Continuing our discussion about pricing and rental rates, one of the things that your dealership will have to wrestle with is how do we set up the rate structure? And the rate structure is the relationship between a daily rate and a weekly rate and a four-week rate. And so I want to walk through that with you. Many people do use a formula for this, and so you can see down there at the bottom, oftentimes, say 3.3 or 3.5 to four times the daily rate is equal to a week. And then sometimes a four-week rate is the equivalent of three weekly rates. And then another way to get there is that a four-week or monthly rate might be equal to nine or ten times the daily rate. So that's fine from a standpoint of having some basis to start with, but let's just say that you did the bottom one there. And we're going to say that a daily rate, we're just going to use $100 because it's easy math, that the $100 is a daily rate, and the get to the monthly rate would be ten times that, so that's $1,000. And then if you do the math backwards, that would make the weekly rate about 3.33 a week. So the question I propose to you is, 3.33 had nothing to do with what the market price is for that item for a weekly rent, because you got there kind of backing into it through a math equation. So 3.33 may or may not be competitive. It could be that there's a price war going on in that particular type of item, and $2.95 a week is the best you can do. So your 3.33 is nowhere. But you may also discover that the customers don't really care about 3.33 or 3.49 or 3.65 even, and they'd still rent it from you. So my whole point to get across here is to do not let yourself get locked into this idea that everything is an exact relationship to the other number, because the marketplace varies out there. And so you may use a stringent formula, and you may come up high or low. So I think you need to do your homework, and you need to see what the sensitivity in the marketplace is out there. And if your math formula gets you to a number that you're, potentially your weekly number is 405, I'm going to suggest to you that you probably need to be at 395, not 405, because it's like you've crossed this threshold of another $100, and that sounds bad. So this is where I think a little bit of art form, if you will, and understanding customer behavior and getting a little bit away from the science or math-driven equation. In the same vein, talking about rate structure, I think most of the people in our industry are currently using a four-week rate. But if for some reason that you're not, I want you to really understand what you're missing here. So for decades and decades, we had monthly rates, which meant it was a calendar month. But that changed probably in the neighborhood of over 20 years ago, maybe more. And so what happened was a rate period called 28 days or four-week period was established by one of the major rental companies. And when that happened, most everyone thought, well, hey, 28 days, four weeks, that's the same as a month, right? So it's no big deal. Well guess what happens if you take a four-week rate and you divide 28 into 365? You get 13 billing periods instead of 12. So what does that mean? Let's take a look. So if you had 12 months of income at $14.50, you could drive $17,400 worth of revenue. But what if you had 13 periods of $14.50? That gave you $18,850. So if I take the difference between those two numbers, guess what happens? I get an additional 8% of annual revenue. That falls all the way to my bottom line. So as we talk about trying to build a profitable rental business, if you are not currently using a four-week rate, you need to change immediately. Because if you're doing $100,000 a month, $8,000 shows up at this point when you make your adjustment to your longest period rental rate, which would be a four-week rate. And it is standard in the industry at this point. And so you're not really trying to educate your customer differently. Everyone else is already doing that. So as we try to get our pricing right, I want you to make sure that you understand what's going on in the marketplace. And through some of our other slides, we mentioned a few categories of equipment that are shopping goods. I'm going to be a little bit more specific about, rather than a category, actually what products tend to be shopped the most out there. So a 40,000-pound excavator, it's a very competitive market. Same thing on probably a two, a two-and-a-half-yard wheel loader, a standard size backhoe loader, a 6,000-pound reach forklift, a 20-foot scissor lift by the month. Those are all the things that contractors are going to be very sensitive to the pricing unless you've got a little bit unusual marketplace. So in some of this, you've got to be right on point with your price or be ready to potentially do some negotiation. Now some of the other items that you can supplement, potentially the loss in revenue here, are some of these other items which are considered convenience goods and impulse goods. And what do I mean by that? So again, let's just say a guy's got a concrete pipe to put in the ground and it happens to be a little bit too long. He's got to get a saw to cut that off. Meanwhile, he's got an excavator and a wheel loader sitting there not being able to do the work because we've got to cut the pipe. We may have found water. Convenience goods could potentially be safety barricades, traffic cones, ventilation equipment if a guy's going down in a manhole or something. These are the types of products that virtually no one asks the price. They want to use them because it assists them to do their main work. Additional things you need to take into consideration when you're establishing your rental rates. You need to understand what market segment that you are trying to serve because as I mentioned earlier, some of those are more price sensitive than others. And then how sophisticated is this customer? If you're