Test effectively, spend wisely: rethinking the ownership-first model

Electro Rent Just won the Financial Services Review magazine's Top Instrument Financing Company of 2024 award. This award recognizes Electro Rent's outstanding reputation and trust among customers and industry peers, which was reflected in the numerous nominations we received from our subscribers. Electro Rent stood out as one of the top instrument financing companies in 2024 after an exhaustive evaluation by an expert panel of C-level executives, industry thought leaders, and our editorial board.

For decades, companies have used leasing to reduce costs and manage cash flow for everything from vehicle fleets to real estate and large equipment, but the advantages of leasing assets such as test instruments have not been fully utilized. With total spending on test and measurement equipment expected to reach $61.5 billion by 2034, it is not surprising that the adoption of the leasing model is growing rapidly at a compound annual growth rate (CAGR) of approximately 5.6%. Nevertheless, for many companies, outright purchase of these equipment is still their standard practice, so the potential market size of the leasing model is still very large.

Electro Rent offers a revolutionary approach to reduce costs, enhance project flexibility and improve utilization through a strategic blend of long-term leases, purchases of new and used instruments, short-term leases, financing solutions and asset management. This unique approach allows companies to invest more in new test technologies. By paying for the use of the instrument rather than for the life of the equipment, they avoid tying up valuable capital in underutilized assets.

The need for cutting-edge test instrumentation is critical across many industries, from aerospace and defense to semiconductor manufacturing and telecommunications. These industries rely on accurate, precise instrumentation to validate products, ensure standards compliance, and drive innovation. However, assets are often purchased based on project needs and then sit idle while continuing to incur costs through depreciation, financing, and ownership fees. Data analysis from Electro Rent’s Asset Optimization Solution shows that utilization rates of 50% or less are not uncommon for high-value test instruments. For many companies, annual test equipment expenditures run into the millions of dollars, which can have a significant impact on balance sheets and cash flow.

As the largest provider of test instrument rental, sales, financial solutions and asset management, we are uniquely positioned as a global single-source leader to provide it all. Electro Rent’s co-sourcing solutions enable companies to affordably invest in the latest test technology while avoiding the risk of equipment that may quickly depreciate or become idle. The company continually invests in its more than $1 billion inventory (at list price) to ensure its customers have access to the latest instrumentation while aligning spending with operational needs. This provides significant financial benefits by shifting expenses away from upfront capital expenditures, ensuring companies only pay for the instruments they use.

As a leading provider of test equipment rental, sales, financial solutions and asset management, we are uniquely positioned globally as the only single-source provider of all these instruments and services.

"In today's economic environment, companies need a variety of test instrument procurement options," said Mike Clark, CEO of Electro Rent. "To reduce overall project costs while increasing flexibility and minimizing risk and long-term commitment, leasing is ideal. It also protects against the risk of technology obsolescence and allows users to pay for the use of the instrument rather than the life of the instrument. For instruments that are expected to be deployed on multiple projects and continue to be used for many years to come, buying may be the best option, but in situations where funds are tight, discounted certified pre-owned instruments may be the best choice. Test instrument users can also increase operational efficiency across their entire test fleet with asset optimization solutions. We are uniquely positioned as a global, single-source supplier to offer all of these procurement options and solutions."

In the face of widespread economic uncertainty, Electro Rent's solutions provide the flexibility to adapt to changing market conditions, allowing the company to quickly adapt to evolving project parameters. Choosing leasing over ownership minimizes exposure to interest rate fluctuations and inflationary pressures, increasing financial resilience.

Many Electro Rent clients benefit from their Lease vs. Buy analysis, which compares the net present value (NPV) costs of leasing and buying. This approach takes into account taxes, depreciation and asset usage, the organization's weighted average cost of capital (WACC) and ownership costs to help them evaluate when to lease.

The following example illustrates this approach. An aerospace and defense company requires several high-end instruments with a total purchase cost of $1 million for a two-year project. Assuming that this is typical for a large organization, the net present value cost of leasing over the two-year period is $419,496, while the net present value cost of purchasing is $966,622.

With savings of $547,127 over leasing, leasing makes more financial sense for many organizations. The decision to lease or buy ultimately depends on each organization’s individual circumstances, and Electro Rent is uniquely positioned to provide advice.

Electro Rent is reshaping the way the industry purchases instruments, providing a one-stop solution that promotes efficient practices in high-tech test procurement. With the industry facing increasing pressure to reduce costs and improve efficiency, Electro Rent has become a trusted partner with innovative financing solutions that always put financial soundness and operational excellence first.