06
Aug5 Steps to Calculating ROI On Construction Equipment
Purchasing Construction Equipment: Calculating the Return on Investment
Buying used construction equipment, especially highticket items, can be an unsettling process. There are few resources like we have in cars and homes to know what is considered a good price before we buy.
Having the assurance that an equipment purchase will generate net positive cash flows within a year or two makes a five or six figure price an easier pill to swallow.
In the below example, I break down how to calculate the ROI of a 2011 150 foot boom lift listed at $103,000.
This methodology is not an exact science but gives you a good estimate of the ROI of a machine prior to purchasing. You can also factor in additional costs for parts and servicing if youâ€™d like an even more conservative estimate. This kind of analysis is highly recommended in order to help with your negotiation as well as ease your hesitation when adding a new or used piece of equipment to your rental fleet.
1. Determine the Depreciation Cycle
The first step is to determine your depreciation cycle. As soon as you acquire a piece of equipment, whether used or new, it begins to depreciate. Depreciation is the reduction in value of the asset with the passage of time.
In this example, we know that the average useful rental life of a 150 foot boom lift, if properly maintained, is around 12 years.
Given that this is a 2011 model, we know that we have about 5 years left of rental value left therefore making the depreciation cycle 5 years or 60 months.
This means that we will get a depreciation value of $1,716 per month by dividing the sale price ($103,000) by the remaining useful life (60 months).
2. Identify the Retail Rental Rate
Based on experience, we know that we can rent this machine for about $13,500 per month. For a more data informed approach to setting rental rates, data companies such as EquipmentWatch can be extremely useful resources.
This leaves us with a profit of $11,784 (rental rate â€“ monthly depreciation) if we receive 100% utilization.
However, we all know 100% utilization is impossible which we adjust for in step 4.
3. Calculate Blended Retail Rate
Something that is often overlooked is that the 150ft boom lift in our example can also be rented as a 135ft boom lift. This is true for most equipment and is important to keep in mind while calculating the ROI of equipment. In order to achieve high utilization rates, you wonâ€™t always be renting the equipment for itâ€™s maximum working height or capacity.
In this case, we know we can rent 135ft boom lifts for about $8,500 per month at retail. This would give us a profit of $6,784 per month by again subtracting the monthly depreciation from the monthly retail value.
Once all rates are calculated, we need to blend the rates to get an average monthly retail value and average monthly profit. In this example, our blended average of our 150ft boom lift retail rate and our 135ft boom lift rental rate is $11,000 per month.
4. Estimate Utilization Rate
Knowing that 100% utilization is impossible, create different utilization tiers to understand profitability per tier.
In our example, we use a 60% utilization rate which equates to $66,844 in annual profit. Multiply that profit over the 5 years of useful rental life and you have $334,224 total profit over 5 years.
5. Factor in Resale Value
Lastly, you need to factor in what the resale value is after the 5 years. In order to do so, you need to perform a Resale Economic Valuation. To do so, start with your sale price of $103,654 and subtract 1% from that price every month (or multiply by .99).
Continue to multiply each month by 99% until you hit the 5 year mark. In this example, our estimated resale value is $56,926. Add the resale value into your 5 year rental profit to get the total 5 year profit.
Resale Valuation 

January 2019 
$103,000 

February 2019 
$101,970 
Reduces the valuation by 1% per month 
March 2019 
$100,950 

April 2019 
$99,941 

May 2019 
$98,941 
Duplicate the calculation over the useful lift 
December 2023 
$56,926 
ROI Calculation Example
ROI CALCULATION 

Acquisition Cost 
$103,000 
Depreciation Schedule (Months) 
60 
Depreciation per Month 
$1,717 
RENTED AS A 150' 

Retail Rental Rate per Mo 
$13,500 
Profit per mo as a 150' 
$11,783 
Annual Potential Profit 
$141,400 
At 80% Utilization 
$113,120 
At 70% Utilization 
$98,980 
At 60% Utilization 
$84,840 
At 50% Utilization 
$70,700 
RENTED AS A 135' 

Retail Rental Rate per Mo 
$8,500 
Profit per mo as a 135' 
$6,783 
Annual Potential Profit 
$81,400 
At 80% Utilization 
$65,120 
At 70% Utilization 
$56,980 
At 60% Utilization 
$48,840 
At 50% Utilization 
$40,700 
BLENDED AVG 

Retail Rental Rate per Mo 
$11,000 
Profit per mo as a 135' 
$9,283 
Annual Potential Profit 
$111,400 
At 80% Utilization 
$89,120 
At 70% Utilization 
$77,980 
At 60% Utilization 
$66,840 
At 50% Utilization 
$55,700 
Blended Avg Profit Over 5 Yrs at 60% Utilization 
$334,200 
Resale Value in 5 Yrs 
$56,926 
Gross Profit in 5 Yrs 
$391,126 
Net Profit in 5 Yrs 
$288,126 
Payoff Period in Yrs 
1.54 
Given a 60% utilization, your net profit from the machine rented at both a 135â€™ and 150â€™ boom is $288,126 and you can expect to pay off the price of the machine in 1.5 years.