When does hire pay off with fluctuating utilisation?

In such cases, fixed costs, tied-up capital and idle time have a different effect than they do with a machine permanently integrated into a production line. The economic decision should therefore not be made as a blanket choice between “hire or buy”, but on the basis of the actual usage profile.

The existing Beamlux page on the project-based provision of systems covers the service offering itself. This magazine article deals solely with the underlying utilisation calculation.

Why project business is calculated differently

A business with steady series production can plan its machine utilisation relatively well.

Project business looks different.

A restoration workshop, plant engineering company or service provider may, for example, experience the following situation:

January: no demand.

February: five days.

March: no demand.

April: four weeks at full utilisation.

May to July: hardly any jobs.

An annual average would obscure this reality.

It is therefore not enough to calculate with “100 hours a year”.

What matters is when these hours are needed.

If almost the entire demand arises within a single project, time-limited use can have a different economic effect than the same total number of hours spread across twelve months.

A utilisation curve instead of an annual average

A simple monthly overview is recommended for the decision.

The following are listed:

• expected days of use
• expected hours
• specific projects
• Probability of the order
• power class required

This produces a utilisation curve.

It shows whether demand is:

• steady,
• seasonal,
• project-based or
• highly unpredictable

in nature.

This presentation is particularly valuable for new business areas.

A company may well see great market potential but may not yet have any firm orders.

In that case it can make sense to use the technology on a project basis at first and to gather real demand.

Fixed costs of an in-house system

With a machine of your own, fixed costs arise regardless of how much it is used.

These include, for example:

• Depreciation or financing
• Tied-up capital
• certain service items
• Storage or floor space
• regular inspection and maintenance tasks

These costs are spread across the productive jobs.

The fewer hours the machine actually works, the higher the fixed cost share per productive hour becomes.

That is the central economic disadvantage of a system that is permanently on hand but rarely needed.

On the other hand, a machine of your own has one advantage:

It is available in principle.

Short-notice orders can also be accepted, provided staff and a workstation are available.

Availability itself thus becomes an economic value.

What is paid for with time-limited use

With hire, or time-limited use, fixed costs are converted into a project price.

The business pays for the period in which the system is needed.

That can be particularly attractive when:

• Projects occur rarely,
• The scope fluctuates strongly,
• The technology is being tested at first,
• there is not yet any stable utilisation.

The hire price per day or week is, however, naturally higher than the pure depreciation of a permanently well-utilised in-house system apportioned to the same period.

Frequent hire over the long term can therefore become more expensive than ownership.

The core economic question is:

From what level of annual use do the total costs of an in-house system come out cheaper?

This point can be determined by calculation.

Taking tied-up capital into account

An investment ties up capital.

Even if a company pays for the machine from its own funds without financing, that money is then not available for other purposes.

These might be:

• Staff
• Marketing
• Vehicles
• further machines
• Stock
• A liquidity reserve

These opportunity costs are often ignored in simple comparisons.

For larger investments, a professional company appraisal can take imputed interest, or the cost of capital, into account.

With hire, a larger share of the capital initially remains available.

In return, recurring hire payments arise.

The economic question is therefore not only:

What does the machine cost?

But rather:

Which use of the available capital creates greater benefit for the company?

Idle time has costs too

An unused machine may consume hardly any electricity.

Even so, idle time is not free of charge.

Fixed costs continue to run.

In addition, the equipment may take up floor space.

Maintenance and administrative effort does not disappear entirely either.

Idle time becomes particularly problematic when the investment decision was taken on the basis of high planned utilisation that is not achieved later on.

When buying, therefore, the calculation should not be based on the maximum technically possible use.

What matters is the realistically expected productive hours.

Recurring projects change the calculation

A one-off project can turn into recurring demand.

For example, a business first receives a single order involving 30 hours of processing.

In the following quarter, two further orders are added.

Later, this develops into a permanent service offering.

