We'll begin momentarily. Don't forget to follow AED on social media. All music choices were made by Michael Dexter of AED. All right, everybody, welcome back to the AED Small Dealer Conference, and for those of you who are just with us in the AED Power Break, appreciate your guys' participation on that. We talked about a lot of things that I think were top of mind for smaller distributors out there in the industry and got some new perspectives on things, so I'd like to get right into it. Today we have been joined by Greg Bennett from HBS Systems. Thanks, Phil. Greg, how are you? I'm doing fantastic. How about yourself? Doing great. So I understand that Chuck Norris is supposed to be speaking at the event in Vegas. There's a lot that AED can do. I think possibly an intern got a hold of software, but we'll see what we can pull off. I'm definitely coming if Chuck Norris is going to be there. So as Phil mentioned, my name is Greg Bennett. I'm the Director of Sales here at HBS Systems. And for some of you know that I've got over 20 years of rental experience, so this topic today is kind of near and dear to my heart. So if you ever want to talk about rental philosophies, go-to-market strategies, I always love to talk about those things. But first, I'd like to give you a little bit of background on HBS. HBS has been serving the equipment dealers for over 35 years. One thing's for certain, we've all experienced a tremendous amount of change, especially in those last nine months in our personal and our professional lives. As a business, we need to evolve this ever-changing environment to what some people would call the new normal. Now, most people don't like that term new normal, and the reason for that is because it represents change. We have to change our approach. We have to change our processes, and sometimes even our go-to-market philosophy. All this change has caused problems in our business and highlighted the fact that we have some gaps in our standard operating procedures. And it's even highlighted some of the workarounds that we have in place to handle some of our day-to-day processes in our existing business management systems. This is where HBS can help dealers excel. Our software takes your business rules and logic and helps you adjust this ever-changing environment. While our technology is superior, what really sets HBS apart from our competitors is our service. We pride ourselves on providing the best service in the software industry, and we look to world's top software companies and strive to achieve a higher level of service, support, and most importantly, innovation. Well, enough about HBS. As always, AAD does a fantastic job of providing opportunities for us to learn, interact with like-minded people and companies, and I'm excited to be a part of this session here today. If you ever want to learn more about HBS or talk about rental, please don't hesitate to reach out to me or my team at HBS Systems. Thank you. Thank you, Greg. I appreciate that and appreciate HBS Systems' sponsorship for our next session. So, we're going to get right into it. We're going to kick things off for our next session with a poll. So, please take out your phones, and you're going to be texting your response to the number 22333 or logging on from your phone's internet browser or your computer's internet browser at PollEV.com backslash AEDEvent444 and submit your response. I was speaking with Dick Stewart, who's our next speaker, and he wanted to know, do you use benchmarking on an annual basis as a tool for strategic growth initiatives? Now, if this is your first time responding to our poll questions during the conference, you're going to start by sending the word AEDEvent444 to the number 2233. And if you've already done that, text us yes, no, or unsure. While you're doing that, because your responses really are going to be helpful for this next session, I'm going to spend a little bit of time introducing Dick Stewart. He will be talking today about a new tool for AEDE members, a two-part rental report, first of its kind. While you guys are responding to this question, I'm going to tell you a little bit about that report. It's really designed to help you focus on strategic initiatives for your business. So, Mr. Stewart will be talking about this. He's held a variety of management and advisory roles throughout his career. He's been both the CEO and COO at Grant Thornton, and he's interacted with dozens of enterprises, including independent equipment dealers. That experience fed his interest into why some companies do so well and some do not, even those in the same industry. That interest brought him to the University of Denver, and in turn, AEDE, where he completed research into the emerging trends in dealer strategies and business models. He's here today to share the findings of that research. Good afternoon, Dick. Looks like our attendees have answered that question. Wow. And there you go. You can see those results? Yes and no. Okay, well, that's impressive, the 71%. I like that number. Great. The floor is yours. Well, I hope that makes this topic a bit more relevant. Greg comments that we're in an environment where change becomes the norm, and the software that HBS can provide helps make that change. I'm doing this a bit on the fly, but perhaps the content that I'm going to provide you here will help you determine what to change to. In this session, the topic is rentals. That's the content focus. The real intention of this is to drill down on the management practice of using benchmarking to improve your operations, to stay relevant in the moment here, to know what to change to. Let me bring up my presentation, and we will commence with this as soon as I figure out how to get the slideshow going. Here we are. The topic today will be rentals and using it for performance management, benchmarking rentals, not performance measurement, which I will describe in just a moment. We're going to talk about the scope of a project that the AED sanctioned a year ago. I think for some of you, if you attended last year's small dealer conference, I was there and spoke with you about the project that had been