Dear RER:
Free transportation is the bane of our industry. Only when we all work together in this area of our industry will we begin to recuperate the expenses.
The following is a training paper from Neff Rentals.
For this exercise and training purposes only; let's assume your branch is earning a 10 percent profit on gross sales. Our “real deal” is as follows: You just invoiced a $400 gross deal; this particular deal was customer pick up. You had no problems during the term of the contract; after all expenses you put $40 towards the bottom line, with 10 percent of the contract of $400 equaling $40.
Now, we will use the exact numbers, but this time the customer did not pick it up, and, we included “free” delivery, as opposed to charging $40 each way. The delivery distance was 20 miles from the branch.
For training purposes, we will use a straight cost (expense), to you of $1 per mile to transport. That covers the cost of insurance, wear/tear, wages, tags and fuel.
This 20-mile delivery costs you $20 to take it to the job site, but since we have to come back to the branch, let's add another $20. “Free” delivery surely includes a “free” pick up, so let's add another $20, and of course, we have to come back to the branch with the machine, so we'll add $20 more.
Now we have an $80 expense attached to a $400 deal, and let's be happy we did not have to send a truck on a service call during the rental term, since that type of trip is generally “free” also. The $80 is a true expense that you must pay. You earn 10 percent ROI, so to pay for that $80 pickup and delivery, you will need to gross $800. This scenario leaves you with “less” than no profit, since you only grossed $400.
This $400 deal with free delivery is a no-brainer. When your sales team uses “free” deliveries to get the business, you pay. The perceptive branch manager will look at this particular $400 deal, with free delivery, and may say “if you cannot get $40 on delivery, we cannot afford to do this deal.” Business sense dictates the following statement; the payback of reducing expenses in a 10 percent ROI environment, is 100 percent gross.
If you are saying to yourself, “my branch operations are not producing 10 percent ROI, and, I do “free” deliveries,” your sales staff needs training in how to sell delivery as a service. Every deal must stand on its own.
The bottom line is this: How unhealthy is losing $80 in pickup and delivery in a 10 percent ROI environment? It could be deadly; since you now need $800 in future gross sales to cover the expense. The next time you hear “free” delivery, you know who is paying, and paying dearly.
Greg Michael
Manager, sales development & training
Neff Rental Corp.
Miami
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