Charge and Deliver

May 1, 2000
The rental business is a service business. Delivery of equipment is an integral part of the rental business and a costly service to provide. Some rental

The rental business is a service business. Delivery of equipment is an integral part of the rental business and a costly service to provide. Some rental companies have in-house delivery; some use outside haulers. Others, however, provide no delivery service whatsoever.

There is a direct link between rental rates and delivery charges. You should charge for delivery as a separate service; do not include it in the basic rental. I have seen rental companies and dealers charge as much as $500 to deliver a piece of construction equipment 100 miles from their stores, and I have seen other rental companies and dealers charge nothing.

Rental companies and dealers should charge for delivery. A good goal for delivery is 4-5 percent of rental revenue. This does not mean charging 4-5 percent of the rental rate as a standard charge for delivery because delivery charges will vary by type of equipment, quantity and destination. But shoot for that goal on a monthly or yearly basis.

Providing delivery service for equipment is costly, yet few companies evaluate the cost of delivering equipment.

Larger equipment rental companies often operate six to eight large tractors with lowboys and employ eight to 10 drivers from one location. The rental giants have hundreds of delivery vehicles in their fleets. Nevertheless, the principles are the same whether you operate one pickup truck or a fleet of tractors.

My first recommendation is to understand your firm's total expenses for delivery. Attempt to determine the cost to deliver equipment per loaded mile. This cost pertains to pickup of equipment as well as delivery. It is important to understand what it costs to deliver equipment five miles from the rental location, 10 miles, 50 miles, etc.

How many deliveries are made per truck per day, week and month? What does it cost to deliver a single piece of equipment or a truckload of equipment?

The customer has been taught to ask for free delivery. Few inside and outside salespeople have been taught how to explain why their companies charge for delivery, and they subsequently give in to secure the rental.

Teach your salespeople to charge for delivery. With rental rates under pressure, delivery should be seen as an operating cost as well as a possible profit area. It is too easy to succumb to the customer's pressure for free delivery, and some rental companies find it difficult to ask for payment for this service.

Charging for delivery requires sales skills. Far too few rental companies give their sales staffs the tools to develop these skills.

Get on schedule My second recommendation is to establish a delivery rate schedule based on radius of miles from the store, or a rate for loaded mile.

I believe, in most cases, that the total cost of delivery is difficult to recover, and delivery service often is provided at a net cost to the rental company. The question is how much of the cost can be offset by delivery revenue.

A few firms make money delivering equipment. You need to make it clear to your customers that delivery service is a major expense. Have a clearly defined schedule of delivery charges per distance traveled and make sure the customer is aware of it from the beginning.

Try an outside carrier If your customer base and competitors allow, use an outside carrier and have the customer pay the full cost of the delivery. If you can get the customer to pay the entire cost - that is, billing the customer for the entire amount the outside hauler charges - you'll do much better than you would charging for your own in-house costs. With today's competitive rate environment, rental companies rarely can charge enough for delivery to recoup all those costs. Hence, even though delivery is a vitally important service, it becomes a major cost for most rental companies.

Because service is the name of the game, providing in-house delivery service is often a necessity, not an option. We read about the rental chains with a hub-and-spoke strategy for branch locations, a structure they've developed to better serve the customer and deliver equipment on short notice. These rental companies think fast response is so critical to their success that they offer not only delivery, but a large branch network to maximize availability for their customers.

Charge something If you are not charging for delivery, you should begin charging immediately. Instruct your counter personnel to start charging something, even a minimal fee. Educate your staff on your actual costs as I outlined above. Establish goals for delivery. Insist that delivery be charged. A good goal is to charge something for every delivery, even if it's just $10 or $20. This is how you can implement a delivery charge program when your results have been unsatisfactory.

Measure these results. "Peer-rank" the counter staff in your branch. If you have multiple stores, even hundreds of stores, peer-rank these stores.

Calling attention to delivery will surprise you. Educating your staff on the costs and peer-ranking the delivery revenue will show what positive results your company will achieve.

If necessary, make a contest based on delivery results, with an incentive.

Rental rates are under pressure. Improved delivery revenue is a good way to improve rental rates. Follow my recommendations, and you will be surprised by the positive financial results.

* The driver's salary and benefits

* The truck or tractor and trailer

* Vehicle insurance

* Fuel and tolls

* Tires

* Delivery repair

* Spare parts on the shelf for repair

* Communication equipment

* Cost of capital for the rig