Glossary
Equipment rental terms, defined in one paragraph each
Acquisition cost
What a machine costs you delivered and ready to rent: purchase price plus transport, registration and any pre-hire preparation. Every return figure in rental is expressed against this number, so it must include everything or the returns will flatter you.
Rental rate
The price a customer pays for a machine for a period, usually quoted per day, week and month. The monthly rate is the base; weekly and daily rates are typically set above it pro rata because short hires cost more to serve.
Time utilisation
The share of available time a machine is out on hire. A machine on rent 255 days of a 365-day year has 70 % time utilisation. It measures how busy the machine is, not whether it makes money.
Financial utilisation
Annual rental revenue divided by the machine's acquisition cost, sometimes called dollar utilisation. A 100,000 machine earning 36,000 a year has 36 % financial utilisation. It is the single number that combines rate and busyness, and it is the one to manage.
Rate floor
The lowest monthly rental that covers every cost of owning and running the machine at a given utilisation, before any profit. Charging below it loses money on every hire regardless of how busy the machine is. The calculator shows it for the utilisation you enter.
Breakeven rate
Another name for the rate floor: the rate at which rental income equals total cost. Above it the machine contributes; below it, it consumes.
Depreciation
The fall in a machine's value over time, charged as a cost each month. In this model it is straight-line: (acquisition cost minus residual) divided by the rental life. It is usually the largest single cost of owning rental equipment.
Residual value
What a machine is expected to be worth at the end of its rental life. The model assumes 10 % of acquisition cost unless you enter sale prices. Resale is where most rental return actually comes from, and where most forecasts are wrong.
Resale decline
The percentage a machine's market value falls each year, compounding. A 16 % decline turns 100,000 into 84,000 after one year and 42,000 after five. Rates differ by machine family: forklifts and access equipment fall faster than earthmoving.
Return on investment (ROI)
Annual profit from a machine, including the proceeds if it were sold that year, divided by its acquisition cost. Expressed per year so machines of different ages compare fairly. Most fleets target 10 to 15 % a year.
Payback period
The month in which cumulative cash from a machine turns positive: the money you put in has come back. It answers "when do I get my cash back", which ROI does not. A machine can have a good ROI and never pay back within its life if the return depends on the final sale.
Gross profit (GP %)
Rental income less the costs of the machine itself (maintenance, insurance, depreciation, financing), divided by rental income. It ignores overhead, so it tells you whether the machine works before the business around it is counted.
Overhead
The share of the business's fixed costs a machine must carry: yard, staff, systems, transport that is not recharged. The model takes it as a percentage of the machine's direct cost because that is how most fleets allocate it.
Three-way financial model
A profit and loss, a balance sheet and a cash flow built from the same inputs so they reconcile. The P&L says whether the machine is profitable, the cash flow says whether you can afford it, and the balance sheet proves the two agree.
Rent versus buy
The comparison between owning a machine (fixed cost whether it works or not) and hiring one in when needed (variable cost per day). The crossover is the number of days a year at which owning becomes cheaper; below it, hire in.
Service meter reading (SMR)
The hour counter on the machine. The model accumulates it from hours per month and utilisation, because maintenance cost and resale value both follow hours, not calendar time.
See the terms with your own numbers
Rate floor, ROI, payback and utilisation for any machine, live.