RERMAG

Managing the Right Mix

Consolidation, change and new competitors have dominated the rental industry marketplace the past several years. Now the challenge for most rental companies is to prepare for tougher competition by leveraging their equipment fleet, business experience and customer service.

The disturbing truth is rental centers that do the same things as they have done in the past will not see the same results. Rather, they will most likely experience declining sales and profits. Before it is too late, rental companies must figure out how to answer questions such as these: "How can we increase our rentals without lowering prices or sinking more capital into the fleet? How can we reduce our operating and borrowing costs while improving customer service?"

Rental companies must strive to understand their customers and marketplace fully so that they can make the right decisions on equipment purchases, customer services and rental prices. How well you listen to customers will determine your ROI on a given rental fleet more than any other factor. For this reason, rental companies that stock just enough of the right products for their customers will achieve continued growth and opportunity in a dynamically changing industry.

The following principles will act as a guide and roadmap to success.

Get a better ROI in equipment. More equipment might decrease profits.

In the competitive market of the rental industry, proper fleet sizing is critical to meeting customer expectations. To many owners, more equipment is better. Six lifts are better than five, four are better than three, and two are better than one.

This logic is dangerous because it can lead to poor investments in equipment. Sure, you do not want to turn customers away. But how many pieces of equipment are lying around and rarely rented? Profitable rental centers know how to convert these poorly used assets into assets with high utilization rates.

Culling the fleet is a healthy, but painful process for the average rental company. The idea of eliminating a specific piece of equipment or product line from the fleet can cause business owners to worry that they could lose potential business. But the real question is how many lost opportunities are occurring because equipment that is more in demand is not available?

Owners must review the rental fleet and its utilization so that they can determine if a piece of equipment should remain in the fleet or be sold. Start by ranking equipment by its "out rate" and then calculate its ROIs for a given period. Be relentless because proper culling of your fleet can free up investment that can be used for improving your customer service, promoting your services or adding equipment.

Improve "out" rates To increase the "out" rates of equipment with average to low utilization, owners must first determine the cause of the poor utilization. Some rental units sit around waiting for the "peak" times when demand is high. A more effective response is offering customer incentives to shift demand from the peak times or negotiating with other companies to obtain the equipment at peak periods without purchasing it. Figure out how to expand capacity in more flexible ways and to shift some of the demand. Discounts for off-peak use are one age-old solution.

Some specialized products remain idle in rental centers until they are rented. For these products, you must either sell outright on a special order basis or develop strategies to reach more customers. Increase your market se rved by offering discounted rates to other rental centers. Or expand your market geographically by offering remote delivery at a premium charge. You will gain new customers as your specialized knowledge and delivery range expand.

Another rewarding approach is to focus on specialized market segments or niches. Niche marketing can provide other types of equipment with additional capabilities and features, which in turn create more value and better service in your customers' minds. Avoid being trapped in a situation where every rental center is renting the same equipment with the same capabilities at increasingly lower prices.

Focusing on niche markets allows you to establish the standards (e.g., services and prices) that offer the significant differentiation in the channel. In addition, niche strategies improve rental turns of equipment and provide better customer service.

Proper fleet sizing Profitable rental centers carefully plan when to stock and when to downsize. To achieve this requires an understanding of market trends and the use of this information to forecast usage. This knowledge provides for rollover and revitalization of the fleet with every increase or decrease in the demand cycle. Without diligent forecasting, the difference between having the equipment rented or having the equipment sitting in the yard will be reflected in the color of the balance sheet.

If you hesitate to sell a frequent renter a piece of equipment near the end of the season, you are probably worried about losing the rental income the following year. But this can be shortsighted for several reasons.

First, the frequent renter may well buy the equipment from another rental center offering a late-season special.

Second, remember that customers want the newest and most productive equipment. If you hang on too long, you will not be able to add impressive new equipment to your fleet.

Last, do you want to pay interest on a piece of equipment? Or, would you rather the customer did while you retire some debt?

The right mix Combining equipment can also increase the utilization of the fleet. With most jobs a rental can lead to another rental. Identifying equipment combinations can allow for upfront negotiations during the initial rental. Incentives such as renting a companion piece of equipment at a discount will increase the revenue generated from the rental.

Incentives also encourage the customer to rent the equipment longer. Field service and repair also keep your equipment rented and generating profits for your company.

Analyzing the rental will help you identify which products can be used in conjunction with the original rental equipment. This knowledge will ensure that those additional products are available in your fleet.

Our challenge is not to think better, but to think differently. The goal is to manage your fleet size effectively and meet customer requirements without paying for idle equipment. If you position your rental center to service a specific customer base and increase fleet utilization, you will improve your bottom line.

Make it easier to rent Rental centers can work with manufacturers, local trade unions, contractors and governments to understand pending job requirements and the timing for these jobs. Sponsoring demo days or "round table" meetings gets the information out firsthand. It is also an excellent way to show off fleet and its capabilities. Having the manufacturers present will ensure that relevant questions are answered and each type of equipment discussed.

Publish equipment rates and provide on a line card types of equipment available. This helps contractors prepare bids with the proper knowledge and information.

Daily contact with contractors on the job is also critical because it can guarantee that the proper equipment is available. Understand their requirements early on so you can anticipate their needs.

Rush Delivery When a customer calls about renting equipment and asks for delivery, try to deliver early if convenient for the customer.

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