How to Start A Heavy Equipment Rental Business
Starting an equipment rental company can be challenging but it is possible. With the market research available nowadays, getting the information you need to start a business is more accessible.
Leveraging websites like DOZR to get insights on market data as well as information from rental industry publications, you will be able to make informed decisions and tap into the correct markets. We've highlighted some of the best tips on how to start a successful heavy equipment rental company. Just by following these simple steps, you will be better positioned to start your business.
1. Conduct Market Research
You never want to go into a market blind. Getting all the information about the different trends will help you make decisions about the market, inventory, products, and more. Because so much information about equipment is based on regional demand, and sometimes seasonality, you'll want to understand all aspects of your market.
Here are some high-level rental industry trends regarding the heavy equipment rental market:
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The rental market continues to grow as the American Rental Association reported there was an expected 11.1% increase in revenue in 2022. The total market value of the rental industry is almost $56 billion.
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In the same report, equipment rental companies that were doing less than $10 million in revenue were some of the biggest leaders in revenue growth. This was in large part to better customer service and rental experiences.
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Despite what many people in the industry think, 84% of company owners will decide to rent at some point in the 12-month calendar according to Equipment Watch. This is usually for specialized equipment, equipment that's only needed for a short time, or it just makes better financial sense due to location and hauling costs.
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In the same report, contractors will look to rent more often than less, with 89% reporting that they will rent either the same amount or more in 2023.
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Electric machines will continue to enter the market at an increased pace as sustainability becomes more important for contractors, especially general contractors, to adhere to.
As can be determined from these statistics, the construction equipment rental market is massive and doesn't show any signs of slowing down. This is in large part to the locational importance of these rental companies. There will never be a dominant player when construction work needs to be completed across the entire continent and distance to a job site matters for keeping costs down. Now it's time to figure out how that fits into your business plan.
2. Create a Focused Business Plan
One of the first things you should do as a founder of a company is figure out your company's objectives and mission. What will make you stand out from the rest of the competition now that you know what your competition is doing? What will be your sales and marketing strategy? Is your objective to only work with those in your area, or are you looking to become a state-wide company? Answering these questions can help you clarify your objectives and mission.
The next part of your business plan is figuring out what kind of inventory you want to acquire. Are you going to only deal in specialized equipment? Only in earthmoving? What about rollers and compactors? Maybe compact equipment only? This can all depend on the competition in your area, your access to capital, and the research you've done to stand out.
However, here are some quick facts on each:
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Loaders, whether it's compact track loaders, skid steers, and wheel loaders, are the most commonly purchased equipment because most contractors utilize them across various jobs. About 43% are likely to purchase them according to a report from Equipment Watch.
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That same report mentioned that 44% of contractors are likely to rent equipment like rollers and compactors because they're less utilized and more job specific.
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Lifts are also a more rented product than owned, despite high utilization rates, with 40% preferring rented and 19% preferring to buy, with the rest undetermined.
Not all equipment rental trends are the same. Figure out what's in your market, and where the gap is, and figure out what you think you'd be the best at.
3. Choose the Right Business Structure
Now it's time to figure out what type of business you want to be. The most common business structures are sole proprietorship, partnership, corporation, and limited liability company (LLC). There are pros and cons to each one, mostly having to do with taxes, so we recommend connecting with an accountant to pick the one that works best for you.
The next step is to register your business. This will require lots of paperwork and application for different permits and insurance, and each state will be different. Here are some typical insurances that equipment rental companies should consider:
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General liability: Essentially an all-in-one insurance, it protects companies against bodily injury and property damage. It is by far the most all-inclusive insurance option.
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Business property: It provides coverage for all your equipment and supplies.
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Equipment breakdown insurance: Because you work with lots of equipment, you'll want this one for sure. It covers the cost of replacing or repairing equipment that has broken down due to an internal issue.
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Worker's compensation: Dealing with lots of heavy machinery, injuries on the job are possible. This provides compensation to employees hurt or injured on the job.
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Property: Used to protect physical spaces, whether it's an office or storefront.
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Commercial auto: Especially important if you're doing a lot of hauling and transportation yourself, it protects company-owned vehicles.
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Professional liability: Protects you from clients who say they've suffered a loss because of your work.
You'll also want to create a waiver system for your customers. Many equipment rental companies do this to protect their assets. Some common agreements include indemnification, hold-harmless, and conversion agreements.
Indemnification agreements ensure the renter takes financial responsibility if that said client was sued while the equipment was in their possession. Hold-harmless agreements are when the renter agrees that the equipment rental company is not liable if the renter is responsible for an injury made with your equipment. And conversion warnings clarify that if the customer doesn't rent the equipment as agreed, the rental company can press charges or claim theft.
4. Secure Financing and Investment
Estimating the startup costs for equipment rental companies is very challenging. A lot of it will depend on all the decisions you've made above related to the type of equipment and location. However, regardless of the equipment, you'll still need lots of property to hold the inventory and a building, two pretty expensive costs no matter where you are located.
