When purchasing equipment, it’s tempting to buy based on price, especially when the discount between emerging manufacturers and established ones can be as high as 20%. The pressure to cut costs, shorten payback periods, and the human tendency to seek the best deal can be irresistible. However, this approach can sometimes hurt your return on investment (ROI) in the long run.
The Importance of Established Manufacturers
Distribution Networks
Well-known manufacturers have established distribution networks that supply parts and technical support to get troubled equipment up and running faster than new, up-and-coming makes. These networks take years to establish and mature, providing a significant advantage in terms of equipment availability and uptime.
Established vs. Emerging Manufacturers
Let’s assume there is no difference in the availability rate (the percentage of time the machine is ready to work) between equipment from an established manufacturer and one from an emerging manufacturer. The key difference lies in the service life: 8 years for th established manufacturer (Make A) and 5 years for the emerging manufacturer (Make B). Longer service life from established manufacturers is common and impacts overall ROI.
Key Factors Affecting ROI
Acquisition Cost
Emerging manufacturers often offer lower acquisition costs, which can be appealing. However, this initial saving can be offset by other factors.
Total Rental Revenue
Equipment from established manufacturers typically generates higher rental revenue over its longer service life.
Total Maintenance and Repair (M&R) Cost
Emerging manufacturers may have higher M&R costs due to less established support networks and potentially lower-quality components.
Residual Value
Equipment from established manufacturers usually has a higher residual value, meaning you can sell it for more at the end of its service life.
ROI Comparison
Table of Key Factors
As seen in the table, the ROI for equipment from the established manufacturer is significantly higher (108%) than that from the emerging manufacturer (86%), even after accounting for the 20% initial acquisition cost advantage of Make B. Additionally, the higher residual value of Make A equipment further enhances its ROI.
Evaluating Purchases
While there are occasionally good reasons to purchase cheaper equipment from emerging manufacturers, it’s prudent to evaluate the purchase using both short-term and long-term perspectives. The short-term view considers the immediate payback period, while the long-term view takes into account your business’s sustainability and overall ROI.
Purchasing equipment based on price alone can sometimes hurt your ROI. Consider the long-term implications of your investment, including service life, maintenance costs, and residual value. Established manufacturers often provide better long-term value despite higher initial costs.
For more tips and insights on optimizing your equipment investments, connect with us on Facebook and LinkedIn.