That changes the economic situation.

What was sensibly hired in the first year can justify an investment of your own in the second.

The decision should therefore be reassessed regularly.

Hiring and buying are not decisions for completely different types of company.

They can represent different phases of the same business development.

Availability and scheduling risk

An economic calculation must not look only at euros per hour.

Availability can be decisive.

If a customer asks on Monday about an urgent job for Wednesday, a company with its own equipment has a potential advantage.

With hired systems, availability for the requested date has to be checked first.

Conversely, the owner bears the risk that the machine remains unused.

Both of these risks have an economic value.

Businesses with very short-notice customer requirements may therefore prefer a system of their own even at somewhat lower calculated utilisation.

Project-based businesses with long-term planning, by contrast, can align dates with hire periods more easily.

Familiarisation and process knowledge

A further question concerns the process.

If different machines are hired all the time, familiarisation can create additional effort.

Anyone who regularly uses the same system, or the same category of machine, can build up parameters and experience.

That is particularly relevant with demanding materials.

The technical principles of pulsed lasers and CW lasers are explored in more depth in the article Pulsed laser or CW: which energy input suits the component?.

For cost-effectiveness, process knowledge means:

The more standardised your own applications become, the more valuable a permanently familiar system configuration can be.

The hire period as a technical test

Time-limited use can achieve more than simply completing a project.

It supplies real operating data.

The following can be measured:

• actual processing hours
• Set-up time
• Energy demand
• Filter consumption
• Customer demand
• achievable prices
• Rework

After a few projects, this produces a considerably better basis for investment.

Instead of buying on the basis of theoretical business planning, a business can calculate with real usage data.

That reduces the risk of oversizing.

When a permanent solution becomes more attractive

An exact threshold depends on the hire price, the investment and the running costs.

The logic, however, is simple.

Cost of hire

hire price per period × time required

plus additional costs.

Cost of ownership

annual fixed cost share

plus variable operating costs.

The higher productive use rises, the more widely the fixed costs of an in-house system are spread.

At some point these average costs come out cheaper.

This point is often regarded as break-even utilisation.

Three typical usage patterns

Pattern A: single project

A company needs a system for three weeks and has no foreseeable follow-up order after that.

Time-limited use is often the more logical starting point here.

Pattern B: regular project peaks

Larger orders come up four to six times a year.

A break-even comparison should be carried out here.

Pattern C: daily demand

The system works on almost every working day.

Where planning certainty is sufficient, ownership gains considerably in economic importance.

These examples are not blanket buying recommendations.

They merely show how strongly the usage pattern influences the calculation.

Deciding with break-even hours

One practical method is to vary the annual use in hours.

For example:

• 100 hours
• 250 hours
• 500 hours
• 750 hours
• 1,000 hours

For each step, the total costs of hire and of an in-house system are calculated.

This produces a curve.

At a certain point the two cost lines intersect.

This value provides a considerably better basis for a decision than the blanket question of whether hire is expensive in principle.

Conclusion: fluctuating utilisation needs a flexible calculation

When does hire pay off with fluctuating utilisation?

Above all where high short-term demand meets longer idle periods and future use is not yet sufficiently certain.

An economic decision takes into account:

1. actual days of use
2. seasonal fluctuations
3. Fixed costs
4. Tied-up capital
5. Availability risk
6. recurring projects
7. Process know-how
8. Break-even utilisation

As regular utilisation rises, the calculation shifts in favour of a permanent in-house solution.

Where demand is uncertain or project-based, by contrast, a hire period can supply real operating data and reduce the investment risk. Anyone wanting to assess hire for project peaks cost-effectively thus gains robust figures instead of an estimate.

Sources

• Fraunhofer ILT – productivity in laser technology — Productive processes are placed in context via the overall sequence, non-productive times and stable use.
• Fraunhofer Business Unit Cleaning – industrial laser applications — Practical examples of mobile and automated use.

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