initiated. You'll be only the second group now to get the results of that for the reports that are now available. We'll talk a bit about the project scope. Using benchmarking as a management practice, an annual management practice, get into some of the key rental benchmarks chunked up into three pieces about the competitive landscape, business practices, and then financial operations, the financial results. The objective of these then are to come up with recommendations on getting into continuous improvement around rentals. Part of the AED's mission is to help dealers with their sustainability and their profitability, and one of the main contributors they look to are with rentals. We'll talk a little bit about the two reports towards the end also. A year ago, Brian McGuire and Jason Blake came to me, and Phil was involved with this too, and said, look, there's a void out in the marketplace. There's a large amount of data out there that can help you measure the effectiveness of your rental operations. There's a landmark report that came out of the American Rental Association dealing with the accounting measurements and the definitions associated with those terms, but a void around how to prospectively manage rentals to maximize and optimize your operations. So we launched on a project, and that project first consisted of visiting a dozen dealers for two to three days each. They were volunteers, somewhat hand-picked so that there would be a wide array of revenue segments recognized as well as people that were in both rent-to-rent and rent-to-sell environments, and those dealers were kind enough to let me in and open the kimono entirely around their business practices, their philosophies, and their success or not with operating rentals. That group of a dozen dealers then compiled, I compiled those interviews and got to what we defined as successful practices, the ones that were common amongst those dozen that had positive results. Now, that's hardly a statistical valid sample, but we used that data to then get to a survey as a component of the annual cost of doing business report that the AED provides its members and did a companion report specific to rentals. There was a survey attached to that, and thanks to many of you who probably participated in completing that survey. The survey was drawn from the successful practices from the pilot sample and then put out to find out the prevalence, the diversity, and the success of those practices in a broader context of the AED members. We had 91 respondents, which from a statistical standpoint is out of the 430-some members is a very high response rate. It's a statistically significant response. That led to two reports being published. The first report is the 2020 Annual Rental Report, and it contains just oodles of financial data, sliced and diced and very granular about rental operations, both rent-to-rent and rent-to-sell. And it contains the survey results on operational practices specific to inbound, outbound activities, how to make choices between the business models, and the general characteristics of strategic selections. I have to admit, I mean, I was somewhat involved in preparing this, I have to admit that the content in there is a bit overwhelming. That led to a second report that was issued. It's a companion report to the companion report, if you will, but it's a narrative. It's about 20 pages long and gets at the question behind the question that may be represented in the Annual Rental Report. If you choose to get these reports, you know, I highly recommend you get both of them. One will provide the content to actually do the benchmarking, and the other will provide some context on evaluating the results that you may come up with. So, I want to talk first a moment about benchmarking and then move on to the content that's represented in those reports. My first exposure to benchmarking came in the late 60s when a guy by the name of Jim Ryan came to my high school in southeast Kansas to talk about how he had improved his running skills. For those of you that are runners, you may recognize this guy. If not, his bio goes like this. When he was 17 years old and a junior at Wichita East High School in Kansas, he did a 351 mile, the fastest American at that point ever. And over the next three, four years, he took that 359 to a 351. And so, the question, you know, that came out was, my God, how did you take eight seconds off your time? I didn't realize it then. It took me decades to fully appreciate what his answer was. But I do remember his answer specifically. He said, I quit comparing myself to myself and started comparing myself to my competitors. And by that, he meant if I was running a 58 second third leg, I would try to run a 57 and a half the next time or 57 next time. The point was that his competition was doing a 55. And it changed his perspective. It changed his idea of what was necessary. So, he went to what I characterize as a level two type of benchmarking activity. Level one, everybody does this. You compare yourself to yourself. You compare yourself to your prior year results, to your current year budget. You even compare yourself to quotas on a monthly basis. But you're comparing yourself to yourself. Level two is when you compare yourself against your immediate peers. And that can be on a revenue basis. It's certainly on a sector basis. And for the industry that we're all addressing here, it is a dealer-to-dealer operating results comparison. And what you're looking for, of course, are variations from the norm. What really hasn't been done is to provide any type of benchmarking data or capability around operating a rental business. And we're characterizing those as the business practices in these reports. You will find the capability, and we'll talk about some of them here, the capability to benchmark not only what your results are, but how you improve your results going forward. There is a level three type of benchmarking where you compare yourself to the best in the world, outside of your industry, your immediate peers. And these are air balls that I'm throwing up. But to give you the idea, for rentals, maybe if