Rental Rates Endanger Progress of Rental Industry
The comments and emails we have seen in regard to Dan Kaplan's column last month on the rental rate suicide this industry seems determined to commit shows that he touched a few nerves on the topic. As Dan pointed out, when time utilization is improving, so should rental rates, yet the opposite continues to occur. The utilization-at-any-cost philosophy is something that cannot easily be overcome; the resolve seems to last only until the next “see if you can beat this rate” challenge.
As many in the rental business, and in most any business, know, it can take years to rebuild rates after a recession. The severe rate-slashing this industry has been through over the past few years is unprecedented. The rebuilding of those rates will, proportionally, take a long uphill climb.
In a way it's a discipline, like losing weight. You hear about crash diets where people lose 30 or 40 pounds in a couple of months, only to quickly gain it back once they abandon that dietary discipline. Losing weight effectively means daily small decisions, repeated over and over. I'm not going to eat that candy bar, I'm not going to order dessert after dinner; I'm going to pass on the ice cream on a warm afternoon. And so on. You make enough of those good decisions over a period of time — not just one week — and, coupled with proper eating and exercise, you'll likely lose weight.
You practice rate discipline by doing it every day, one transaction at a time. You say “no, that discount doesn't provide us with an appropriate return” and you stick to that, even though your salesperson is telling you the competition is putting it out for even less and we don't want to lose this customer. You stick with it even if you have equipment sitting in the yard, because it simply doesn't make good business sense on a long-term basis. You stick with it even though you want the cash flow. What many companies have done in the past few years is if they have too much equipment sitting for too long, they get rid of it.
In a way, continually slashing rates and using rate discounting as a method to sell your business means selling the industry short, not valuing the contributions you are making to your customers' businesses. If you are doing your job well and providing the level of service that your customer can really benefit from, while yes that customer is under budget pressure as well and needs to cut his costs, cutting corners is not the way to do it. That customer should understand the many ways your rental company and the service you are providing benefits him, makes his job easier and saves him money, time and stress. If your company is continually concentrating on improving its ability to do those things, perhaps customers will value rental companies more than they do.
I hear the complaint that many contractors are viewing our services as a commodity and all they care about is the cheapest price. Part of the reason they see us as a commodity is because we see ourselves that way — we sell ourselves to the lowest bidder and we don't offer enough value-added service. So start by improving your service and demanding to be paid for what you offer.
Cloud computing, which you can read about in this month's cover story on page 20 is, in a way, like the rental business. The essential arguments in favor of it are much like the arguments we make in promoting the benefits of equipment rental: you can avoid large capital expenditures, you essentially pay for what you use and need and not more, and you benefit from technological updates on an ongoing basis. In that sense, it's not surprising to me that large numbers of suppliers of computer software to the rental industry are embracing that model, nor is it surprising that many rental companies find it attractive, for similar reasons.
Most of the rental software providers Brandey Smith spoke to in her article are pretty confident that cloud computing is a trend that's here to stay and will evolve in a number of different directions. In a way, it's like the arrival of banking online or paying bills online, processes that seemed foreign to many when they first began to develop, and some businesses and private individuals resisted because of security concerns. And there's the natural resistance to changing the ways we were accustomed to doing things.
It's certainly a trend worth learning about and understanding, at the very least.
