The decision hinges on the utilization rate
The answer to whether you should buy or rent construction equipment depends on how many hours the machine will work in a year: if the annual working hours are above the break-even point, buying is usually cheaper; if they are below it, renting usually is. The break-even point is found by dividing the annual fixed cost of ownership by the difference between the per-hour extra cost of renting and the per-hour cost of owning. In the example below, this threshold comes out at 1,500 hours a year for a 22-tonne crawler excavator; your rental quotes and your resale expectations will give a different threshold.
Here the utilization rate combines two numbers: the hours the machine actually works and the hours it was expected to work. For a company planning 250 working days a year at 8 hours a day, the expected hours are 2,000; a machine that works 1,500 hours has a utilization rate of 75 percent. Because fixed costs are booked whether or not the machine works, a falling rate directly raises the hourly cost of ownership. A rental invoice, on the other hand, varies with the contract term, the minimum hours and actual use; low utilization does not automatically mean a low invoice.
The ownership bill: eight items
The cost of ownership falls into two groups. Fixed costs keep running when the machine is stopped; variable costs rise with working hours. Putting the items into these two groups from the start shows which ones are divided by hours and which ones are multiplied by hours.
- Depreciation: the difference between the purchase price and the second-hand value on the planned sale date, divided by the number of years you will hold the machine. This is an economic estimate, not tax depreciation.
- Financing: the cost of the money tied up in the machine. It can be loan interest or the return that money would earn elsewhere; it is calculated on the average capital tied up.
- Insurance and annual paperwork: items such as the policy, registration and inspection.
- Maintenance and repair: periodic maintenance, filters and oil, fault repairs. It is recorded per hour; how to add up the items is explained in the maintenance cost guide.
- Wear parts: tyres on a wheeled machine, the track set and consumables such as bucket teeth on a crawler machine.
- Operator and fuel: if you cover them whether you rent or buy, they are the same on both sides and are taken out of the comparison. With wet hire they are included in the rent; in that case they must also be added to the ownership side.
- Parking and transport: taking the machine to the site, bringing it back, and the cost of where it sits.
- Idle time: not a separate expense line, but a reduction in the hours the fixed cost is divided by. In weeks when the machine does not work, insurance and financing keep running.
Worked example: a 22-tonne crawler excavator
All amounts below are examples, not market prices; replace them with your own quotes and records. The machine is bought for 6,000,000 TL and is assumed to be sold after 5 years for 2,400,000 TL. The rental quote is for dry hire: an hourly rate of 1,250 TL with a monthly minimum of 100 hours; periodic maintenance and normal fault repairs are with the lessor, wear parts with the lessee. The operator and fuel are not in the table because you pay for them on both sides.
Two formulas come out of the totals in the table. The annual cost of ownership is 1,530,000 + 320 × H, and the annual cost of renting is 30,000 + 1,320 × H; H is the annual working hours.
Inputs for owning and renting (example, TL)
| Item | Owning | Renting |
|---|---|---|
| Depreciation | (6,000,000 − 2,400,000) / 5 years = 720,000 TL/year | None |
| Financing | Average capital tied up (6,000,000 + 2,400,000) / 2 = 4,200,000 TL; at 15 percent, 630,000 TL/year | None |
| Insurance and annual paperwork | 90,000 TL/year | Assumed to be included in the rent |
| Parking and administration | 60,000 TL/year | None |
| Transport | Two site changes a year: 2 × 15,000 = 30,000 TL/year | One trip out, one trip back: 2 × 15,000 = 30,000 TL/year |
| Annual fixed total | 1,530,000 TL | 30,000 TL |
| Maintenance and repair | 250 TL/h | With the lessor: 0 TL/h |
| Wear parts | 70 TL/h | 70 TL/h |
| Rent | None | 1,250 TL/h |
| Hourly variable total | 320 TL/h | 1,320 TL/h |
Finding the break-even hours
When you set the two formulas equal, the break-even hours come out: (1,530,000 − 30,000) / (1,320 − 320) = 1,500,000 / 1,000 = 1,500 hours. At 8 hours a day, that is about 188 working days; against the expected 2,000 hours of work above, it corresponds to a utilization rate of 75 percent. If your machine will stay below this rate, renting is cheaper in the example; if it will stay above it, buying is cheaper.
In the table below, the rental period is adjusted to the hours: 600 hours corresponds to working 100 hours a month for 6 months, and 1,000 hours to 100 hours a month for 10 months, exactly meeting the minimum. The row that stands out most is the first: the cost of owning the same machine is 2,870 TL per hour at 600 hours and 1,085 TL at 2,000 hours. The difference is not in the machine but in the hours the fixed cost is divided by; this is exactly what we call idle time.
