase Options Equal Future Ownership   

Rental Purchase Options (RPO for short) are customizable purchase options for heavy machinery that help contractors optimize operational flexibility. RPOs may attract contractors building their business as they experience different revenue streams trickling in slower than expected. For example, government funding, like Infrastructure Investment and Jobs Act grants, is slowly distributed. Additionally, these funds will have less impact on the current fiscal year’s bottom line due to increased costs. With less profit expected for this fiscal year, many contractors want flexibility in their purchasing options. If a contractor decides they would like to own a particular machine in the future, a trusted partner can discuss specifics.  

Embrace Adaptability Through Rental Attachments, Technology 

Remember, a person can only earn the knowledge required to effectively operate a wide variety of machines and attachments through time, effort and a knowledgeable partner. Rental equipment offers the chance to gain experience with not just the machine but a wide variety of attachments and technology, too, without making a huge financial commitment. Excavators are a great example. Whether you’re looking for a small, maneuverable machine like 85P or a large, powerful machine like 350P, John Deere's excavators can be fitted with versatile attachments like a grapple or thumb, providing versatile gripping and lifting capabilities. Such attachments can broaden the use case for a rented machine, which can give you a good picture of the different options available to meet the demands of your jobsite. The same idea applies to technology   

"Renting is a great option if a contractor wants to take advantage of various equipment or technology options available in the marketplace," Moncure said. "When a contractor rents a piece of equipment, they also increase their access to experts who can help their team to learn the ins and outs of complex machines."  

This year, contractors should take advantage of rental equipment's flexibility. Our industry and the many factors that influence it are rapidly changing, meaning adaptation is the key to success. It’s essential to have an equipment partner that can help you properly invest time, money, and effort into growing your team's appetite for change to remain agile. If the last few years have taught me anything, you can never be too ready to pivot when times call for it.