How to Calculate ROI When Purchasing Construction Equipment

With your construction business growing, it’s clear the opportunities coming your way mean you must be well-equipped to handle more clients. Whether you specialize in small-scale renovations or larger projects, the need to have the right tools will grow more prominent as you scale your operations over time.

At this point, you’ve most likely made a few small purchases to boost your arsenal of equipment and systems to finish all of your projects. And now that your construction business is taking on more clients, you are held to a higher standard – the perfect time to take things further with new solutions! Purchasing better equipment can vastly improve your efficiency and allow you to deliver a higher standard of service, so it’s an opportunity you can’t pass up.

But there’s just one problem: these tools can cost quite a bit of money. Purchasing industrial equipment is an important decision because of your budget. For your future success, you must ensure that you’ll be able to recover your costs and make a profit.

This is where evaluating your construction equipment purchase decision by calculating your return on investment (ROI) comes in.

Calculating ROI When Purchasing Construction Equipment

As with any other purchase that involves large, up-front capital investment, acquiring construction equipment involves different financial factors to consider. Before we go any further, let’s define a few key terms:

• Return on Investment (ROI): This pertains to the time it takes to recover the cost of a purchased asset through its use and subsequent contributions to income-related developments or changes.
• Residual Value: If you’re thinking long-term, you’ll be considering how much you can recover from selling your construction equipment when it’s time to upgrade – this is where residual value comes into play. The residual value indicates the cash you will receive when you sell your equipment in the future.
• Pay Back Period (PBP): This value pinpoints when the equipment pays for itself. Often, this point of reference is considered alongside the usefulness of what you’re purchasing.

Basic Mathematics

To understand whether a piece of equipment is worth investing in, you’ll need to look at the bigger picture. Don’t just limit your figures to ROI – consider your PBP as well.

Fortunately, figuring out what to acquire from Groff Tractor for your construction operations is pretty easy since the math is quite simple:

• Return On Investment

Return on Investment (measured in percentage) = Net income generated from asset / Cost of investment

When you calculate ROI, you’re simply finding out how much your business stands to gain from each dollar invested, or the profits the business will earn from an acquired item. Aim for higher percentages with this particular value since they indicate more profit to gain.

• Pay Back Period

Pay Back Period (measured in years) = Cost of investment / Annual cash flow

In connection with the ROI from a piece of equipment, the value associated with your payback period offers insight into how long it will take until you recover your investment. Compared to Return on Investment values, you’ll want to shoot for a lower figure with your PBP.

A Return on Your Heavy Equipment Investment

If you’re planning to take your construction business up a notch, you must analyze the capital you’re investing in new equipment. With the help of this guide, you can make a much better judgment for your purchase and ensure that you’re getting your money’s worth.
Groff Tractor is a top supplier of construction machinery and compact utility equipment in Pennsylvania. If you intend to invest in new or used pieces of equipment, check out our online listings and get in touch with us today to see how we can help!