Total and per-hour cost of the two options by annual working hours (example, TL)
| Annual working hours | Approximate days (8 hours) | Owning, total | Owning, per hour | Renting, total | Renting, per hour | Cheaper |
|---|---|---|---|---|---|---|
| 600 | 75 | 1,722,000 | 2,870 | 822,000 | 1,370 | Renting |
| 1,000 | 125 | 1,850,000 | 1,850 | 1,350,000 | 1,350 | Renting |
| 1,500 | 188 | 2,010,000 | 1,340 | 2,010,000 | 1,340 | Equal |
| 2,000 | 250 | 2,170,000 | 1,085 | 2,670,000 | 1,335 | Buying |
What lies outside the price tag in a rental quote
Comparing two quotes by the hourly rate alone is misleading; the same 1,250 TL can produce different totals under two contracts. Open a column in your quote table for each rule and write down the answers to these questions:
- Minimum hours or days: if a machine rented with a minimum of 100 hours a month works only 60 hours in a month, you pay for 100 hours and the effective hourly rate rises to 125,000 / 60 ≈ 2,083 TL.
- Who pays for transport out and back, and who bears the new transport if the machine moves from one site to another.
- Breakdown deduction: whether the rent is reduced while the machine is broken down, and whether it is counted by the hour or by the day. At a daily rate of 10,000 TL, if 3 breakdown days are not deducted, you overpay by 30,000 TL. The steps of the calculation are in the rental billing guide.
- Maintenance and wear responsibility: who does the periodic maintenance, and whether the limit for wear parts is written as a measurement. The usual split and the questions to ask are explained in the maintenance responsibility guide.
- The obligation to provide a replacement machine, and the inspection method on the return day.
Which input moves the threshold the most
The break-even hours are not a fixed number; they shift when one of the inputs changes. In the table below, one input was changed in each row and the others were left as in the example. A 10 percent swing in the hourly rent moves the threshold by roughly 170 to 215 hours; this is why collecting written quotes from at least three lessors is the cheapest improvement to the calculation. On the ownership side, the truly uncertain inputs are the resale value and maintenance and repair, and both can be narrowed with the machine's own records.
New break-even hours when a single input changes (example)
| Input | Change | Break-even (hours/year) |
|---|---|---|
| Base example | No change | 1,500 |
| Hourly rent | 1,250 → 1,125 TL (10 percent lower) | 1,714 |
| Hourly rent | 1,250 → 1,375 TL (10 percent higher) | 1,333 |
| Resale value | 2,400,000 → 1,800,000 TL (if financing stays the same) | 1,620 |
| Maintenance and repair when owned | 250 → 350 TL/h | 1,667 |
The same calculation read in four typical situations
The tendencies in the table depend on the numbers in the example, but their direction is similar on most sites. Still, calculate your own threshold; the name of the situation does not replace it.
Tendency and points to watch by situation
| Situation | Usually | Reasoning and what to check |
|---|---|---|
| A short project of a few months | Renting | There are few hours to divide the fixed cost by. The minimum hours and the transport out and back must be written in the quote. |
| A specialist machine that works little during the year | Renting | A machine that sits idle for most months keeps accruing insurance and financing; estimate the utilization rate first. |
| A core fleet used on every project | Buying | If the annual hours are above the threshold, the fixed cost is spread over a wide range of hours; the maintenance routine and the resale value should be monitored. |
| Seasonal peak work | Mixed | Your own fleet covers the base load and the peak period is rented; keep the number of rented months short. |
The three records behind the decision must come from your own data
The inputs to the calculation come from three places, and all three must be your machine's own records, not market averages: the days and hours it worked (timesheet), the utilization rate and the per-machine cost. As a recommendation, go into the decision with at least 12 months of per-machine records; a shorter period is distorted by a single major breakdown or a single busy season.
In Reper Axis, the denominator of the utilization rate is found by subtracting the standby and closed days in the approved timesheet from the days of the period; if standby days are recorded, the rate comes out realistic. With the cost module, maintenance, fault repair, external service, tyre, fuel, rental and transport items are posted to the machine and the project, and the monthly and cumulative cost appears on the machine card; the details are on the cost management page. When a per-hour or per-day unit price is defined for a company-owned machine, it is posted to the project cost at that price. For a rented machine, the period billing is calculated from the approved timesheet and compared with the lessor's invoice.
To try the per-hour values in the example with your own inputs, the hourly cost calculator takes depreciation, fuel, maintenance, tyres, insurance and the operator together and shows the effect of downtime. If the machine you have is ageing and its maintenance curve is rising, the question turns into a replacement question; that calculation is in the repair or replace guide. For the depreciation period and method, VAT and other tax effects, work with your accountant or tax advisor; the depreciation here is an economic estimate, not a tax one.
