Review your fleet utilization now to prepare
The US is due for some additional spending on infrastructure. There are countless roads, bridges, and dams in need of some attention. That increase in construction activity is sure to result in an increased demand for rental equipment.
To prepare for more rentals your company should take the time now to look at your fleet and analyze your utilization. Consider what equipment will be in high demand and make sure you have ample equipment available to rent where it is likely needed.
Looking at financial utilization and time utilization will help you be ready for increased demands. Drilling down utilization is critical to knowing when to sell underperforming equipment, buy additional high utilization equipment or raise rates on certain pieces of equipment. It can also be examined to uncover issues with maintenance or areas preventing your equipment from being ready to rent.
In addition to evaluating utilization for your entire rental business, you can more granularly evaluate utilization at the category class and individual equipment level. Reports that show the net ROI by category helps you determine the efficiency of your various product lines. Use that information to look at branches and regional statistics to see how well your managers are managing their fleet and where you might want to shift equipment.
Time utilization calculates the amount of time your equipment is rented out versus the time it is available to be rented out. Different rental companies may calculate days differently, but as long as you are consistent with your methodology you can measure and track changes through time. At its simplest: days rented/days available = time utilization. Dollar Utilization is a bit more standard in the industry, it is the annual rental revenue divided by the acquisition costs. Annual revenue collected/ acquisition cost = dollar utilization.
Comparing these two metrics can provide insights on what actions you should take to either leverage a strength or address a challenge. There are 4 common scenarios that you should address now:
Situation: high time utilization/low dollar utilization
High time utilization means your equipment is rented out a large amount of the time, but you are not maximizing the dollars associated with those assets. Unfortunately, even if you rent out an asset 100% of the time, you will not make up for the low margins associated with low dollar utilization.
Before you make any changes though, make sure your data is accurate and adjust if necessary. Check the time utilization carefully, if branches are holding onto equipment or creating dummy orders it might look like the equipment is being used more than it actually is being used. In addition, not promptly retrieving equipment from a customer’s site might look like time utilization, but you will not collect any revenue.
Assuming the metrics are right, the standard recommended tactic is to raise rates.
Situation: high time utilization/high dollar utilization
High time and high dollar utilization — sounds perfect right? No doubt it is good, you are making top dollar and renting out your equipment to the fullest. But with a possibility of an infrastructure boom, you should consider expanding your fleet. If you are in this situation, the recommended tactic is to buy more equipment. Maximize those healthy profits and add to your fleet.
An additional area to consider if you are in this quadrant would be to look at your lost sales. Evaluating your lost quotes can help you spot areas where you are losing business because you do not have enough equipment available. If you are constantly passing on businesses in Poughkeepsie, it is time to buy more equipment for that branch.
Maintenance can also prove problematic if all of your equipment is rented all the time, what happens to your preventative maintenance? If you are not taking the equipment off rent to maintain it you may experience more equipment breakdowns, which require equipment swap outs and usually involve unhappy customers. Higher equipment costs can likely drag down that ultimate profitability with the equipment.
Situation: low time utilization/low dollar utilization
This is, not surprisingly, the worse quadrant to be in – the equipment is just sitting in the yard, and when it does go out the pricing it too low to adequately cover the costs of acquiring the equipment. So what do you do if you find yourself in this quadrant, carefully evaluate, and sell.
Evaluation is the first step in managing your business if you find yourself in this quadrant. Make sure you understand the nuances of the metrics before you act. Seasonal items may be skewing your findings and dragging down your businesses metrics if you are looking at the slow season instead of a longer period.
Before you sell, you might want to see if you just need to shuffle equipment. Compare the utilization of your rents and re-rents in adjacent branches. It may be that the shop across town with high utilization is always re-renting other equipment instead of borrowing from your under-utilized facility. If that is the case you can re-deploy the equipment to the other branch.
Situation: low time utilization/high dollar utilization
Your equipment is not being used a lot but when it goes out it rents for top dollar. Your maintenance shop might be happy about the scenario but you may be missing out on business. High rates keep your dollar utilization high, but likely also represent lost opportunities and rentals. The recommended tactic in this quadrant would be to lower rates.
These trends may be attributed to your seasonal equipment, where there is only a seasonal demand, but the renter is willing to pay top dollar for that period. Think of the red carpet they use at the Oscars, it doesn’t get much use, but when it does you can bet it gets top dollar! But the fundamental question that remains is, can you lower the rates and use the carpet for more award shows during the year? The same goes for your inventory, lowering the rates should help you get some additional sales and increase both your time and dollar utilization.
Taking the time now to look at utilization will be key to preparing to take advantage of any infrastructure boom that might be coming our way. If you need help getting your utilization reports set up let us know and we can set you up.
Read more in this article on tips and tricks for building powerful reports and dashboards.