Industry sector:

Tool hire: Pricing policy


Getting the price right is very important. When you plan your pricing policy, remember that you must be able to cover your costs, overheads and drawings.

Hire charges

Tools are usually hired on a daily, weekly or weekend basis. It's generally cheaper per day to hire a tool for a week than for a single day. For longer-term hire, you might negotiate a significantly reduced rate with the customer. The amount charged generally increases with the size, complexity and initial cost of the equipment - for example, a large floor sander will cost more to hire than a wallpaper stripper. The exact amount you decide to charge will depend to a great extent on the going rate locally, so check to see what your competitors charge. Your customers will not be prepared to pay much over the odds for items that they can easily hire elsewhere. Think about whether you'll charge extra for delivering and collecting large items like cement mixers, and if so how much.

Bear in mind that the hire rate charged for each item must, over time, cover its initial cost, repairs, maintenance and transport if it is delivered and collected. Some items will be regularly hired and so constantly earning money. Other equipment may spend more time in storage than in use - you will have to charge a higher rate for such items if they are going to be worthwhile keeping in stock.

Other things to think about include cleaning charges if applicable and wear charges for machines that come with consumable blades and bits. You'll need to work out prices for other consumables like fluids and abrasives too.

Deposits

When a customer collects a tool, the hire charge is usually paid and a refundable deposit taken. This is returned to the customer at the end of the hire period provided that the tool is brought back undamaged. Credit/debit card details and some proof of customer identity are usually taken as a safeguard against theft. You might decide to offer customers insurance cover against theft or damage of larger, more expensive items. Some hire firms insist on this.

Other services

Consider how you will cost any other services you provide (for example repairs and servicing of customers own tools), how often you will review your prices and whether you will offer discounts such as reduced rates to regular customers, special offers and so on.

Special offers and discounts

You might decide to offer a standard discount as a matter of course to any trade customers. How much discount will depend on your pricing policy and the level of local competition.

Hire businesses which mainly target trade customers often offer special weekend hire deals. These are aimed at DIY customers - while trade customers like builders generally prefer not to work at weekends, this is the time when most DIY gets done. Weekend hire deals might run from Friday afternoon/evening until Monday morning and may be charged for at the same rate as a normal week-day's hire.

Many businesses also give discounts to employees, regular customers, family and friends. A reduced rate could be offered to groups such as pensioners. Check out your local opposition for ideas and keep a close eye on any special offers you do make to be sure that they are working for you. After all, these kinds of promotions might encourage extra business, but they will also affect the amount of profit you make.

VAT

If you deal only with business customers then you may well want to show VAT-exclusive prices. Many of your business customers will be VAT registered and will be able to claim back any VAT they pay on things like hire charges. However, if you also deal with private customers at the same outlet then the law says you need to show VAT-inclusive prices. As most tool hire shops have at least some private customers, the best policy may be to display both prices clearly.