Boot Up For Better Rates

April 1, 2003
The bulk of your investment in your business can be summed up in just one word inventory. Every extra dollar you squeeze from rental rates improves your

The bulk of your investment in your business can be summed up in just one word — inventory. Every extra dollar you squeeze from rental rates improves your return on that investment, dropping down through your fixed costs to the bottom line. A strong rental computer system is an invaluable tool in the battle to maintain profitable rental rates. The bulk of the benefits are realized in two areas: analyzing equipment usage patterns, and implementing refined rate structures.

Any understanding of rental rates starts with an understanding of inventory activity. Most rental computer systems offer at least one way to report on inventory usage by category. These reports highlight patterns that reinforce or contradict your gut feelings about rental activity at your rental center. Remain sensitive to seasonal patterns that suggest one type of rate adjustment now, and a different approach at another time of year.

Small rate adjustments can make a big difference to inventory utilization. For example, if most of your rentals of a particular category of equipment have a four-day duration, you might be able to change your rates so that three and a half days equal a week, rather than three days. Or, if almost all rentals of a particular category are one day, consider setting a special two-day rate where the second day is at a 50 percent discount. This could produce more total dollars. You can measure the effectiveness of the two-day rate by analyzing your data before and after the new rate is implemented.

Similar benefits can be gained by analyzing equipment usage according to type of customer. Do industrial customers keep paint sprayers out on rental longer than homeowners, on average? If industrial customers typically rent paint sprayers on weekdays, you might offer weekend special rates to encourage homeowners to rent, thereby increasing total revenues. What other customer patterns could help you adjust rates for better ROI?

The same real-time information that drives utilization in your rental business can also help you alter spot rates to improve that utilization. How many backhoes do you have available for rent on Wednesday this week? How many do you project will be available next Monday? Industry consultant Dan Kaplan advocates adjusting rates daily based upon the current availability position of the inventory — reduce rates if current utilization is too low, increase or hold book rates if utilization is acceptable.

Flexibility is essential

Rate overrides are potential quicksand when it comes to profitability. Virtually all rental operations have overrides, and some are no doubt justified. Many overrides, however, result from bad sales habits or competitive pressures. Rather than accept the inevitability of overrides, turn the data to your advantage. Computerized analysis can tell you whether your staff is constantly overriding rates on daily rentals of 185cfm compressors, for example, because Competitor X offers a lower daily rate. In this case, you may choose to adjust your daily rate on compressors but leave the weekly and monthly rates alone.

Most rental systems apply a straight proration of rates, charging the daily rate until the weekly rate is reached, and then charging the weekly rate until the monthly rate is reached. This restricts a rental owner's ability to maximize rates. Computerization should improve on manual operations, not force a business to give up its options.

By contrast, a few rental systems offer alternative prorations or alternative overtime calculations on earmarked inventory, and can specialize these even further for particular customer types. One example would be a rental contract flagged in the system as involving a construction project that operates seven days a week or two shifts, and requires a special rate. Another would be an automatic surcharge imposed for equipment usage that extends beyond the standard meter charge.

Systems that have the capability to enforce very specific rates for specific products rented by specific customers provide a powerful negotiating advantage. Suppose a good customer usually rents compressors from you, but occasionally needs scaffolding or pressure washers. You might negotiate with him to set special weekly/monthly rates on compressors, leave his daily compressor rate alone, and keep his rates on scaffolding and pressure washers at book, or discount these rates slightly. This automatically gives your customer a sizable discount on the item he rents most frequently, while maximizing rates on the other equipment. A good rental system will apply this customer's rate structure automatically at the time of rental.

To capitalize on computerized reporting, think of your computer system as a repository for essential data that is collected as a byproduct of each transaction. There are seemingly endless ways to analyze your data to glean insights into improving your ROI. How you put your data to work is up to you and is limited only by your imagination.

Jack Shea is president of Solutions by Computer, Springfield, Mass.