dealing with a professional purchasing agent and they are doing business with ten different suppliers, I would suggest that they are sophisticated and they know their pricing. And there's other folks that may be in your market and they've been a friend of yours for a long time and they are not as sensitive to pricing because they like you and they like your company. Market competition, very, very important to understand who you're competing against out there and what the rates are. How demanding is your market? I mean is it on the upswing or things slowing down? Because that will also drive pricing. And whether this item is a seasonal item or not. The features on your machine. Do you have four wheel drive? Do you have an extended bucket? Do you have cabin air conditioning? What are some of the things that maybe sets your machine apart and hopefully you can get paid for that. And then brand sensitivity is another item within a marketplace. Sometimes it's kind of like the Ford and Chevy deal. If you don't have the right brand, no one wants to talk to you. And so brand sensitivity could have something to do with whether you can command a price in the marketplace. And lastly, whether or not an item is a commodity item. I mean at the end of the day, you have to look and say everyone's got one of these. I'm going to have to fall right in line with everybody else and I'll have to make my money on some other item. And so your pricing and how you go to market by day, week, four week or monthly rates in your pricing, that is a key component towards how a customer evaluates you. So when we go back to that circle diagram and we talked about people, process and products. In the rent to rent business, products not only includes the machine and the quality of that and the reliability and our ability to service it in the field, but it also has to do with our billing practices and whether we rent by the day, the week or the month, whether we discount and whether we've got competitive pricing or not. So I want to share a few pricing tips with you that hopefully will help you and you can take advantage of them. As we said, don't get fixated on a pricing formula. Find places that you can work the edges of the pricing game. So whether that's on the four week rate, whether that's on the weekly rate, try nudging those up ever so slightly. So the difference between, as I gave the example before, a $9.33 a week, you may be able to do $9.75 all day long and no one will blink. If you go to $10.50, they'll probably push back. I would recommend not discounting any daily rentals. Why? Because customers that rent equipment by the day, they don't have a lot of time to do a lot of shopping around. It's really about do you have it available, can you get it to me, because I need to complete a task quickly. So in my mind, if somebody has called you and you've identified that you have the machine and you can get it to them, and then they say, is that the best price you can do? I would hang on to your price, because they're going to gamble that they could go find it somewhere else and get it there, and I think the odds are in your favor. So I would suggest holding on to your daily rates. Don't discount those. The big rental companies generally don't prorate, and what I mean by that is when something has been out potentially for a week and it comes back a day late, the person gets charged one week plus one day. If it's been out for two months and it stays out two months and three days, to my knowledge most of them are charging you two months plus three individual days. So they were giving you the maximum discount, but then it reverts back to the highest per unit price. So that's something that you have to decide at your dealership, how do you want to handle that, do you want to do prorating, which might make you attractive to customers. On the other hand you may be giving away revenue that everyone's already trained to accept. Also if you have overtime hours on machines. An overtime hour is not necessarily just one eighth of a daily rate. That's a decision that you get to make as a company. Do we want to charge one eighth of a day? Do we want to charge one sixth of a day? Or do we might even want to charge one fourth of a day per hour? It kind of depends on the machine and how you want to handle that, but it should not be an automatic we're just going to do one eighth of a day. You may be leaving money on the table. And when introducing a new product into the marketplace, resist the temptation to price it according to the cost. Because as I mentioned before, the customer, when he sees a brand new product, he has no idea what that machine costs. He's never seen one before, he's never owned one, so he doesn't know what the owning and operating costs are. What their first reaction is going to be is, how is this going to help me save time and money? And so once you start to understand that a little bit, then you can set a price accordingly. And so when customers are shopping you, and this typically happens with salesmen, they're going to call and they're going to want to, you know, what's your price on a backhoe and do you have a shooting boom forklift and how much is that per month? Because you are giving the customers this information, you need to be real careful and shrewd in trying to secure the order. Don't just let them shop you so that they can go down the street and get the machine from somebody else at a cheaper price. And when we talked about the adjustment on the rental rates, the weekly rates seem to be one of the best places you can recover that. I talked about not going over any thresholds. You need to be cognizant of that. And don't ever raise your rental rates across the board. Systematically review your rates and make subtle adjustments. And every category should be reviewed at least once a year.

rate structure

rental rates

market conditions

customer behavior

competitive pricing