Guide 1 · Rate setting

How to calculate equipment rental rates

Reading time about 9 minutesUpdated August 2026Worked example included

Why the rules of thumb let you down

Ask around a rental yard and you will hear the same shortcuts. One per cent of the purchase price per week. Three times the day rate for a week, eight times for a month. Whatever the yard down the road charges, minus ten per cent to win the job.

These are not stupid. They are compressed experience, and in a market where every machine is bought at a similar price, financed on similar terms and hired out at similar utilisation, they land close enough. The trouble is that none of those three conditions holds for long. You paid a different price to the yard down the road. Your machine is financed at a different rate, or paid for in cash, which is not free either. Your utilisation is not their utilisation. And the residual value you will get in five years is set by a market neither of you controls.

A rule of thumb cannot see any of that. It gives you a number that feels defensible in front of a customer and tells you nothing about whether the machine will have earned its keep by the time you sell it. So work the other way round. Start from what the machine will cost you to own for the whole time you keep it, decide how many days you will genuinely bill, and let those two numbers produce the floor. Then price above the floor by as much as the market will bear.

The formula, in one line

Breakeven day rate = total annual cost of ownership ÷ days on hire per year.
Everything else in this guide is about getting those two numbers honest.

Note what the denominator is not. It is not 365, and it is not the number of working days in your year. It is the number of days the machine is actually on hire and being billed. A machine sitting clean and ready in the yard costs you exactly as much as one out on site; it simply is not earning. That is why utilisation drives the rate so violently, and why we come back to it in a moment.

The seven costs that make up the numerator

Add these up for a full year. If a cost is lumpy — a major service every 2,000 hours, tyres every three years — spread it across the years you will keep the machine rather than loading it all into one.

1. Depreciation. Not the tax figure. The real one: what you paid, minus what the machine will honestly fetch when you sell it, divided by the years you will keep it. This is almost always the single largest cost, and it is the one people guess at most freely. There is a whole guide on getting it right.
2. Interest. If the machine is financed, the interest portion of the payments. If you paid cash, you still have a cost — that money could have sat in the bank or bought a second machine. Charge yourself something for it or you will systematically under-price every cash-bought unit in the fleet.
3. Maintenance, servicing and wear parts. Filters, oils, tracks or tyres, hoses, the annual service, and a realistic allowance for the thing that breaks in year four.
4. Insurance. Usually one and a half to three per cent of the machine's value per year, depending on territory and cover.
5. Registration, inspection and certification. Third-party inspection on lifting equipment, road registration on a truck-mounted unit, annual certification.
6. Transport, wash and check between hires. Either bill this separately to the customer, which is cleaner, or carry it here. What you must not do is forget it in both places.
7. Your share of overhead. The yard, the office, the person who answers the phone, the software. Divide total overhead across the fleet in some defensible way — by machine value is the usual choice — and give this unit its slice. A rate that covers only the direct costs of the machine leaves the business itself unfunded.

The denominator: days on hire, not days available

Look at last year for the same class of machine. Count the days it was on hire and being billed. Not the days it was available, not the days it left the yard. If you have no history, be conservative. Most independent yards run somewhere between 45 and 65 per cent time utilisation across a mixed fleet, which is 165 to 240 billed days a year. Anyone quoting you 80 per cent is either running a very specialised fleet or counting differently.

A worked example: a 3-tonne mini excavator

What happens when utilisation moves

The costs above barely change if the machine sits. Depreciation, interest, insurance and overhead run whether it is on site or in the yard. So the breakeven rate is almost entirely a function of how busy the machine is:

Read that table twice, because it contains the entire economics of a rental business. Between 35 and 70 per cent utilisation the cost of a day doubles. The same machine, the same yard, the same finance deal — and the price you must charge to break even swings from $55 to $110. This is why chasing volume at a discount so often destroys a fleet: the discount is certain and the extra utilisation is not.

From breakeven to the rate you actually quote

The floor is $70. What goes on top depends on three things, and the market sets all of them.

First, the going rate for the class. In 2026 a 2–4 tonne mini excavator broadly rents at $200–$350 a day, $650–$1,000 a week and $1,800–$2,800 a month in the United States, depending on region and attachment. Your market may sit well below or above that; check it, do not assume it. What matters is that these published figures are a very long way above $70, which tells you something important: the market rate is not set by cost, it is set by what a day of that machine is worth to a contractor. Cost tells you when to walk away, not what to charge.

Second, the mix of hire lengths. A month-long hire at the monthly rate earns far less per day than three separate day hires, but it also costs far less to service — one delivery, one collection, one wash. Most yards end up with a blended achieved rate per day on hire somewhere between their weekly and monthly per-day equivalents. For our excavator, a realistic blend across a year of mixed hires might be $130 a day on hire.

Third, what the return has to be. At $130 blended over 201 days the machine earns $26,130 against $14,015 of cost — $12,115 of profit, a 25 per cent annual return on what you paid for it. In rental terms that is 54 per cent dollar utilisation, which sits inside the 55–65 per cent band the national chains treat as acceptable. That is a healthy machine.

Building the day, week and month ladder

Once you have the floor, the ladder almost builds itself. Work in days on hire throughout, so everything is comparable:

• Monthly rate. Divide by 30 and compare to breakeven. This is the rate most likely to be too low, because it is the one customers negotiate hardest and the one that fills the yard. If the monthly rate divided by 30 is under your breakeven, you are running a busy fleet that loses money.
• Weekly rate. Divide by 7. It should sit clearly above the monthly per-day figure — a week's hire carries the same delivery, collection, wash and inspection as a month, spread over a seventh of the days.
• Daily rate. Highest of all, and deliberately so. A one-day hire is mostly logistics. If your day rate is not at least twice your monthly per-day equivalent, short hires are being subsidised by long ones.
• Minimum hire period and out-of-hours. Not decoration. They are what stops a two-hour job from consuming a full day of yard capacity for a fraction of a day's revenue.

Four things to check before you publish the rate

• Does it pay back before you sell it? Work out the month cumulative cash turns positive. If that falls after the date you plan to dispose of the machine, the rate is wrong no matter how good the annual return looks. How payback works.
• Does it survive a bad year? Drop utilisation by fifteen points and see whether the machine still clears its costs. If a single quiet quarter turns the unit negative, you have priced for the best case.
• Is the resale assumption honest? Every dollar of optimism in the residual comes straight out of depreciation and straight off the rate. This is the easiest place in the whole calculation to fool yourself.
• Does the fleet total actually cover the overhead you allocated? If every machine is priced at exactly its allocated share and half of them run below target utilisation, the overhead does not get covered. Someone has to carry it, and it is usually the two or three units that happen to be busy.

Common questions