Trends in Buying and Leasing

An electrical contracting company is worthless on a job site without the proper people and the right tools. Equipping skilled employees with the appropriate tools and equipment at the right time is the difference between profits and disaster. Just ask any contractor who has neglected tool inventories only to discover a glitch when a deadline is already in jeopardy.

According to the readers who participated in ELECTRICAL CONTRACTOR magazine's "2002 Profile of the Electrical Contractor," more than 90 percent reported purchasing tools and equipment in 2001. Topping tool purchases among respondents were hand tools at 85 percent and power tools at 82 percent (See Table 1).

This research revealed that hand and power tools are established "bread and butter" purchases for electrical contractors, regardless of company size or area of specialization--commercial/industrial/ institutional (CII) or residential.

To amply grasp how reliant electrical contractors are on their hand and power tools, consider that the average company surveyed spent $1,527 ($3,839 on an industry-weighted basis) on hand tools, and another $2,593 ($6,083 on an industry-weighted basis) on power tools in 2001. This magazine's estimate is that electrical contractors spent more than $73 million on hand tools and another $121 million on power tools last year. That's an impressive $194 million just in those two categories (see Tables 2 and 3).

Purchasing percentages drop considerably after those top two categories, as 64 percent of those surveyed bought electrical testers or multimeters in 2001. Only 39 percent purchased pipe threaders, benders or cutters. Thirty-six percent reported purchasing two-way radio communications equipment and 27 percent said they bought job site safety equipment.

Rounding out the list of tools and equipment purchased by electrical contractors in 2001 were aerial lifts and scaffolding (19 percent), digging and boring equipment (12 percent) and LAN, teledata and low-voltage testers (also 12 percent). OTDRs, which are expensive and sophisticated fiber optic testing instruments, were purchased by a mere 0.6 percent of respondents.

We can conclude from the data, therefore, that the higher the cost, the less likely an electrical contractor is to purchase a tool or piece of equipment. Low purchase percentages in the categories with higher unit price tags may also be caused, in part, by the existence of multiyear purchase cycles, or they may point to an emerging trend in leasing versus buying.

Leasing as an option

According to the survey, 36 percent of participants indicated they leased some type of tool or equipment in 2001. Leading the pack, not surprisingly, were aerial lifts and scaffolding at 26 percent, and digging and boring equipment at 18 percent (See Table 4). These two categories are rented most frequently because of several factors: They are more expensive to buy, they are not needed on all projects, and finally, a contractor would need a designated place to store and maintain these types of heavier equipment.

Company size also matters. Larger electrical contracting companies are more likely to lease or rent equipment than their smaller counterparts. According to the study, only 2 percent of the contractors with fewer than 10 employees leased or rented items in three or more categories. The largest firms (those with more than 50 employees), however, reported renting/leasing tools and equipment in three or more categories at a 12 percent rate. This is because larger businesses tend to participate in larger, more sophisticated projects that require heavier lifts and underground equipment.

Company size may be a catalyst toward contractors renting tools and equipment, but when it comes to influencing purchases, age may be an influencing factor.

Age discrimination on tool purchases?

A closer look at the hand and power tool categories suggests that age profoundly impacts the amount of tools and equipment purchased by an electrical contractor. According to the data, firms headed by contractors younger than 55 are more likely to report purchases than their older counterparts.

Hand tool purchase levels are higher among that same group of younger contractors than those who have been in the industry for 25 years. In either case, the information implies that younger professionals are still building their tool inventories or testing out various types of tools, while those with more industry experience may have already established a complete tool repertoire.

The same holds true in the power tool category. Companies led by contractors younger than 45 are more likely to purchase power tools than those led by older owners.

According to the survey, power tool purchasing levels peak at 95 percent among the youngest group of contractors: 25 to 34 years old. Purchasing falls off to 60 percent among contractors older than 65. Again, this could reflect the building of tool inventories by younger electrical contractors.

Residential or CII

Age isn't the only factor impacting purchasing patterns among electrical contractors. The survey indicates that contractors working primarily in the CII sector spend substantially larger amounts of money on tools and equipment than their residential-oriented peers do.

The differences are reflected in the industry-weighted averages. The average respondent spent $1,527 on hand tools in 2001 and $2,593 on power tools. When calculated on an industry-weighted basis, the numbers jump to $3,839 for hand tools and $6,083 for power tools.

Industry-weighted averages use the most recent U.S. Census information to weigh the responses of larger companies more heavily than smaller ones. The weighing was calculated based on the number of employees, because the 80-20 rule applies. According the U.S. Census (1997), companies with less than 10 employees account for about 80 percent of firms but only 20 percent of the work performed. Firms with 10 or more employees represent 20 percent of firms but perform about 80 percent of the work. What do we know?

To summarize the results of this study: The age of the contractor, the size of the company and the sector in which he or she operates, all directly impact decisions about buying and leasing tools and equipment. We also know that tools and equipment are necessities to getting the job done on any job site. And whether you opt to buy, lease or borrow, you must make sure the right equipment is in the hands of the people who use it.

Use this study as a benchmarking tool to help you determine how your investment in tools and equipment stacks up against your peers. If you hadn't considered leasing equipment items, you might now. Taking a closer look at your tool inventories is always a good idea, especially if you wish to avoid a glitch when a deadline is in jeopardy. EC


About the Author

Joseph M. Kelly

Freelance Writer
Joe Kelly, is currently senior editor in the Periodicals Group at the American Bankers Association, has been a magazine editor and writer for the bulk of his career. In 1998, Kelly became associate editor of ELECTRICAL CONTRACTOR magazine and was nam...

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