Useful Life Vs Depreciation Of Surveillance Gear

Hi all,

After 20+ years, I am planning to quit my day job and pursue entrepreneurship with my wife as business partner before I get too old. I am struggling to find reliable information to calculate the numbers right; before investing our lifetime savings on the new project: Opening a Surveillance Equipments RENTAL Company focused on the Commercial (NOT Residential) market.

I am having trouble matching the numbers on my business plan and finding the correct relation between: USEFUL LIVES of electronic equipments -versus- DEPRECIATION RATES -vs- SUITABLE RENTAL RATES to charge my future customers.

Any help on taking a look at my numbers and signaling fatal errors on my part, would be immensely appreciated !!

For example: I am assuming (basically guessing) that the following must not be too far from truth.

A. USEFUL LIVES (meaning the electronics will start decaying in around):
- DVR/Hybrid NVr: 5 Years.
- Hard Disks: 2 Years.
- IP Cameras: 3 Years.
- Cables: 10 Years.
- Active Networking Equipments (Routers, PoE Switches): 2 Years.
- UPS Batteries: 2 Years.
- Surge Protectors: 3 Years.

- DVR/Hybrid NVr: 21% per Year.
- Hard Disks: 50% / Year.
- IP Cameras: 33.3% / Year.
- Cables: 0.84% / Year.
- Active Networking Equipments (Routers, PoE Switches): 50% / Year.
- UPS Batteries: 50% / Year.
- Surge Protectors: 33.3% / Year.
- Note: It means that in around 3 Years, the whole equipments is "worth" nothing.

- 4 Bays NVr: $1,900
- 4x SATA 2TB Hard Disks: $450
- 4x IP Megapixel Cameras: $970
- 4x 1000FT. Cables: $450
- 2x Active Networking Equipments (Routers, PoE Switches): $250
- 1x UPS Battery 1300VA: $190
- 3x Surge Protector: $120
- TOTAL COST: $4,330

D. RENTAL PRICES to Charge the Customers:
- Profit Margin: 35% Minimum (Meaning that Selling Price is: $5,845.50)
- Basic Up-Front Installation Fee: $2,922.75 (50% of Selling Price)
- 1st. Year: $974.25 ($81.19 per Month)
- 2nd. Year: $974.25 ($81.19 per Month)
- 3rd. Year: $974.25 ($81.19 per Month)

E. Gross Profit:
- $5,845.50 minus $4,330 = $1,515.50 in 3 Years.


I'm not seeing your direct labor costs to do the initial installation. Even if you do the work yourself, you have to factor in something for your labor. Also, will you be doing the removal of the equipment at the end of the rental? If so, you again need to factor in your costs for this.

Also, there should be something factored in for the value ("opportunity cost") of the money you have invested. In order to make a livable annual salary from this business, you will need to have a very large amount of invested capital. If you don't have this capital on hand, you will have to borrow it (if you can).

Take the annual income that you wish to earn (say $60,000), divide it by the annual profit that you expect to earn from each job ($505 in your example), and then determine the number of accounts that you will need to make the expected income. (118 jobs would be needed based on your example). To earn this income, you would need to have over $500,000 invested in equipment, and this doesn't include anything for marketing, overhead, and other indirect costs.

It's also unclear whether your model requires a three-year committment from the client. If this is the case, I would call this a lease rather than a rental. If you are renting month to month, this would be an entirely different business, with considerably higher costs.

I would also have some real concerns about credit and collections in this type of business. In my opinion, the type of business who would choose to rent rather than buy would be high risk and could easily close up shop in the middle of the night and take your equipment with them. Your initial payment doesn't even cover your costs.

Thanks Michael for your valuable feedback. I was thinking that a Plan B, or a modified version of the business plan, if you will, was:

- Sell the entire system for the same $5,845.50. The system is now property of the customer, I had earned my margin as a re-seller, and I can forget about the risk you mentioned.

- Then attach an EXTENDED WARRANTY for 1, 2 or 3 Years for Bi-Monthly Maintenance visits. The question is what percentage of the $5,845.50 should be an acceptable offer for the customer ?? Any ideas ??

P.S. About your comment on "over $500,000 invested in equipment", I was thinking on a business model which involves fast-ordering from the wholesale distributors ONLY AFTER I had closed the sale, NOT keeping lots of equipments in stock in my warehouse (i.e: avoiding "dead money" piling up as equipments waiting to be reconverted in cash).

Under your original business model, you would basically be functioning as a leasing company, something that requires the significant amounts of capital that I mentioned. I feel that a business of this type is better left to those with deep pockets and serious expertise in managing financial risk.

Under Plan B, you would be functioning as a standard systems integrator, which sounds like a much better business to me. As you mentioned, your capital requirements are much less under this arrangement because you can buy the equipment as you need it, and you will get paid for the jobs as you go along.

With regards to the extended warranty, this would basically be the same as the service agreements offered by most integrators. These typically are sold for 10%-15% of the original installed system cost, so in your $5,800 system example, a service contract might cost between $580 and $870 per year. Your bi-monthly service inspections sound a little excessive to me (once or twice a year would be normal), but if you did want to provide this level of service, you would have to price your contracts accordingly.

( See previous IPVM article Service / Maintenance Contracts Guide )

If you wanted to offer a lease option to your customer, you may be able to find a leasing company you can work with. You would sell and install the job, and then submit your invoice to the leasing company. The leasing company would write you a check and assume responsibility for collecting from the customer.

I wish you the best of luck in your new business.

I would have to quibble with some of your figures. The following would be my estimates, based on experience and dealing with our Accounting Department:


  1. DVR/NVR: 5 years
  2. Hard Disks: Depends on product line - 3 years to 5 years (or more)
  3. Cameras (IP or other): 5 to 10 years
  4. Cables: Indoor - Unlimited, Outdoor - 10 years
  5. Network: 10 years (or more)
  6. UPS Batteries: 3-5 years (based on typical manufacturer warranty)
  7. Surge Protectors: Unlimited (unless located in an area subjected to frequent lightning, in which case life could be as short as 1 year or less)

Depreciation is typically governed by IRS regulations. Most businesses will follow IRS Pub 946 which lumps pretty much all electronic devices in with computers and peripherals and allows 5 years.

NOTE: The IRS does separate "Rent-to-own" property and allows 3-year depreciation on it.

Thanks Carl. Very very useful information. :)

Beware of targeting an income which is say about 30% higher than your present income. You need to factor in your wife's contribution also, assign a monetary value to that and then target a suitably higher figure, not forgetting that their will be no paid holidays or sick leave.

Good point, thanks. Indeed, we are basically saying good bye to vacations and sick leaves and we are preparing mentally for that (our will for a better future for ourselves and our kids is stronger).

Our target is, at least, 45-50% margin as a minimum overall: obviously we can earn more on services than on re-selling and moving boxes as part of the hardware distribution channel.

With more competitors now than in past years in our local market, I am worried that video surveillance hardware will go the same route as PCs and computing gear: earning a decent profit in assembling computers and selling hard disks, RAM and motherboards, etc. is now history. I`ve seen many PC guys moving from that market to surveillance after they dropped from profits in the $30 - $40 bucks per PC range to around $15 - 10. With all the online shopping and UPS/FedEx fast delivery services, getting into that business is crazy.