you want to be absolutely the best in the world, comparing yourself to a dealer is one thing. Comparing yourself to auto rental companies who do, I don't know, millions of transactions a year, millions and millions. For services, comparing yourself to professional service firms. For parts, to understand how Grainger or even Boeing handle their parts activities. Really good stuff in understanding how to maximize what you do. And for equipment, again, I'm back to then auto dealerships. They have been somewhat successful in doing that. For that 71% of you who use benchmarking and for the 29 that don't, I threw in some links here. Those should be in the PowerPoint that's distributed to you that are non-academic, so they're actually understandable. Descriptions of using benchmarking as a strategic tool, using it as a leadership tool, using it as a development tool for up-and-coming leaders in the organization, and using it as an operational tool. These links will take you to these articles. They're pretty easy reads if you want to take another cut at it. So I guess a last word about benchmarking, what it is and what it isn't. You can tell I'm kind of in love with benchmarking, and the idea here is that it does have limiting characteristics, the main thing being that it's not a substitute for management judgment. And there are certain enabling characteristics of benchmark, mainly is that it's a pathway to strategic initiatives, not just operational improvement. So I hope that makes sense. Look, if you do have questions as we go through this, Ping, Phil, or Liz, I don't know exactly what the protocol is. They'll interrupt me, and we will address your question right away as it's relevant to that particular slide. So I want to move away from benchmarking now, and the idea of using it as a way for continuous improvement, either radical or incremental, and get into the key takeaway points of the two reports. So key rental benchmarks. The first I would point out is the one, two, three, four, five, six, yeah, the seven-year trend in revenue mix for dealers in the under $25 million revenue segment. I like to look at revenue mix on an annual basis because it's the clearest view in terms of what the consumers are expecting and what dealer strategies are to address that market need. And there's a couple of very obvious trends that probably are not news to you, but this is a way to look at them to drive the point home. The mix, the percent that a particular line of business contributes to total revenue. Now, I'm dealing in percentages, not absolute dollars. Whole goods equipment has decreased 17 points from 2013. Rentals have increased 10 points. The balance of that has come mainly out of parts and service, that is where the remainder of that is. But the largest substitution for the decline in whole goods sales, outright sales, has been rentals. And the dynamic behind that is likely the fear factor coming out of the recession and customers looking to push risk back on the dealer. And that's perfectly acceptable if you know how to make money at it and manage the risk. This is a benchmarking opportunity to understand, generically speaking, at least for the under the $25 million revenue segment, how well you're in the game. These are objective, factual calculations that at a macro level would help you understand if you were pursuing rentals to the extent that your direct competitors are pursuing rentals. If we look at this, this 10 point increase for rentals, that's further broken down between rent to sell and rent to rent. And I was surprised when this data surfaced and we were able to graph it out and look at it. Rent to sell has leveled out over time. There's been only a one point change over the last seven years. The thing that surprised me is the acceleration of rent to rent. Now, granted, it was coming from a small base, but it's a couple points shy only of being comparable to rent to sell. I believe this would be my interpretation. I believe that the driver behind that is the profitability associated with rent to rent is dramatically greater than it is with rent to sell. We'll get into those numbers and I'll demonstrate that to you in a minute. This is a second benchmarking opportunity at a strategic level. Am I in rentals and am I pursuing the marketplace where I can optimize addressing my customer expectations while optimizing the profitability and sustainability of my dealership? So let's move out of the numbers a little bit and talk a bit about rental strategy. Now, again, this generic statement here about strategy was taken from the dozen dealers that served as a pilot sample. This is a representation of what came out of the 91 survey respondents. And the key factor to walk away with is that rentals are an intentional and integral component of a dealer strategy. Now, what I define as intentional and integral component is that they the rental line of business is at the table, getting its fair share, if not more than its fair share of resources to be allocated over a three, six, nine or 12 month period. Those dealerships that do not have an intentional allocation of resources to rentals and specifically a rental strategy, underperformed those dealers who do have a intentional strategy. One of the things that we were able to do behind the scenes with the survey results that came out now two, three months ago, was to run statistical correlations to find out if there are correlations between certain management practices and their financial results. There's a very positive correlation, not predictive, but a very strong correlation between the existence of a dealer rental strategy and the results that are produced in the process. And the other outcome that was demonstrated through the correlations is that those organizations that had an intentional and integral rental strategy, experienced and enjoyed a greater growth rate than those dealerships who do not have that overt effort into the rental market. The benchmarking opportunity here is to look in the mirror and find out, think about as you go through your 2021 process, are we treating rentals with the strategic importance that really is occurring