Guide 5 · Utilisation
Time utilisation vs financial utilisation, and why busy machines lose money
Two different questions, two different numbers
Time utilisation answers "is this machine busy?" It is the days a machine was on hire divided by the days it was available to hire. A fleet of a hundred machines with 36,500 available days that were rented for 25,000 of them is running at 68 per cent time utilisation.
Financial utilisation — also called dollar utilisation or rate of return on fleet — answers "is this machine earning?" It is the rental revenue the machine produced over twelve months divided by what the machine cost to buy. A $500,000 unit that billed $250,000 last year is at 50 per cent financial utilisation.
The two can move in opposite directions, and that is the whole point of tracking both. Time utilisation is about demand and fleet size: it tells you whether you have too many machines of a class, or too few. Financial utilisation is about pricing: it tells you whether the days you did sell were sold well.
The example that makes the point
Two identical mini excavators, both bought for $48,000
Same yard, same year, same model. Both cost about $14,015 a year to own once you count depreciation, interest, maintenance, insurance, registration and their share of overhead.
| Machine A | Machine B | |
|---|---|---|
| Days on hire | 201 | 255 |
| Time utilisation | 55% | 70% |
| Blended rate per day on hire | $130 | $95 |
| Revenue for the year | $26,130 | $24,225 |
| Financial utilisation | 54% | 50% |
| Cost of ownership | $14,015 | $14,015 |
| Profit | $12,115 | $10,210 |
Machine B was on hire 54 more days — nearly two extra months — and earned $1,905 less. It also did fifty-four more days of wear, burned more service parts, made more trips on the low-loader, and will be worth less when it is sold.
If your depot manager is measured on time utilisation, machine B is the success story of the year. If they are measured on financial utilisation, machine A is. Only one of those two is right.
How yards end up busy and unprofitable
Nobody decides to run machine B. It happens through a sequence of individually reasonable decisions:
- Time utilisation is the number that is easy to measure, so it becomes the number that is reported.
- Reported numbers become targets, and targets become bonuses.
- The fastest way to raise time utilisation is to accept a lower rate, because there is always a customer at a lower rate.
- Rates are sticky downwards. The discount given in a quiet March is the expected price in a busy September, and the customer has told two other contractors.
- A year later the fleet is visibly busier and the profit and loss is worse, and nobody can point to the decision that caused it, because there wasn't one.
The correction is not to stop caring about time utilisation. It is to refuse to look at it alone. Every machine class needs both figures on the same line of the same report, plus the third number that ties them together.
The third number: revenue per day on hire
Time utilisation and financial utilisation are both ratios, and ratios hide things. The figure that makes the connection visible is blunt: total revenue divided by days on hire. Machine A got $130 a day. Machine B got $95. That gap is the entire story, and it is one column in a spreadsheet.
Track it per machine class, per month, and compare it to the same class's breakeven day rate — the annual cost of ownership divided by the days you actually billed. For these excavators the breakeven at 201 days is $70. Machine A is comfortably clear of it. Machine B, at $95, is also clear of its own breakeven of $55 at 255 days. But watch what one more round of discounting does: at $75 a day it would still be above breakeven, still be the busiest machine in the yard, and would earn $19,125 against $14,015 of cost — $5,110 of profit, less than half of machine A's, for fifty-four more days of wear.
What to do about each combination
| Pattern | What it usually means | What to do |
|---|---|---|
| High time, high financial | Right machine, right price, not enough of them | Buy another; check you are not under-priced |
| High time, low financial | Priced too cheaply, or too much long-term hire | Raise the rate on new contracts; review the long-hire discount ladder |
| Low time, high financial | Specialist machine earning well when it works | Leave it alone; consider a second unit only with contracted demand |
| Low time, low financial | Wrong machine, wrong depot, or too many of them | Move it, reprice it, or sell it |
That bottom row is the one people avoid. A machine that is neither busy nor earning is consuming capital, insurance, yard space and management attention, and every month it stays is a month of depreciation you will never recover. Selling it is not an admission of failure; keeping it is.
Measuring it without arguments
Both figures are easy to fudge by accident, so write the definitions down once and stick to them:
- Available days. Decide whether a machine off the road for repair counts as available. Excluding it flatters the number and hides a maintenance problem; including it is harsher but tells you the truth about capacity. Whichever you choose, apply it everywhere.
- Days on hire. Count billed days. A machine on a customer's site free of charge while a dispute is settled is not on hire.
- Machines bought mid-year. Pro-rate both the available days and the original cost, or a new arrival will drag the whole class down.
- Which cost to divide by. Financial utilisation conventionally uses original equipment cost, not the depreciated book value. Using book value makes old machines look wonderful, which is exactly backwards.
- Revenue included. Machine hire only, or hire plus delivery, damage waiver and fuel? Both are defensible. Mixing them between depots is not.
Setting a target that does not backfire
If you are going to put a utilisation figure on a manager's scorecard, pair it. A target of "68 per cent time utilisation" invites discounting. A target of "68 per cent time utilisation at or above $120 revenue per day on hire" cannot be met by cutting the rate, which is the whole point.
And set the pair per machine class, not per fleet. A fleet-wide average is the arithmetic of a scissor lift, a generator and a crane averaged into a number that describes none of them, and it moves whenever the mix changes rather than when performance does.
Common questions
What is a good equipment utilization rate?
The national rental chains treat time utilisation around 65 per cent as solid and financial utilisation of 55 to 65 per cent as acceptable, with independents typically a little lower on both. Treat these as orientation rather than targets. A specialist fleet of $400,000 machines and a tool-hire counter selling $600 breakers cannot sensibly be held to the same figure, and a fleet-wide average across mixed classes describes none of them.
How do you calculate dollar utilization?
Divide twelve months of rental revenue for the machine by its original equipment cost — the price you paid, not the depreciated book value. A $500,000 unit that billed $250,000 last year is at 50 per cent. Using book value instead makes old machines look wonderful, which is precisely backwards, because an old machine has already consumed most of its earning life.
Can utilisation be too high?
Yes, in two ways. Very high time utilisation means you are turning enquiries away and probably need another unit, and it also means the machine is accumulating hours and wear faster, which pulls its resale value down and brings the next major service forward. A machine at 85 per cent time utilisation on a thin rate is being consumed rather than employed.
Should machines under repair count as available?
There is no single right answer, but there is a wrong one, which is choosing differently in different months. Excluding repair days flatters the number and hides a maintenance problem; including them is harsher but tells you the truth about capacity. Write the definition down once, apply it to every depot, and never change it mid-year.
What single number should I put on a depot scorecard?
Not one number — a pair. A target of 68 per cent time utilisation invites discounting, because there is always a customer at a lower rate. A target of 68 per cent time utilisation at or above a stated revenue per day on hire cannot be met by cutting the rate, which is the whole point. Set the pair per machine class, not per fleet.
See what utilisation does to your return
The what-if grid shows the return at several rates crossed with several utilisation levels, so you can see which combinations work and which quietly do not.
Read next
- How to calculate equipment rental ratesThe full method, from the seven costs of ownership to the day, week and month rate you publish. With a 3-tonne mini excavator worked through end to end.
- How much should you charge to rent out equipment?The floor is arithmetic, the price is the market, and the money is usually in the charges around the machine. Including the rate ladder and when discounting is worth it.
- Will this machine pay for itself? Payback explainedThe month your cumulative cash turns positive, why it matters more than ROI, and the worked telehandler that pays back in month 24 — or never, at fifteen points less utilisation.