As I consult for rental companies throughout North America, I never cease to be surprised by the emphasis some of these firms place on the sale of merchandise. While those sales do provide additional cash for rental businesses, I don't believe they deserve a lot of emphasis.
>From my perspective, the key to a successful rental operation is dollar >utilization. If you keep the equipment rented, you have a profitable >operation. If the equipment sits, it is underutilized and you have adverse >financial consequences.
My basic operating philosophy is that one cannot do two things well at once. To the extent a rental company focuses on the sale of merchandise, that company does not focus on renting equipment.
I question the true profitability of selling merchandise. Think of the effort to sell hard hats, gloves or small tools. First, the item has to be sourced and a purchase order written; the item has to be received, unpacked, priced for sale, and then inventoried and displayed. The preparation process is costly.
Behind the counter, your sales coordinators have multiple responsibilities in relation to the rental transaction. They must field telephone calls from prospective customers, handle walk-ups, quote rental and delivery rates, write rental agreements, schedule equipment pickup and delivery, charge for fuel, handle field service calls, and make outgoing telemarketing calls.
On top of that, you are expecting them to put time and effort into selling parts and supplies. I don't question that there is money to be made selling merchandise, and that rental companies providing point-of-sale items are offering one-stop shopping to their customers. But I wonder how much money is actually being made or lost?
One must consider the time spent by the branch personnel in completing sales invoices, collecting money, purchasing display counters and displaying the goods for sale. Then there are the cost of capital, the supplies themselves, and tasks involving storage and counting for the annual inventory. In most companies, there is the possibility of pilferage, and the need to set up measures to prevent it. And let's not forget the floor space - that costs money also.
Rental companies are in business to rent equipment. Rental is a direct sales business; a sales call or telephone call is made so that a rental will result. The money is in the rental, not in sales of equipment, parts or supplies.
Don't take my word. Look at the operating statements of any of the public companies.
There are three basic ways for a rental company to increase revenue:
* Increase rates.
* Improve time utilization.
* Add more fleet.
Sales coordinators are busy people. You can direct their efforts to sell a hard hat for $10 and make $2 profit, or you can have them make outgoing telemarketing calls to increase your equipment rental utilization.
Making telemarketing calls is essentially a hit-ratio business - the more calls, the greater the chance of a rental. When one makes 25 telephone calls to prospective customers, perhaps the result might be a rental or two. Make 100 calls and the results increase proportionally.
Backhoes rent from $1,500 to $2,200 per month, 185-cfm air compressors from $550 to $700 a month, skid-steer loaders for about $125 a day. It seems to me that if a rental company can improve its time utilization by 5 percent or 10 percent, that is where the money is. That increase equates to $75 to $220 a month in additional revenue on a backhoe, $27.50 to $70 a month on an air compressor, and $6 to $12.50 per day on a skid-steer loader rental.
Rates are often adjusted on the counter by the rental coordinators as they receive the incoming telephone call, and there are many factors to consider in this process. Also, coordinators have to spend time talking to customers to help them determine what equipment would be most beneficial for particular applications. Make sure they have enough time to carry out a proper dialogue with customers. It would make no sense for a sales coordinator to be rushed in a telephone rental call in order to sell a hard hat to make $2 and risk losing a $1,500 rental.
Many rental companies have strong staffing, with personnel who have the experience and knowledge to both rent equipment and sell merchandise. Should these firms abandon merchandise sales? Not necessarily. But I recommend that rental companies do a financial analysis of their cost of doing business and answer the question for themselves.
They should ask: Does a 25 percent to 30 percent gross margin in the merchandise sales business justify being in that business?
I am not saying that you shouldn't sell any parts, supplies or small tools. I recognize that smaller rental companies market to the homeowner and depend on that niche. Their ability to be a one-stop shop is their key to success. This is especially likely to be true in smaller markets. Those companies may need the small items to support the rental, but those items should not be expected to drive the rental business.
However, it is important to keep it in perspective. Most rental companies - particularly those that market themselves toward the contractor with larger construction equipment - will prosper or fail on their rental operation, not on the sales of hard hats.
