Whether you agree with the NFL Salary Cap or not, the point is they have a target for each team that can’t be exceeded. How do you set targets or goals in your company? In the rental department many goals are established based on the investment value, sometimes called the acquisition cost.
6% of your rental investment each month is a starting point. Will you achieve that all the time? NO!
But suppose you can set most of your monthly rental rates at that level. In that case, the discounting, utilization, and other diminishing factors might not bring your actual collected revenue down too low. Over the last year, we have been helping dealers track and identify what is eating away at their rental return.
Sometimes it’s just really poor utilization. Dealers can sell off those investments and cover both the investment pay off and eliminate the trapped cash sitting there. Other times, the problem is low rental rates where they feel they will lose a stable customer if they raise rates during an existing rental contract. In tracking individual units and groups of units this past year, we have been able to identify which units or which group of units have been having troubles. Surprisingly, to some managers, other groups of units have been out-performing the expectations. So if we work on those with problems, they bring the total results down less significantly.
Are your rental rates set based on value, local competition, or customer chatter?
Do you track financial return by unit and by groups?
When is the last time you raised your rental rates?
Will the economy increase rental demand? Are you ready to add units or liquidate some unproductive units?
Creating Goals & a Plan
Getting your hands around the problems in the rental department is relatively simple. Three points to keep in mind are: have a plan with goals, organize your procedures to accomplish those goals, and then monitor results against your goals and take corrective action.
In the Rental Department, there are several goals and ways to measure success. For years, you’ve heard about “Days Utilization” and “Dollar Utilization.” Both are useful and give you insight into some issues. But if the baseline for “Dollar Utilization” is your posted rental rates, and those rental rates are set too low or haven’t been raised in 12 years, you are probably getting a misleading answer. If the “Days Utilization” looks high, but there is no money related to the units being “out on rent,” what value is that to you?
A third factor or measurement could be (or should be) the monthly revenue accomplished as a result of investing that much money in the rental fleet. Simply put, if you have a million dollars in your rental fleet, are you getting $50,000 – $60,000 each month in revenue? With a goal of 75% “Days Utilization” and a 5-6% Monthly Revenue target, you have some solid goals for your rental department.
Process & Procedures
It would be best if you had consistent and timely billing for your rental contracts. It would help if you also had a remarkable turnaround. Renting a car at the airport should give you an insight into “turnaround.” The typical process includes the following steps: out on rental; returned to the company; inspection, refueling, washing; maintenance/repair; and available for rent – THE SAME DAY!
How long does it take your operation to turn a returned unit? What is your cost per unit for the turnaround? What is the frequency of service calls on units rented in the first seven days they are out on rent? Answering these questions could seriously improve your gross profit.
Do you have a regular report (which you look at) that shows you which group of units have a low return, low utilization, and are your low performers? How many units have you liquidated because of what you found in that report? How many new units have you added to your fleet because the category has fantastic return and utilization?
Monitor & Review Performance
Here is the header information from a rental report we designed for a dealer:
Have you discovered what reports you have available, and do they provide all the information you need?
To the turnaround discussion earlier, do you have a report showing your turnaround costs? Based on your location, facilities, and process, do you have to check a unit in and then also check that same unit out? Why are you doing two steps on the same unit? When the unit comes back, do you check the fuel level? And is the customer billed for the fuel they used? Do you inspect for customer abuse, and do you consistently bill the customer for abuse, or does your rental profit and loss statement show unusually high maintenance, because you were afraid to bill the customer?
These are merely a couple of illustrations of monitoring your processes and procedures to generate more expenses recovery for your dealership. Your Rental Department is capable of generating excellent profits for your dealership.
Have you established reasonable, solid goals for what the investment should accomplish for you? Have you educated your staff on what you expect of them to achieve these targets? Are you monitoring your results to assure that you extract all the return from your investment?
It would be best if you had a depth and breadth of the fleet to be successful. If a customer calls for equipment and you don’t have it, they’ll turn to the competition. Eventually, they may call the competitor first. To achieve the right mix, you need to analyze how your fleet performs and research the jobs and functions customers are doing and the equipment they need to complete those jobs.
You also need machines that have versatility, meaning they can be outfitted with a variety of attachments — and you need to carry those attachments as well.
Rental needs to be part of a dealership’s strategic vision to be sustainable. Rental is frequently considered a supporting function to equipment sales and not a process to develop a new market or improve a dealership’s gross profit margin. This approach means it’s not part of any long-term planning regarding facilities, staffing, or other investments.
Ultimately, rental equipment is just viewed as additional used equipment inventory. By recognizing rental as a critical profit-producing department, you’ll start giving it the focus it demands and generating additional profits. The work we have done with clients over the last 35 years shows us that this is achievable and should be within your expectations. If you believe you’re not getting your best results contact Wise Wolf Consulting, we would be glad to discuss what together we can do to improve your profits from the rental business.
