These are tough times in the rental industry and even more so in the world as a whole. War and conflict and terrorism and potential for more war throughout the globe, not just in Iraq, are creating tremendous anxiety. It's hard not to be concerned about the kind of world our children are growing up in, although those who grew up in previous epochs certainly faced their share of turmoil.
I don't mean to trivialize those important issues, but let's narrow the world of conflict down to our own small world of equipment rentals. While we don't normally face the threat of actual bloodshed in our daily lives, we are witnessing rate struggles that are lethal in their own way in that they threaten the business models of companies that prefer to promote value-added service instead of unbridled discounting. Yes, I know a certain amount of market adjustment is necessary in a competitive environment, but so is a sense of long-term commitment to a certain style of business.
In this violent world I can't guarantee the environment my son will grow up in, but I can try to teach values that I believe, in the long run, will reflect the right way to live. Similarly, I believe that in business, a long-term commitment to certain values will endure and will help companies to stay their course when the business cycle goes through a downturn. I believe that rental companies that practice a commitment to value-added services tend to endure longer than those that emphasize the quick discount as their constant standard.
Through this tough business cycle, I believe that another long-term value will win out in the long run. That is whatever the current uncertainties in the marketplace, rentals is the trend of the future. The percentage of equipment end users that rent is growing and will continue to increase. Each business owner must make his own choices on how they structure their business, but rental is showing every indication of being the smart bet. The trend towards outsourcing rather than accumulating capital expenditures is universal and real.
Will the penetration of rentals increase to 50 percent as industry analyst and sometimes RER columnist Dan Kaplan recently suggested? Whatever the numbers, it's clear that penetration will increase. So if you're in rental, you are placing your chips on a business model that, in the long term, will endure and grow, whatever the short-term uncertainties, and however long the current slump persists.
And the more you demonstrate to your customers that they'll receive value by renting, the more sure that bet will be. By investing in value-added services that will lead toward a higher percentage of customer satisfaction, you are investing in your own future.
As for the rate dilemma, please take a look at our cover stories on rates in this issue. Hopefully you'll pick up some ideas that will help you arrive at a sensible structure that will help you navigate the rate wars with integrity while remaining competitive. Do you set realistic book rates that customers will actually pay so that discounting doesn't become almost automatic? Do you set practical and clear guidelines regarding who can discount and by how much? Do you have realistic minimums? Do you measure your customers history and relationship with you before you start discounting? Do you analyze your utilization data to adjust rates for seasonal patterns? Do you adjust rates based on your availability, i.e., reducing rates if current utilization is low, increase or hold rates if utilization is high? Do you take advantage of some of the features in your rental software system to add prorations or overtime calculations? If you have a customer who repeatedly gets a discount on a particular item, can your system help you maximize rates on other items?
There are many ways to look at maximizing rental rates. Even though you must remain competitive, you must figure out what your costs are and how you need to structure your rates to be profitable. If you figure out those points, then you can know how much you can afford to discount and still be profitable and arrive at a structure that works.
Bend when you have to. But keep in mind, you are in business for the long haul. You need to create a rental culture that offers the customer value and charges for it accordingly. You need to create a culture of service that won't fall apart when you are rocked by uncertainty.