The next thing we're going to take a look at is the life cycle of different sizes of machines and look at the income and the expenses associated with each of these. And what I'm trying to get you to understand is the income and expenses that might be common during a four or five year holding period in the rental fleet and how that relates to the original cost of the machine and what you might expect to sell a machine for at the end. So it has everything to do with trying to understand how large machines are going to operate differently than small machines and where you're going to really make your money. So starting with the heavy equipment, and let's use an example of a machine that costs $200,000, and we're going to keep this machine in our rental fleet for five years, and as we have learned in the other courses, the rental rates associated with larger equipment turn out to be a smaller percentage of the machine value. So, for instance, it could be 3.5% or 4% of the original cost is all you can get on a monthly basis. So you have to work hard in keeping that machine out probably 60%, 70%, 75% of the time to be able to get really decent annual income on it. So over a five year period, we're going to say that you're going to eclipse the value that you have in the machine. I mean, that should be a minimum target, but in this case, you're going to get about 15% more than you paid for the machine, and your maintenance and repair costs are a function of the rental revenue, and we're allowing somewhere between 8% and 10% for that. And so you've got about $21,000 tied up in maintenance and repair, and then as you can see, we're going to sell that machine for about $125,000, which would be a little more than 50% of what we paid for it. So if you looked at the ROI on this machine, I've got $221,000 basically tied up in it, and I'm going to be able to sell it our total income between rental income and sale of being about $356,000, somewhere in that range. So created a great ROI because I held it a long period of time, or I could have taken the $200,000 that I paid for the machine and take 15% off the top, and I might have made somewhere around $30,000 day one, but I only ended up with a margin probably in the neighborhood of 12%. So this is a good example of what you might expect how heavy equipment will work for you in your rental fleet. Let's take a look at a category below that. So large equipment, I've drawn a line and said anything over $150,000 qualifies for being large equipment. So in this example, by wheel loader and five year time period, I'm going to get $242,000 worth of income on this. My maintenance and repair is about $22,000, and I'm going to sell it at the end of five years and make $128,000. So if I do straight line depreciation, I have it on the books for zero. So at the end of five years, I have netted $370,000, $371,000, and I've got about $180,000 in it. So I've basically doubled my money. It's a good business. Backhoe, an example, $95,000 cost. In this case, rental rates are very competitive, and you may find them at 3% or maybe even less, depending on the market that you are in. And so you've eclipsed what you paid for the machine, maybe by 10%. I've got maintenance and repair costs. And then I'm going to sell the machine for roughly about 40% of what I paid for it, again, because it's a very competitive field. So I've got $142,000 of income against $104,000. Again, very much great margins on a commodity-type product, but I've got to wait. I've got to earn the money during the five-year period. And lastly, we'll look at a couple of smaller items, like a mini excavator that you might pay $35,000 for. I could probably earn 150% of its value in a five-year period. My maintenance and repair costs, I'm putting a little bit more than 10% on this one. And for used equipment sale, I've got it somewhere around 35% at $19,500. So I've brought in $73,500 against $41,000. And then the vibratory rollers, I've got $14,000, and I'm going to double my money in rental income. My repair and maintenance is right at 10%, and then sell it for about $6,500. So I've got $36,500 versus $17,000. As a rental fleet manager, you really need to be in tune with these numbers, because as we continue through this course, you're going to start to see that the fleet mix has a lot to do with whether you make money in rental or not, or whether you're only going to be able to show profit at the end when you sell the machine. And the issue there is within the dealership environment, the profitability for the sale of the used machine may end up over in the sales department, and the rental department may show little or no margins. So you need to understand the impact of the small equipment mixed with the large equipment, and how does that play out for me as you try to make a great return and improve gross profit margins for your dealership, as well as having great solutions for your customer, and make basically a complete option rather than we only have large equipment and we only rent it by the month.

machine life cycle

rental fleet

rental rates

maintenance and repair costs

fleet mix