amongst a broad base of dealers? Or are we treating it as an operational necessity because certain customers ask for it? That's a delineation between being strategic with a line of business or just being reactive to what the market may want from time to time. Moving out of strategy gets us into business practices. And what emerged from the work we did with the dealers is the existence of three business models that are out there. They each serve a slightly different purpose. The first business model, of course, is rent to sell. The second is rent to rent. And there is a prevalence of a hybrid of the rent to sell business model. The primary objective on a rent to sell is conversion. In loose terms, it's a paid demo. The primary objective for rent to rent is a return on investment over a three to four year period. Very different financial objectives. The hybrid model, the primary objective that emerged is that it is conversion, but can become a rent to rent type of model because of equipment that you can't dump into the marketplace. So you try to rent it to bring down your carrying cost in it so you can ultimately get out of it. The hybrid model is more of a subset of rent to sell. The two primary distinctive business models are rent to sell and rent to rent. And we'll talk about the characteristics of those. So rent to sell, the defining characteristics, it's considered short to midterm inventory. As I get into some of the later statistics, you'll see that it's I think the whole period is maybe six months. It's managed as a transaction business. High turn ratio is very akin to new equipment. And it has sales like margins. The reason for that is a customer interested in a rent to sell will be looking, of course, for credits of the rent paid against the purchase price. And the customer is smart. We have to admit that all of our customers are smart. They're not going to overpay through rental and then purchase. They're going to look at it as a total outlay, which then kind of landlocks the margin that's possible on rent to sell. That's not the case with rent to rent. Rent to rent is considered a long-term financial asset, not a piece of inventory, but a financial asset. It's managed as a process business, low turns, but with a lifecycle return on investment expected, consisting of a sales like sales margin, plus the cost of capital over a three or four year period, plus a return on the risk, and produce a return that might be expected out of a financial asset, a financial security, as opposed to a return on inventory. And again, the hybrid model mirrors rent to sell to a certain extent. On average, this is on average, dealers in the under $25 million revenue segment, rent to sell equipment averaged 68% of new equipment inventory. And rent to rent on average represented 39% of new equipment inventory. This is chock full of benchmarking opportunities. The business model descriptions, the characteristics should benchmark again, your intentional approach to the marketplace, and how well your selection of a business model conforms to what was deemed as the most successful practices. You could call them best practices for these two situations, as well as the degree of investment that's occurring on average for dealers under $25 million in each one of those segments. Dick, do you have time for a quick question? I would love a question. I'm ready. Awesome. They told me I couldn't leave the green room until the question gets asked. So, and I really have to go to the bathroom. So, we've got Keith Johnson. Keith, go ahead in the chat. Tell us where you're from and the company that you work for. How do you explain why rent to rent, since we're just now talking about that business model, has increased over the years during a time of historical low interest rates, and what appears to be an abundance of capital for businesses and operators to have access to purchase the equipment? My opinion is coming out of the recession, I think I commented on this, coming out of the recession, customers of equipment dealers were quite skittish. I mean, quite skittish at absorbing the risk for acquisition of new equipment. And I think from probably 2012 through 2014 or so, they got used to that. They essentially, particularly in the rent to rent model, they got used to paying, you know, a higher rate by day, by week for renting, knowing that they could walk away from that machine. And what works for the customer is their uptime, their utilization of that equipment really accelerates. I mean, you know, in some instances, it's pushing 90, 95% utilization because they pick it up the day they need it, they return it the day they need it. And they've pushed that risk of uptime and of high, the risk of low utilization back on the dealer. And that dynamic really seems to have captured it. You know, why wouldn't they use the low interest rates these days and the availability of capital? You know, I would guess that, I'm guessing that customers would say, what's the highest and best use for the next dollar of capital that I spend? Is it in, do I find a way to skinny down my pricing to get more work? Do I invest in training? Do I invest in technology? My assumption is they're finding out that investing in other aspects of their business, rather than spending that entire dollar on a piece of equipment, is driving them into the rental environment as demonstrated by the revenue streams over the last seven years. And specifically driving them into the rent to rent model. You know, I would call that an informed opinion. We haven't done a study on, you know, consumer behavior or anything like that, but I think that would be in the right zip code as far as an answer goes. Sure. Well, thank you for that. And just real briefly, and thanks again, Keith Johnson, one of our new members from Ingram Equipment out in Pelham, Alabama. David Kedney from Luby Equipment Services was curious to know if these stats changed drastically for dealerships larger than 25 million per year. And I would say that's probably in that first report, right? That's a terrific question. I had that same question too. So I did do an examination of all AED