It is important to stay focused on what you want your rental business to be, yet be flexible in how you make it happen. How long has it been since you’ve taken a good look at your business? Is it everything you want it to be? Follow these seven ways to improve your rental business and watch your goals become a reality.
1. Sell under-utilized units
Target an overall dollar utilization of your rental fleet (annual rental revenue divided by original cost). If you rent larger equipment, your target should be at or near 70% with general rentals nearing one 100%. At least weekly, run utilization reports using your rental software. Target and analyze items with low utilization rates (40% or less) and remove them from your fleet if there is no likely improvement in the next 60 to 90 days.
2. Sell units with maintenance problems
Using your rental software, track your repairs and maintenance expenses as a percentage of rental revenue by individual unit. Any rental unit with 10% or more in repairs and maintenance expense as a percentage of annual revenue may be a problem. Talk with your maintenance staff or provider and if they believe these maintenance problems are likely to continue, it may be time to sell. Down equipment doesn’t make money and unreliable equipment will alienate customers.
3. Extend the life of your rental units
Trucks and trailers are lasting longer. Many units continue to be profitable well beyond traditional replacement cycles. In lean years, almost all of the national fleets age their fleet to reduce capital expenditures. Make sure you only extend the life of rental assets that are not currently or likely to be maintenance problems.
4. Consider buying good used equipment
Minimize your capital expenditures by buying late-model used units. This can reduce your capital expenditures, conserve cash and limit your debt. Typically, a one to four-year old used unit will fetch the same rental rate as a brand new unit. Even a small investment in a used unit can make it look near new and customers will not be able to tell the difference.
5. Supplement your fleet with re-rent equipment
Rather than using your cash or incurring additional debt, develop a relationship with other rental companies or local equipment dealers to provide equipment as needed for a rental. Make sure you are making a minimum margin of 20% on re-rents and make sure that the equipment condition is documented at the time of delivery and again when it comes off rent.
6. Limit discounting
Have a policy on who can discount and by how much. Know your “walk away” rental rate on each piece of equipment. Have a realistic book price and make sure that your overall actual-to-book rate is at least 92%.
7. Consider expanding your business: spend money to make money
Acquisitions are an excellent strategy to open up new markets with existing locations, customers, and employees. Over the years, some of the most successful business owners we have seen have grown during times of economic downturn and have dramatically increased their market value.
Above all, continue to challenge yourself and challenge your business model. Business is fluid and your operations should be as well.
About Adam Madsen
Raised in Anchorage, Alaska, Adam Madsen began his career in the heavy-duty industry as a young man working in a third-generation family-owned business: Drivetrain Distributors. He later went on to work for Transwest, located in Denver, before joining the Karmak team in 2010 as a Project Analyst in the Research & Design department. He is currently the VP of Business Solutions. Being a part of the process of building an ERP system has been a long-term goal of Adam’s, so seeing Karmak’s Fusion evolve into a premier product is exciting. Adam received an Associate’s degree in Communications, and is also a graduate of ATD Dealer Academy.
Karmak, Inc. is a leading provider of business management solutions for the commercial transportation industry. With more than 30 years of heavy-duty experience, we offer a unique approach combining innovative technology, strategic advice and best practices. Our success programs produce measurable results by improving ROI, mitigating risks and achieving operational excellence.
Serving more than 1,500 locations across North America, Karmak is an employee-owned company with headquarters in Carlinville, Illinois.