As a rental fleet manager, it's vitally important for you to not only monitor your own business and make sure that you know the numbers each and every month, but it is also critical for you to understand what's going on in the industry. So I highly recommend that you pay attention to the AED cost of doing business survey that is generated each and every year, so that you can look and see how your business is doing compared to others in the industry. Because what we are trying to do at the end of the day is drive gross profit margin at your dealership. A rent-to-rent fleet should make money, it's got good margins in it, and it can benefit the parts department, the service department, and the sales department. But it's got to be well run. So what you're looking at here is the difference between the average AED dealer and a high performance dealer. So I want to point out a few things from this chart. So we learned earlier that depreciation expense has nothing to do with revenue, but it has everything to do with the value of your fleet. So if you look at the very first item here, depreciation as a percent of rent-to-rent revenues. The average dealer, it's 40%. For a high performance dealer, it's 22%. And you say, wow, it's almost half. What could be going on there? Well, a couple of different things could be going on there. You could say if they were both using the same depreciation schedule, you could say that the high performance dealer was doing almost two times the volume, and that's how that would work. Or you could say that the average dealer is actually using an accelerated depreciation, and he's actually putting more burden on the rental department. So the real answer is probably somewhere in between those two things. I'm going to guess that the high performance dealer is doing a better job in terms of driving revenue with his rental fleet than the average dealer is, and he's also probably taking a reasonable approach to depreciation and not putting too much of a burden on the rental department. Nothing extraordinary. So then look at maintenance and repair costs. So again, if you looked at it from a percentage standpoint, that's almost a 30% difference between 10% and 7.3%. Again, we might take a look, and I would suggest that a high performance dealer is probably using some of his own dedicated technicians, and you'll probably see that down in the next to last row there. It says payroll of the rent-to-rent department as a percentage of the total revenues. Well, the average dealer has got .09, and the high performance dealer is at 4.1. What I believe the difference there is, is potentially has to do with the technicians. And then you'll also see the productivity of the rent-to-rent. So that's a little bit skewed, because one of them, the high performance dealer, is probably using his own people, so that means he's got more of them, and his payroll is higher, where over the average dealer is letting the service department do everything for him, and so his expenses are higher, and he shows this better productivity per employee. So, again, it kind of depends on where do you want to show the profitability. I think it's really important, two other things to see here. Gross profit is about 10% better on the high performance dealer. The financial utilization is probably about 5% difference, 43 versus 45, and then the absorption factor is huge. The high performance dealer, his absorption factor is 90% of his expenses is being covered by everything but new machine sales, where the other dealers, the average dealer is struggling, only 68% of their expenses are being covered by everything but sales. As we now start to think about the third phase of life cycle of a machine, so we had the acquisition phase, then we've got the owning and operating period, and now we're at the rollout phase. So the question that is the most common in the industry is when should we decide to sell the rental machines? Of course, the sales department is going to say anytime anybody wants to buy one. We already know that for us to be effective in rental, we've got to be very disciplined in our approach to adding inventory and rolling inventory out. So I just want to spend a couple of minutes talking about factors to consider. The very first thing you should do as you're putting together your rental fleet is to sit down with your used equipment manager and really look at historical sales and try to find out what are people buying that's used equipment, what is it that we're saying no to, how often do we miss opportunities because we don't have the right age of used equipment, or maybe we don't even have the unit at all. And so we need to figure out local demand, and then we're going to try to match our opportunity for local demand and roll the machines out in accordance with that. And so we're also trying to figure out what's the price point that people want to buy and how many hours, exactly how used is used. And then typically what you'll find with the rental fleet, going back to the analysis part, is you will have some underperforming machines. And sometimes that is because new technology has come along and now that particular machine isn't as attractive to users as it once was. And so you'll start to find that the utilization for that machine will start to fall off. And you may also discover that the maintenance costs on that machine are starting to spike. And so as you see those two things happening, that's another driver that would suggest to you that maybe it's time to park company with this machine. I'd like to review with you one more time the different choices associated with this depreciation schedule and where you might want to work the optimum time to roll out a machine. If you recall, the purple line in this example is the market price. And so up in the top left-hand corner, you'll recall that we were going to make about a 12% margin on that machine. We're making the assumption that it's going to drop in value of about 25% the first year. And then we're going to say that it drops, you can see the curve there. And when we get back into the year 3, 4, and 5, it's starting to feather out a little bit. And so there are some real strong opportunities for margins in that 3, 4, and 5-year period if you wait long enough for it. You'll see that up there in year 1 to 2, the margins are really pretty tight. They're really not much better than if we had sold the machine brand new. And that really doesn't matter which one of those depreciation choices you make. So I hope that you will build into your fleet in the discipline that you're going to hold these machines probably for a minimum of 36 months, maybe 48 months. And then what that does is really set you up for some really good gross profit margins on used machines. Plus, you get a couple of extra years of rental revenue while you're holding them in your fleet.

rental fleet manager

AED cost of doing business survey

gross profit margin

high performance dealer

rent-to-rent revenues