members and came out with statistics that are at least the people that responded to the 2019 cost of doing business survey. They almost mirror what's going on with the 25, under $25 million segment. I expected the highest in, those over $200 million to be dramatically more into rent to sell and rent to rent. And as far as examining the revenue mix, the sources of their revenue, very similar. As I recall the statistics, the largest guys had almost a percentage point for percentage point swap between new equipment and rentals. So if there was a 12 point decrease, decrease in like 17 point decrease in new equipment, there was a 17 point increase in rentals with parts and service product support remaining relatively stable over that time period. Different, but again, very similar. So I guess we would have to declare that an industry wide dynamic, this shift to rentals. Great. Hey, thank you, Dick. We'll get to some more questions here in a bit. Okay. And again, the statistics, I probably will overuse this today, folks. The statistics are intended to help you assess and benchmark your operation, this level two benchmarking for you to find out if there is a variation, if you have a good reason for the variation, or if it's an opportunity to improve the dealership. So here's a quick summary slide to show the characteristics of more characteristics, I guess I should say, between rent to sell and rent to rent. I don't want to present this as a checklist. If you go through and check these off, you're doing good. They should prompt debate. The leadership and management process would look something like this. You get your head of rentals or the person at least responsible for rentals to use this content that's in these two reports to examine the business and come back and try to give an objective report of, well, we're ahead of the curve here, we're behind the curve here. That should initiate a discussion amongst the executive team of, all right, well, is there a reason, a valid competitive reason why we would vary from the norm? And if there is, let's don't be stupid, let's keep on doing what we're doing. If there's really not an objective, intentional reason for a variation, it deserves to be examined as a business case. Perhaps going into 2021, that should be an initiative for the entire year to see if that aspect of your dealership can be improved. So, we're moving from strategy to selection of business models. And now we're going to go into where the real action happens, which is daily operations. I probably spent the bulk of my time when I was at the dealerships mapping specifically outbound and inbound process, which is agnostic to whether it's rent to sell or rent to rent. These apply equally to both. And the thing here is that you guys are probably fully aware of this. You can pretty much get your ass handed to you in rentals if you're not paying attention to the quality of what goes out and the quality of what comes back in. I doubt if there's anybody on the call who hasn't been surprised after a rental agreement has been closed out, the amount of damage that actually occurred and you can't get the money back. The intention of this slide and the next one is to talk about the best practices around management roles. Now, I want to point out that this is a management role. It's not a distinct person. I fully accept and have been there in managing a smaller business, in this case under 25 million. You can't appoint one person for every role in the company. People wear multiple hats. The reality check here is do these roles exist in your operation and managed by someone, could be the same person for all three, and are they managed robustly and paid attention to? First role is a rental coordinator, second is the yard coordinator, and then of course finance and administration. What I can tell you is that the existence of the rental coordinator role and the yard coordinator role have a positive correlation to profitability. In other words, if there is discipline around those two roles, those organizations that those dealerships that had those roles had a positive correlation to their growth and profitability much greater than those dealerships who did not have those distinct roles. Here's a description of each one. I guess you could look at this as a loose job description for each one of these roles. Their primary function and the document trail that they create to help control the assets and discipline the business itself. I'm not going to go through these in detail. You can go through them. Again, it's a benchmarking opportunity to evaluate the existence of the role and then the robustness of the role that you have inside your dealership against what would be deemed to be best practices. For outbound, it's a little bit more complex. The rental coordinator and yard coordinator role, of course, still exists, but then product support pops in there. And of course, finance and administration is there. And again, we've got a job description associated with these. I want to zero in on product support. They, of course, play a very significant role on any piece of equipment that comes back in the door, primarily around equipment readiness and equipment safety, the health of the equipment. And getting that equipment from the moment it comes back in the door to rental ready in as condensed of time as possible. Now, I want to talk about that in a little bit in terms of how measurements around that can improve utilization. But the primary function is equipment health. The operational profitability contribution is centered around getting the grain through the goose as quickly as possible to improve utilization and get that piece of equipment rental ready. Same configuration of benchmarking opportunities there. Okay, I'm going to move on. Phil, do you have any questions or can I move on? We do have just one question before we move on, if you don't mind. No, please. Keith Johnson, again, wants to say thank you. Makes sense on your prior response. Of the dealers that you studied, however, did they organize their rental operations separately from the primary dealership operations? In all but one instance, of