We won't try to calculate those costs for you because it's all very geographical and decision dependent, but it will require upfront capital. Exploring financing options like bank loans or government grants is one avenue. And because a lot of the equipment is going to be financed, having great credit is going to be extremely important as well. If you have a working relationship with some of the OEMs like John Deere and Caterpillar already, that may get you some better deals as buying in bulk can save you some money.
Regarding cash flow, there are a couple of trends to be aware of when it comes to equipment rental companies. For one, in renting, equipment rental companies carry the risk, not the contractors. While this is a pro for your customers, in times of economic downturn, it can be a huge burden for rental companies as contractors will depend more on their own equipment and rent less.
5. Acquire Equipment Inventory and Assess Market Prices
By now you've hopefully decided what equipment you're going to stock up on but in case you haven't let's go over some additional factors.
The Pros and Cons of Specialized Equipment
As mentioned above, one of the biggest factors in determining whether to rent a piece of equipment is how specialized the equipment is. Most contractors won't buy an expensive machine if it's going to be utilized only one week a year. Instead, they'll opt to rent it. As an equipment rental company, that makes for a unique opportunity to own that specialized equipment.
However, that also means that you're carrying a lot of the risk. Why is this equipment so specialized? Will enough people rent it a year to make up for the costs and provide a good return on investment? That's probably some extra market research for you to determine.
However, owning only specialized equipment can help you figure out your sales and marketing strategy and work only with contractors who deal with that kind of equipment.
Utilization Rates
It is incredibly important for rental companies to track the utilization of their equipment. High utilization typically means more profit because it's spending more time with a customer and off your yard. At the same time, high utilization may mean low inventory and having to send customers somewhere else.
Does this mean you should be buying more equipment to rent out? It depends. Is it a seasonality push for a certain type of equipment or is it that more people are renting in general? That's why you do that market research!
It's important to not react to the market too quickly. If the utilization rate is high over a large time span, it may be time to increase your fleet size and vice versa.
Assess Market Prices
Not many companies publically share their rates and getting a good idea of rental prices can be challenging. Fortunately, at DOZR, transparency is what we're all about. You can search our equipment marketplace by your city and region and see the prices of competitors in your area. Use these numbers to estimate your prices and get a firm understanding of the market.
6. Partner with Platforms like DOZR to List Your Inventory
Now that you've got your inventory planned out, it's time to actually find new customers. Fortunately, that's what we at DOZR are all about; helping contractors find the equipment they need and helping equipment rental companies find new customers.
With the DOZR Marketplace, we set up company profiles on our site with their inventory, rental rates, and ERP integration, while still having full control over your order. When contractors are searching for equipment in your area, they will see your branded offerings and have the opportunity to find you and expand your business.
Not only does this expose your equipment to a wider audience, but it also gives you more visibility and reach. You can also see the competitors in your area and adjust prices as needed. People will also be able to book fully online, opening up your sales team's time to other opportunities.
7. Develop a Marketing and Sales Strategy
Marketing in the construction industry is a bit different than in others but it's important to have an online presence. This includes creating a Google My Business and Facebook page. Here's a full breakdown of why and how equipment rental companies should be marketing.
Other strategies include building relationships with local contractors and associations. Joining chapters of associations like the Association of General Contracts (AGC) and the American Subcontractor's Association (ASA) can get you brand familiarity with your potential customers. Because these membership programs are highly localized, it's also relevant if you are working in a specific state or region. Attending the events they host can really help you find the right audience.
Other methods include distributing flyers around your area, emailing all your customer's content and industry-relevant information, starting a blog, paid ads, and creating educational video content on social media and YouTube.
8. Monitor Your Business Performance and Adapt
You're now fully in business and it's time to track your business. Is your utilization rate high? It might be time to expand your fleet or your locations. Are the prices for adding new inventory increasing? Maybe it's time to increase the prices of rentals. Are contractors constantly wanting equipment that has the newest technology? It might be time to add all the upgrades to the equipment. Are there new social media platforms or marketing tactics to try? Play around and see what works!
It's always important to follow the industry trends and keep up with the statistics and consumer trends. Whether that's a new type of equipment that's highly sought after or data that some equipment is going to be rented more often, there are always going to be fluctuations in the market and it's important to stay ahead of them.
It also will depend on what the objectives and mission of the company are. Not every equipment rental company is looking to expand or become known statewide. Figure out what works best for you and adapt accordingly.
Start Your Business
Starting any business takes a lot of risk and courage. We hope these 8 steps have pointed you in the right direction and will help you start a successful equipment rental company. You don't have to do them in order but it will help in terms of setting you up for success.
Leverage platforms like DOZR to find market insights and pricing reports, and use us after you launch to increase visibility. We're here to help!
