So, as we just saw in our last slide, the revenue mix within a dealership is critical to whether the dealer makes money or not. So, I'd like to point out this, these results from the cost of doing business survey. So, this is the typical AED dealer. And what you're looking at is three years' worth of trend. So, we've got 2011, 2013, 2014. And so, what I want you to be able to see is which of these things are growing, which ones are flat, and which ones are in decline. So, let's take a look first, as I mentioned before, take a look at new machine sales. The gross profit margin continues to erode. It was almost 12, and now it's closer to 11. That's pretty significant, especially when that is almost 70% of our revenue from a typical dealer is the skinniest margin. And then the next column we look at is the used machine sales. And so, there's a little bit of fluctuation there, 13, down about a half a percentage, and then back up slightly. Again, I believe that that should be a number that would be more in the 18 to 20%. But dealers just don't have enough of good used equipment to be able to sell and get the bigger margins. Then the next thing for you to see is this rent to rent. Check out these margins. These are gross profit margins. Twenty-six and 29. That's two and a half times the gross margins on new machine sales. So, if you were going to try to put together a dealership and help it make money, it would be difficult to think that you would try to do it without having this component of rent to rent. We already know the parts business is pretty stable. You'll see that in the next column. Pretty flat, basically around 27, 28% gross margin. We all know that service is our highest producer, but we've got to have machine population to be able to get that. So, it is really critical, I believe, for a dealer to be in rental because you need the gross profit margin because you're being challenged on those margins over on the new and the used side. With this graphic, what we're looking at is again a three-year trend line. And this is the typical AED dealer revenue mix. And so, they've got machine sales, which also includes the rent to sell revenues. And as I said before, it is about 68% of their total. Now, rent to rent, that's growing. As you can see, it's up to about 3.3%. That's an improvement, but as we learn more in this course material, that's not strong enough and it's not fast enough to keep pace with what's going in the marketplace. Now, we look at the three-year trend on parts and it has leveled out over the last two years. And then you can see where service is headed. This is the typical AED dealer where service was about 10% of their business and now it's about 8% of their business. And that's in a four-year period. It has dropped almost 20%. Another thing we find through the cost of doing business survey put out by AED is that all dealers are not the same. So, the survey results were put into two groups. They had the typical AED dealer and then they've got the high-performance dealer. And what I want you to see here is how the revenue mix differs between the high-performance dealer and the typical dealer. So, if you'll recall, the typical dealer, the sales, machine sales, and rent to sell as a percentage of their total was 68 plus percent. And you also will recall that the rent to rent as a percentage of the total revenues was about 3.3. In this case, machine sales is down around 60. So, that's more than 10% less and the rent to rent is three times more. And the parts business is almost the same, about 20. But take notice to the service department. The service department is staying steady at about 8%. One of the reasons why that is not in decline is because when you have your own rent to rent fleet, guess what? You get to do service on your own equipment. So, as you build your rental fleet, there is a direct proportion to the amount of parts and service you're going to do on your equipment. I believe this graphic probably shows it the best. Let's start on the left. The typical AED dealer, the blue at the bottom, indicates that's machine sales and rent to sell revenues. As you can see, it's about 68% of the total. Look at the dealer next to them. This is a dealer that has no rent to rent activity at all. So, they are dependent upon sales for 73% of their volume. And then if you look to the next dealer, this is a dealer that rental represents less than 10% of their total. And so, their sales is about the same as a typical dealer, 66.7 versus 68. Now, we look at a dealer where their revenue for rental represents between 10 and 30% of their total. Okay? Now, they're only dependent on sales for about 55% of their total revenues. And then a dealer that's got rental as being more than 30% of their revenues, they're only dependent upon sales for just under 40%. So, then go back to the left-hand column, and we'll look at parts. So, we've got a typical dealer doing about 20% in parts. A dealer that does no rent to rent is less than that. It looks like maybe basically almost 10% less. Then the dealer that does rental as 10% of their volume, he's slightly better in parts than the typical dealer. And then the dealer that has 10 to 30% of their revenue from rental, he's also about the same, right around 20% parts business. And then that dealer that gets more than 30% of his business from rental, his parts business is about 15% of his total. And then we look up at the top, and we've got service at 8, 7.9, so basically the same. Then we've got 7.1, and then we've got 9.8 for the dealer that does 10 to 30% of his total. So, if you had to look at these mixes, I think what you would probably find, if you'll remember, all of these things have different gross profit margins. So, the sales was a little over 11, the rental was about 29, the parts sales was about 27, and the service was about 52 to 55. So, it's all about the revenue mix, and I believe that the typical AED dealer right now could not only provide better services to their customer and be more involved in the game, but they need to shift their business model. So, they need to shift over to that 10 to 30% strategy so that they can improve their profitability, because that mix has a higher profitability than the typical dealer's making in the left-hand column represented with that revenue mix. So, before we leave this slide, I want you to really understand that a million dollars' worth of revenue by each one of these dealers, let's just say that these five bar graphs represented five different dealers. If each one of these folks did one million dollars' worth of business, they would not make the same amount of gross profit margin, because it's about the revenue mix. And what I want you to understand for your dealership is one of the reasons why you need to really embrace what would be called the rent-to-rent business or rental services is not only is it a trend that is moving quickly and customers are continuing to move in that direction, but this will also help the profitability of your dealership. You probably just heard me use the term rent-to-rent or rental services. And in some of the survey data we were looking at, I also used the term rent-to-sell. I want to make sure that you understand both types of rental and why a dealership needs both types of these types of offerings to their customers. So, we're going to take a closer look at rent-to-sell and also rent-to-rent. Rent-to-sell has been used by dealers for many, many years. And it is primarily a tool for dealers to help put a sales deal together. It's very common for dealers to use this. Some people may call it a paid demonstration. It helps you put machines out on the street. And the idea behind this is generally to allow a customer to build up a down payment. And so, generally, you've got a piece of equipment that might be on a floor plan and you may allow him to be able to rent it for maybe three to six months. And at the end of that time period, you can decide to give him some portion of his rental charges and put that towards the purchase price of the machine. And in essence, what you've really been able to do is help him acquire a down payment so that he can convert the sale. It is also a method that dealers use to create used machines. And so, typically, they are very aggressive with the depreciation write-down. Oftentimes, they use a percentage of the rental revenue that is generated each month. And sometimes, that might look like 75 or 80% of the total rental revenue is used as depreciation. So, what that does is basically drives the price of that unit down on the books. The net book value decreases at a pretty quick rate. And therefore, as I say in the final point here, the idea is to engineer a price point that will enable that machine to be sold. Some of the key attributes when we talk about rent to sell, generally speaking, it is within a timeframe of six to 12 months of that machine being a newer machine. And as I mentioned, the treatment of the depreciation, generally, it's an accelerated strategy. It's revenue-based. The reality is it's overstating the market depreciation. In other words, the market value of that machine is not falling as fast as we are taking it down on the books, but that's because we are trying to create a lower price point so that we can sell the machine. And so, we're really not trying to show any kind of profitability during the time that we're renting the machine. What we're really going to do is show the profitability when we sell it, which is the difference between the net book value and what we sell the machine for.

revenue mix

profitability

rent-to-rent

used machine sales

high-performance dealers