the dozen dealers that I had visibility to, the ones that I was on-site examining, 11 of them had the rental operations contained in the dealership corporate structure. It was treated as a line of business as opposed to a separate company. I think that's the nature of your question. In one instance, it was an absolutely separate company. For the 91 respondents to the survey, I don't know. We didn't pursue the corporate structure this time around. We intend to make this an ongoing report, so that could be very worthy to find out what the structure of these things are going forward. The prevalent practices of the corporate structure, I don't know if you're familiar with these things are going forward. The prevalent practice, though, is to treat them as a line of business, as a peer, if you will, within the existing structure on par with equipment sales and product support. Sure. Thanks, Dick. Appreciate it. Pete, thank you for the questions, too. So, believe me, I'm not expecting you to read this. What came out of the interviews of those dozen were a very detailed, at least to me, pretty detailed flow chart. And you'll notice that it's the flow of the documentation, the business practice, where it occurs, divided by the roles that exist. So, this chart operates on multiple functions. There's one for outbound and, of course, one for inbound. The charts themselves are available in the annual rental report. You know, this is pretty juicy benchmarking activity. When I say, you know, you want to have these roles and they need to be robust, this puts it in a picture. And it would be interesting to hear from Greg, maybe on how he feels about their software absorbing these practices and the configurability of the software to address these types of, I mean, this process flow associated with rentals specific to equipment dealers. This is available, these are available in the rental report themselves. Okay. So, now we'll move out from, so we went from strategy to business model to business practices. I want to give you some financial statistics to, these are outright benchmarking opportunities to assess the financial operations of your business. Leading up to this point is about performance management, how you make something happen. Now we're getting into performance measurement, which is in one sense kind of bayonetting the wounded, but we're going to go back and take a look at what the financial results are. So, you'll have benchmarking content wrapped around that. The first are the investment levels. We talked about this earlier when I was giving you the business model characteristics. And I want to explain these charts, because they're going to be very similar as we go through each one. This is the average investment level as a percent of new equipment. So, rent to rent equipment, book value now, 39% of new equipment, rent to sell 68% of new equipment. If you had $10 million of new equipment, you'd have 3.9 million in rent to rent on average and 6.8 rent to sell. So, total inventory levels 17, 18 million. The investment period. This is the, think of this in terms of the time that you had a dollar invested in a specific piece of equipment. We chose to use economic life as the measurement rather than absolute time periods, because there's such a variety of depreciation methods, such a variety of holding periods. We thought it would be more meaningful if you could apply a percentage to your policies in that area. So, rent to rent. This is really subtle, but important. Rent to rent, the average hold time is 50% of its economic life. So, you know, if you've got a backloader and you think that it's got an economic life of five years, on average, dealers are getting out of that equipment in two and a half years. The principal reason for that is the sweet spot. I've generated a healthy amount of rental revenue off of that without incurring a whole bunch of maintenance costs. And the very sophisticated dealers that I saw had the data, they had the software programs acquired or home built to be able to capture and project almost in a predictive analytics manner, what the curve would look like for maintenance costs. And the term I heard the most often was that, well, at 50%, we're at our sweet spot. We've maximized the return on our financial asset over the next 50%, the last, the second 50% of the economic life. We're not going to nearly get the return that we get on the first half. So, we're going to actively market that equipment and get out of it and reinvest in another piece. So, the churn period, if you can think about it, is 50% of economic life. Rent to sell is 30%. I think that difference between the 15 and 30 is largely related to the business model of rent to sell to convert. That's the primary objective. I'm getting in to get out as soon as I can. Here's a calculation that shows return on investment. And this calculation is crude. I don't think you'll find it in any textbooks. It's the gross margin by line of business divided by the carrying value of the asset. So, for new equipment, the gross margin is 18% of the average inventory carried for a year. Great benchmarking opportunity. For rent to sell, that same calculation is 13% of the investment in the inventory. Rent to rent is 42% return. Now, we're going to start pulling the curtains back a little bit on why rent to rent is emerging. And I would pause and say, if we went to a level three benchmarking and we saw what kind of margins the auto rental companies look at, they're into an automobile for, I don't know, 25, maybe 30,000 miles, and then they're out of it. And the reason they're out of it is because they've maximized their return at that point. And they also know how to price that stuff. So, they're getting a return that treats that particular car as a financial asset. I think, you know, your opinion is better than mine, I'm sure. I think that this type of return is explaining why there is a quicker, more ramped acceptance of rent to rent in dealerships because of the financial reward that is possible. Productivity, this is financial utilization. And financial utilization is one of the standard calculations out there that