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Rental Measurements to Live

Rental Measurements to Live

Anne Salemo
CEO
Charter Software

If you’re in the equipment rental business, you know business is on the upswing. Industry revenues in the USare growing three times faster than the general economy over the past few years according to the American Rental Association (ARA). This kind of market opportunity also comes with increased competition. That’s why smart business owners are harnessing the power of their data to measure true business performance. 

Making money in rental today requires you to have a handle on the metrics and visibility into all aspects of your business. Managing rental is complex – there are many moving parts including billing cycles, discounting and scheduling.  A strong understanding of what to measure, how to calculate and analyze key performance indicators (KPIs) is key to making smart, data-driven decisions and growing your rental business.

This article looks at 2 different types of Rental Utilization KPIs and not only how to calculate them, but how to use them in conjunction to make better business decisions. These calculations are designed to help you determine the ROI on either individual units or an entire rental fleet so you can measure performance and make more informed business decisions. 

Financial Utilization

This is considered the gold standard for rental utilization measurement by many because it reflects the true amount of revenue each unit earns on an annualized basis. Using this method, you calculate an ROI percentage by unit. This allows you to compare or benchmark different units in your fleet, so you know which ones are making the most money and when a unit needs to be cycled out or serviced. 

Financial Utilization Formula:

Average Monthly Revenue for a Unit

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Acquisition Cost of that Unit

Notes about the Financial Utilization method:

  • Numbers can fluctuate greatly between units depending upon the acquisition cost of the unit, especially when some units acquired were previously used.
  • This method doesn’t consider the cost of servicing or repairing the unit.
  • The goal for the lifetime revenue of a unit using this method should be 65% to 75% of the acquisition cost.

Time Utilization

This method provides a measure of your fleet’s efficiency and is often used in conjunction with Financial Utilization. It can be calculated for any date range and should be tracked over time to help you monitor trends and compare fleet efficiency during different time periods. Time utilization is a great way to determine whether you have enough rental units in your fleet, or too many.

Time Utilization Formula:

Total Days on Rental

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Potential Number of Rental Days Available

Things to note about using Time Utilization Rates:

 

  • The days available for rental will depend upon the date purchased. New units will have a lower time utilization rate than older units.
  • Your business management or rental management software should allow to see what your Time Utilization rate is and prevent holding on to equipment that is no longer making you money.
  • Using Time Utilization and Financial Utilization together provides powerful business insights. The following chart helps you analyze Financial and Time Utilization rates together and act accordingly:

If Time Utilization Rate is:

And Financial Utilization Rate is :

Analysis:

Low

Low

Time to sell the unit.

Low

High

Rental rates are too high, or rate is seasonally skewed.

High

Low

Rental rates are too low.

High 

High

Expand your rental business. You’re renting units at a great rate.

It’s important to use Dealer Management Software like ASPEN by Charter Software that features rental utilization reporting.  ASPEN’s Financial Utilization Reporting and Rental Profitability Reporting Provides detailed insight into the utilization and profitability (excluding maintenance and repairs)of your rental fleet, allowing you to make important decisions regarding fleet expansion or transferring units out. You Can also track rental revenue streams by a market segment, equipment type, and more. For more information on ASPEN’s rental capabilities, see the Rental section of the Charter Software website.




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