Short-term rental business has been off in our area. Have you heard of any new or innovative ways to stimulate short-term rental business? We have been kicking around ideas such as using an hourly usage charge instead of a fixed rate and renting operators with forklifts.
– Brian Gorman, Fleet Manager
Alliance Material Handling Inc. (Jessup, MD)
Duncan Murphy: My initial reaction is to ask if it is just your rental that is off or if the market is off. Are you certain that the business has not gone to a competitor? Are you monitoring call frequency and lost orders to quantify your market activity? If your answer is still yes, then research what the marketplace is missing. Your two suggestions are very innovative, but would something simpler work? Do you target seasonal customers, such as lawn and garden businesses or companies with heavy holiday activity, and have what they need, ready to go? Are your techs aware of your rental program so they can place units for you when they see breakdowns and increased need? Some dealers I know answer their phones by saying, “We rent lift trucks” to raise awareness.
Regarding your two ideas, you first need to make sure there is a need on the part of your customers. Hourly charges are becoming the rage right now, which typically work best for people who need availability but not high hours. You must include a minimum charge per period with an hourly add on. We have employed this and many times find that we get greater revenues than we would have gotten using a discounted rate. Make sure your service intervals match usage.
The second idea becomes very strong in tight labor markets. It is also a lot more complicated. We have no experience supplying drivers, but other dealers I know have partnered with a temp agency to provide the operators, outsourcing this piece to someone who knows what to do. They have an hourly rate and, in some respects, you might find the proper strategy is a combination of both your ideas. The bottom line is that you must research your marketplace and know what needs are not being met and then communicate your solutions to the people who can use them.
Mark Milovich: We have also seen a slight drop-off in short-term rentals. Of course, the easiest answer is to look to your past rental base and see to whom you have lost rental business and why. A good place to look for new business is past business. I caution you against renting out operators with your lifts, as it brings a whole new set of liabilities and may not be covered under your current insurance policy. By providing the operator, you expose your business to unnecessary risks. As for hourly charges, you might decrease your revenue further by only charging actual usage. I would stick with the flat rate with hourly overtime charges.
Jerry Weidmann: Rental business differs in every market. There are seasonal spikes in the rental business and broader economic cycles that determine the utilization of the rental fleet. We seek to maintain our utilization at or above 70 percent. When fleet utilization falls below 70 percent, we change marketing tactics to improve it. Some of the standard practices we use to drive fleet utilization include the following:
- Discount Discretion. We allow our rental managers and sales staff to discount rentals based on their assessment of a transaction’s competitiveness. If a specific category of our rental fleet is under-utilized, they have discretion of up to 30 percent to make offers to improve utilization. Obviously, if the utilization of an equipment type is 90 percent, then the use of this discretion will be minimal.
- Major Account Programs. We enter into partnership agreements with key accounts providing negotiated discounts on rentals. These agreements address all aspects of our relationship with the account. By establishing a specific program, we are generally able to be their exclusive supplier for rentals. The pricing is based on the totality of our relationship with the account.
- Calling Past Customers. When utilization is below 70 percent, we ask our customer service representatives and our rental staff to contact customers who have used the type of rental that is in surplus to determine their needs. This allows us to stay in touch with our accounts, determine the status of their business and the likelihood of future rental business.
- Large Accounts. Our larger fleet customers have recurring needs for equipment when business volumes increase or when they have equipment down. For major accounts, we stage rental equipment at the customer. We bill based on actual hourly usage.
- Service Work. One of the key drivers for rentals is service work. Service-based rental business tends to mirror the service business. If service business is good, this portion of our rental business is good. If service business is off, this portion of our rental business is off. If our service business is off, we will offer discounted rentals or free cartage to improve our competitiveness on the combination of the shop work plus the rental. The key to improving service-based demand is to obtain more service business.
- Seasonal Rentals. We have a number of customers whose rental requirements are based on the seasonal needs of their business. We work with these customers well in advance of their seasonal requirements to make sure we have an agreement to provide the rentals. Pricing of this equipment can be done to mirror the customer’s revenue.
- Rental Purchase Options. For customers who rent equipment long term, we offer rental purchase options. If we are offering a rental purchase option and the competitors are not, the customer may select us regardless of price to establish “no risk” equity in the equipment in the event they choose to buy the equipment at the end of the initial rental period.
- Competitors’ Rentals. When our equipment is idle, we offer to pick up and return a competitor’s rental from an account and deliver it back to our competitor free of charge. We deliver our rental to the customer, pick up our competitor’s rental at the time of delivery and return it to our competitor. This is a low-cost marketing program. We know the customer has a rental need because they are renting from our competitor.
The management of the rental business requires vigilance to identify underutilized assets, determine the cause of the decline in utilization and to immediately turn on a variety of marketing programs to increase utilization. When the economy slows, one of the first impacted areas is the rental business.