is rental revenue divided by the carrying value of the assets. So, rent to rent has a 51% utilization number. Rent to sell has a 35%. I have a problem with that calculation. I don't know if you've ever seen it, but I have a problem with that calculation because I think it's a financial assessment, it's not an operational assessment. To say I've got 51% utilization is great. You know, you can say, well, next year I'm going to strive for 53% or 55%. The barrier that's presented, though, is you don't really get much guidance on where to go operationally to make that happen. I greatly prefer measuring time over dollars. Many dealers are doing both a financial measurement and a time-based measurement. Operational utilization would be the days rented divided by the total days available. And those numbers are not known. We were unable to extract those. We hope to be able to get those in the future. Now, bear with me for a second. I'm going to go a bit into a rabbit hole, but this is important. Let's say that operational utilization, time-based utilization, is 65%. You know, driving that to 70% or 75%, just as an aggressive position. The question becomes, okay, well, I know that 65% is good, but where is the 35% going? Why is it not utilized in that 35% and how do I look to improve that? If you look back at the role management and the flow of those, those organizations that are able to barcode the flow of their equipment from the moment it comes back into the yard to the moments that it's available for rent are able to manage what happens to, and measure what happens to that piece of equipment before it goes back out on rent. How long did it sit in the yard before it got into product support? How long did it actually sit in product support? Excuse me, my phone's ringing. How long did it actually sit in product support? And then ultimately, how did it, how long did it sit rental ready? And a salesperson had it on hold for, you know, two weeks, six weeks with the hope that they were going to rent it. That granular type of measurement becomes possible with robust enough technology behind it. Can't do it on an Excel spreadsheet, but you can do it with the proper software package. You can begin to zero in on where the downtime lives, which will allow you to focus on how to become more efficient in that particular part of the flow. So, one of the recommendations I'll get to at the end here is to move from financial measurements to time-based proactive measurements that are operational in context. Margins, no big surprises here. These are the margins being realized, gross margins, 9% on new equipment, 25% on rent-to-rent, same theme all the way through. And here's a summary chart that attempts to capture the relativity between each of the lines of business. So, this is rentals relative to new equipment. So, the inventory level, we've commented on that, 68% for rent-to-sell, 39% for rent-to-rent. Great benchmarking opportunity. The amount of revenue generated relative to new equipment investment is 40 and 34%. And then the returns on gross margin, 123% better on rent-to-rent, 267% better on rent-to-rent. So, for the sophisticated financial manager, this would be a good chore for your CFO to do some modeling around your revenue mix and some scenario planning that if we were to invest more in rent-to-rent and perhaps shift some money out of whole goods, out of new equipment and into rent-to-rent or rent-to-sell, this is what our P&L would look like. That will help make an assessment, help you make a judgment on the business case to pursue expansion or retraction of a particular line of business. So, some quick recommendations here. Let me pause. Any questions on this, Phil? Anything surfaced on those quick data points? We do, actually. Just a quick question. But do you happen to know what the gross margin is for rent-to-rent? Yeah, I think I had that in there. Yeah, 25%. There we go. Yeah. All right. That's the only one we have at the moment. Okay. And again, having the data is one thing, a single data point, but when you put it together, but when you put it relative to the historical line of business of new equipment, I think this is a bit more meaning on possibilities. This, I do encourage you to engage your CFOs to do some modeling around these statistics. So, recommendations. The first is a leadership recommendation. Get the right leader behind rentals. There is a mindset for rentals that varies somewhat from the transactional business of selling whole goods. The first is that this is a line of business that is managed in inches, not yards. And in a football analogy, it's possible to pull out a slow quarter in the last two weeks of the quarter. You can institute a sales campaign. You can strong arm some of your better customers. You can push a lot of iron the last couple of weeks of a quarter. You can't do that with rentals. You're selling time-based value, almost equipment as a service. And if you're behind a month and a half into a three-month period, it's going to be hard to make that up. And if you're behind going into your third month, I mean, substantially behind, you're not going to make it up. So, it is a game of patience in managing granular details. Some of the dealers that I visited were managing utilization on a daily basis, if you can imagine that. They happen to be very profitable in the process too. The second thing is this idea of managing in inches and not in yards. I mean, it's technology enabled. You can't do it in your head. You certainly can't manage it in an Excel spreadsheet. It requires dedicated software packages that are capable not only of making the measurements of where you are, but as I'm trying to make the case anyway, the capability to track not only that equipment as it goes through the sale return process, but to track the profitability of that equipment for the lifespan of that piece of equipment. And over time, it's possible then to build up the database that can contribute to the predictive measurements that need to be made on when to hit that sweet spot. I know of a particular dealer who was pricing their rent to rent equipment very similar to rent to