Top 10 Rental Business Profit Building Ideas
1. Deciding to be Profitable. I often hear that people think of Profits as “What’s Left Over.” I believe that profitability is a decision. You can make it implicitly at the end of the year or explicitly upfront in the planning process. Clearly, making this decision upfront greatly enhances your chances of increasing your profit margins. I believe that Rental Operators should decide to make a 20% Operating Profit. After all, the ARA’s Cost of doing Business Report (CDBR) shows that 25% of equipment rental businesses are already making a 12-18% operating profit.
|Profit as a % of Revenues||All Companies||Top 25%|
|Construction & Industrial||9.1||17.2|
|Party & Event||4.5||12.1|
Source: 2015 CDBR
The next step for increasing equipment rental business profitability is to estimate revenue conservatively. This should be a number that you are 95% confident of achieving. It is very helpful to know the rental revenue forecast for the equipment rental industry in your geographic area. The ARA’s Market Monitor provides very helpful and generally highly reliable data.
Knowing your revenue and profit goal, the final step is to let expenses be “What’s Left Over.” For example, if your revenue goal is $1.2 million and your profit goal is 20%, you will need to limit your expenses to $1.0 million:
The final step is to develop the rental business ideas, strategies, and tactics necessary to reach your revenue goals without exceeding your expense budget. The following are some key rental business ideas to increase business profitability, decrease expenses and improve your customers’ experience all of which will help you increase profit margins.
2. Payroll Reductions. This is the expense category that most clearly separates the most profitable equipment rental businesses from the rest of the equipment rental industry. It varies by type of rental company, but in general, according to the CDBR the top 25% most profitable companies limit payroll as follows:
|Payroll as a % of Revenues||All Companies||Top 25%|
|Construction & Industrial||24.8||23.6|
|Party & Event||46.8||45.8|
The key rental business idea is to reduce your payroll to the lowest level of seasonal demand, making up for peak seasons by hiring temporary labor. The most profitable equipment rental businesses generally accomplish this by hiring in the educational field: High School or College teachers and administrators as well as students. Generally these folks are available for several years before they move on.
3. Zero Based Budgeting. It is a common practice to start with last year’s budget and simply make some adjustments for things like inflation. This ensures that your budget will contain expenses that are not really necessary. The best way to increase profit margins while budgeting is to start with a clean slate and only include those budget items that you know are critical to achieving your revenue goals. Another great rental business idea when budgeting is to make sure you have lots of GL categories. You need to be able to look at a GL category and simply know what’s in it. This process alone will save you a great deal of money. Controlling expenses is key to increasing profit margins. Eliminate “Miscellaneous” as a separate category. It is simply an excuse to spend money that you don’t really need to spend. If an unexpected expense comes up during the year, simply create a new GL. Alert's general ledger interface integrates with QuickBooks, Peachtree, and more!
4. Damage Waiver.
I am amazed at the number of equipment rental businesses that still do not charge or charge enough for Damage Waiver. I have met with 17 local State ARA organizations. At these meetings there are always several companies who still do not charge for Damage Waiver and several others who only charge a very modest amount (6-8%). The companies with the highest profit margins recognize that they either have to raise their rental rates or charge up to 14-16% to sufficiently cover wear and tear on their equipment. When I ask those charging high amounts how their clients reacted to raising the rates to the 14-16% range they report that the only thing that happened was that their profits improved. Charging a reasonable amount for the Damage Waiver is often the single most important way to increase rental business profitability.
5. Missed Rentals/Sub Rentals. Today’s rental software makes it easy to keep track of missed rentals and sub rentals. Having these reports is critical to determining whether you have the appropriate equipment inventory. These reports make is easy to assemble a shopping list for your next ARA Show. They also ensure that you are not missing out on significant ways to increase profit margins.
6. Rebidding Vendors & Suppliers. It is critical to regularly review and rebid all recurring vendor charges. These include phone, cell phone, internet, credit card processing, and insurance policies. Some companies will provide a low ball bid hoping to get the business and then raise their rates on renewal. Assuming you are dealing with a reliable company, don’t hesitate to take them up on their low ball bid. When they attempt to raise their rates on renewal, rebid again. This may seem like a strange rental business idea, but the amount of money you can save in this area can be truly substantial.
7. Your Website. In days past, Yellow Pages were critical to your business. No longer. The most critical part of your marketing today, in addition to personal salesmanship, is your website. I can’t stress this enough. It takes a substantial investment and ongoing work, but it is worth it. All of the following are necessary to increase profit margins: on-going expert Search Engine Optimization, mobile friendly design (most people will access your website with a cell phone or other mobile device), customer requests for reservations (your potential customers search at night when you are closed), current pricing (you can’t make a plan if you don’t know pricing) and a customer portal (to allow customers to review their reservations, invoices and make payments online). Having a good online presence is a necessary rental business idea to ensure you reach a wide customer base.
8. Getting the Most Out of Your Rental Software Investment. You have likely spent thousands of dollars on your rental management software. Your rental software company may spend hundreds of thousands of dollars every year enhancing their programs. Many of these enhancements are free with a support plan; make sure you upgrade to the latest version. Other enhancements are available at reasonable prices. Make sure you are taking advantage of all the enhancements and add-ons that will help improve your efficiency and increase profit margins. It’s easy to determine. . Simply ask your sales rep to provide you with recommendations for your equipment rental business that will improve your efficiency and increase profitability. Then simply decide which ideas and recommendations make the most sense.
9. Service What You Sell. Many tool/construction equipment rental operators sell new and/or used equipment like skid steers, power washers and lawn mowers. This equipment will need servicing. A good rental business idea to offset lower equipment rentals during the off season months and keep employees productively employed is to service what you sell.
10. Capitalizing on Annual Events. Recently one of our large party rental business clients sensed a major loss in booking lead times. We ran a special report on the time between initial bid and the confirmed reservation. Our report confirmed the loss, especially for $5000+ events. The average loss was 18 days from previous year. A Key insight was that most of the larger events were annual events. We concluded that the following rental business ideas would help guarantee retention of the event and encourage earlier confirmation, thus increasing profit margins:
- Identify all annual events in computer system.
- Assign responsibility to track and monitor annual events on monthly basis.
- Share photos /movies for just-completed event.
- Also for just-completed events send a Customer Satisfaction Survey to the client to get their fresh ideas on what worked best and what could be improved. You can also find out if next year has been scheduled.
- Well in advance of next event, clone last year’s reservation with improvement suggestions.
- Include critical path with sensible deadlines for each component,
- Use photos and/or movies as attachments to proposals to set the mood.
- Everything can be stored as a part of the digital contract file automatically.
- The more specific details you provide the easier it will be for your clients to make an earlier decision.
- You may also want to consider an “early bird” offer to further encourage an early decision to pick your company again.