Whether you’re just getting started or you’ve been in business for years, you’ve probably asked yourself how much of the video production gear you use regularly you should own, or if you should keep renting.
Do the Math on Buying or Renting Your Video Production Equipment
A good gear acquisition should pay for itself in 3 years. Take the daily rental cost of a price of gear that you’re looking to buy, estimate how many times you will use that gear a year and multiply by 3.
Now take the purchase price of that piece of gear, add your annual gear insurance cost x 3 (assume 1.5% of the purchase price if you don’t already know your insurance rate) then add a finance cost if you’ll need to borrow in order to purchase. That’s your three year cost of ownership.
If your ownership cost is less than your rental cost it’s a good deal to purchase this gear. Here’s a table you can download and use to run this analysis:
Let’s say you purchase the gear, take good care of it and it lasts more than 3 years. Those cost savings continue after the 3 year mark, as well, so this analysis doesn’t give the full savings potential except that it shows your gear, if purchased, should at the very least pay for itself in those three years. And in most cases should more than pay for itself!
But that’s not all – at the end of those 3 years you also have an asset that’s worth something. Instead of having only receipts for the rental costs you have something you could sell. Hopefully you’ve paid it off in those three years (if you borrowed for it) and now if you need to get some cash or you want to upgrade you can sell this gear and any money you get back is just gravy on top. When running HandCrank we budgeted a percentage of profit every year to buying gear (I’ll cover that strategy more in depth in another blog post). We assumed that all the gear would be depleted so we didn’t budget to get any of that money back. So it was a really nice surprise when we sold the company (yes, you can sell your production company) we were able to appraise the remaining gear, some of which we’d had for 5+ years, and get another $80k on top of the purchase price of the brand itself.
Should I Buy All the Video Production Gear the Analysis Says To?
Obviously you’ll be bound by a total budget that you can plop down for gear.
Step one: figure out your total budget that you have for gear and whether that’s all cash or includes some financing.
If you run this analysis for each piece of gear and find that some save you more over 3 years than others prioritize buying those first. Also prioritize things that you think will hold their value after 3 years better than others. Buy as much of the gear you can with your total budget, starting with the higher priority items first.
Every year going forward you should determine a gear budget based on a certain percentage of your net income (after paying yourself). Let’s say that’s 25% of your net income and you plan to net $30k next year. That’s $7.5k in gear you can buy every year. Not only that: you’ll have a better net income margin because you’ll still be charging the client for each project’s gear but you won’t be shelling that out to the gear rental house anymore.
A cautionary note: Don’t put yourself in debtor’s prison by financing all of your gear, or buying more than you really can afford. Start slow on gear purchases. As you start realizing the savings and get a feel for which items save you the most and retain the most value you can start buying more. In a few years, if you are setting aside some of your net profit to put towards gear, you’ll have a stockpile that will make your friends jealous.
Maybe you already have some money set aside that you want to put towards building out your set. If you’re trying to figure out how much you can spend here are some back of the napkin calc’s you can do to get a ballpark figure.
If you want to pay it all in cash: Take your your cash that you have set aside today, subtract your payroll for the next 3 months (including paying yourself and others on your team) and what’s left… Then for future years, determine what your budgeted profit is for the year (after paying yourself) and plan to spend 25% of that every year on buying new gear.
If you want to finance some:
Where to Find Financing for Your Video Production Gear Purchases
If you have positive cash flow and regularly rent gear for projects then you can use financing to purchase that gear, save the rental fees and you’ll only be out the interest and insurance – which should be a lot less than the rental fees.
Certain sellers will offer financing for the gear that they sell to you. This can be a great solution since you don’t need to get an appraisal for that gear and can avoid some of the other hoops. But be weary of high interest rates or fees.
When those terms aren’t preferable look you can look at traditional bank financing. Some banks will let you borrow against the gear itself – and might require an appraisal – or will let you borrow against your accounts receivable (all the more reason to send an invoice for every project).
If all else fails a Google search of “finance camera equipment” will return all kinds of equipment financing options.
When to Keep Renting Your Video Production Gear
Now, some gear will not make sense to rent. Those anamorphic lenses that you pitch to the client 3 times a year – rent those. That $50k Arri camera, no matter how sexy, will probably not make sense. There is still going to be special project requests and one-off gear needs that will keep you renting a certain amount of gear. You’ll also want to occasionally rent gear that you are interested in buying just to try it out.
Other Things to Consider
- You’ll probably find that a mix of owned and rented gear is best. Purchase the things you use all the time, rent those infrequent gear needs.
- REALLY IMPORTANT: Ideally you should charge the client the same for each piece of gear regardless of whether it’s your own gear or rented gear. If you typically charge the client the gear rental fee plus a 15% markup (for coordinating, picking up, insuring, etc.) then you should charge the client the same total amount for gear whenever you can. You shouldn’t be giving the client a discount just because you didn’t have to rent it; and you’re only robbing yourself if you spend all this money to save rental fees only to get less from the client in exchange. There will always be times, of course, that you need to lower your rental fees for that one project that just has to happen at a certain total budget.
- Are you currently charging your client for gear? If not you need to be budgeting –
- Gear that you own is gear that you can rent out to others. Cha ching.
- Time saved by not having to call/order/pickup rentals before every shoot.
- More flexibility on when you can shoot – you’ll be less dependent on when gear is available to rent.
- Is your gear in your name or your company’s?
- Do you have coverage for your own gear?
- Are you currently covered when you rent gear from others?