sell. They had not made a distinction between the two business models, although they were in the two business models. And over the course of 45 days, they tripled their margins on rent to rent because they began to acknowledge that it is not a piece of inventory they're renting. They're operating a financial asset. So, the key recommendation here is the intentionality of the business model and accepting or at least absorbing the defining characteristics of each of the models. And, you know, a general recommendation to put a square peg in a square hole to run these things. I promise this is my last pitch on benchmarking the process of understanding the competitive landscape, conforming your strategy and the components of your strategy, specifically revenue mix that you may wish to pursue, developing a plan business case to pursue the strategy, and just measuring like crazy and calibrating and adapting. And then again, reviewing what's going on in the marketplace. This cycle is loosely defined as strategic management. And I think that, you know, I just think that it's the way to go given the constraints that dealers are under and the pressure from the market as well as the OEMs. And finally, you know, if you're going to play the game, play the game. Invest to compete. Pursue time-based utilization. I do feel that there is you know, immediate financial results to be had out of something like that. And respect the role and process coverage that's necessary to be in the business. With the volume of dollars involved, it's not a, you know, it's not a hip pocket kind of thing to get through. So, where to turn for information? The first report, the annual rental report. The second report is then the companion report. I believe, Phil, that the bundle is $400, I think. And for our attendees here this week, we're going to be offering at the low price of $395. Yeah, they're going to remember that, Phil. You know, I have no financial interest in this. And I am not in the consultee business. I'm not in the revenue generation mode. So, I'm not promoting these with the idea that there's any return to anybody, really. I just think it's an opportunity for businesses to, dealerships to take a look at their business in a way. And in the process of applying it to rentals, turn it into a recurring management practice that can be provided or applied to product support as well as new equipment. And that is what my presentation is about today. So, two takeaways. Be strategic about your business. And, you know, become Jim Ryan and learn how to run against the best in the world rather than just run against yourself. Well, thank you, Dick. And I believe we just have one more question that came in through the chat from Greg Newell. Okay. So, you showed a 25% gross margin on rent to rent. Is the 25% of above cost of investment or 25% of adjusted principle of investment after rental income is applied to the machine? Well, I'm going to need to hear that question again. Sure. And if it's not something we can get to at the moment, we could absolutely get back to you, Greg. Well, I think we can answer it, but I want to make sure I understand it. So, we answer it specifically. And it's a really good question. Absolutely. Read it to me again. I want to make sure I've got the right slide in front of us. You showed a 25% gross margin on rent to rent. Correct. Is the 25% of above cost of investment or 25% of adjusted principle of investment after rental income is applied to the machine? That's a classic P&L measurement. Other words, rent to rent revenue, less variable cost, which some people would include the cost of capital in that. Some would not. Most will not include that number in getting to gross margin. It would be included in getting to a net margin. So, think of the 9% new equipment gross margin. Think of the P&L associated with that. There's the sales, the cost of sales, revenue, cost of revenue. You come down to a gross margin. It's that same model applied to rent to rent. There will be some variations on how aggressive people load this number up. Not many dealers measure net margin on a line by line basis or line of business by line of business basis. So, this classic P&L calculation here. I hope that helped. Hey, thank you, Dick. Appreciate that. And this is really powerful stuff. We're 80s really happy to have this as a tool to offer to its members. So, if you have any questions about it, please reach out to your regional manager or myself, and we'd be happy to get you set up with that. And, you know, Dick, I think you mentioned it on a call that you and I had a couple of weeks ago. It's never a bad idea to have your leadership team really dive through this with the goal of finding three to five ideas or opportunities that would be worth evaluating for the business. And thank you again to Greg from HBS Systems for their support today. Just one final question and a couple of notes, and we will call it a day. So, we want to really know just in a word, what has been your favorite part of the conference so far today? If you could do us a favor, pull out your phones and text that to the number 22333. If you're on your internet browser, visit PollEV.com backslash AED event 444 and let us know what you thought today. So, while you're doing that, texting what you thought of the conference today to 22333. As a reminder, the conference tomorrow starts at 10 a.m. Central. As always, follow the link in the chat to the session for tomorrow to get started. Again, text us at 22333, your favorite part about today's conference. And if you're at the last Power Break, you're in luck because we're doing it again tomorrow. So, Chuck Norris, the music, Power Break, the handsome moderator. Oh, you're too kind. Dealership contracts, negotiating dealership agreements. Awesome. All right. Well, keep an eye on your email for access to all the presentations from today. And don't forget to follow us on social media. All right. And with that, we will see you tomorrow. Thank you, everybody.

strategy

benchmarking

rental business

resource allocation

business models

rent-to-sell

rent-to-rent

rental operations

utilization

gross margin