If you’re in the equipment rental business, you know business is on the upswing. Industry revenues in the US are growing three times faster than the general economy over the past few years according to the American Rental Association (ARA). This kind of market opportunity also comes with increased competition. That’s why smart business owners are harnessing the power of their data to measure true business performance and financial utilization.
Making money in rental today requires you to have a handle on the metrics and visibility into all aspects of your business. Managing rental is complex – there are many moving parts including billing cycles, discounting and scheduling. A strong understanding of what to measure, how to calculate and analyze key performance indicators (KPIs) is key to making smart, data-driven decisions and growing your rental business.
This article looks at the first of two different types of Rental Utilization KPIs, Financial Utilization. Next week we will share and discuss Time Utilization. These calculations are designed to help you determine the ROI on either individual units or an entire rental fleet so you can measure performance and make more informed business decisions.
Financial utilization is considered the gold standard for rental utilization measurement by many because it reflects the true amount of revenue each unit earns on an annualized basis. Using this method, you calculate an ROI percentage by unit. This allows you to compare or benchmark different units in your fleet, so you know which ones are making the most money and when a unit needs to be cycled out or serviced.
Financial Utilization Formula:
Average Monthly Revenue for a Unit
Acquisition Cost of that Unit
Notes about the Financial Utilization method:
- Numbers can fluctuate greatly between units depending upon the acquisition cost of the unit, especially when some units acquired were previously used.
- This method doesn’t consider the cost of servicing or repairing the unit.
- The goal for the lifetime revenue of a unit using this method should be 65% to 75% of the acquisition cost.
Next week we will share the Time Utilization Formula. We will also show you how to analyze Financial and Time Utilization rates together.
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