Fred Hageman and Gary Stansberry hope you and your family have a pleasant Memorial Day weekend while we all take time to honor those who have given the ultimate sacrifice for our country.
The Rental Advisor blog will return next Sunday, June 6th with a new post, along with a new look as part of our redesigned and updated website.
If “Image is Everything” then it can also be “nothing.” There has been a lot of discussion both in the past and especially recently regarding the image of rental companies—specifically independent rental companies. But, it seems lost on so many. How and why is this?
The following basic “image points” are not overly expensive to implement. Not implementing the basic image points, however, can cost you a lot! Following are just a few basic, yet very important image points to consider:
Delivery Vehicles/Trucks: The first thing many of your customers see is your delivery vehicle(s). Why would you ever want to look substandard with the general public and your customer base? Make sure your vehicles present at least a decent appearance with proper information on them. Are there letters missing on the side of your box truck? Does your stakebed truck look like it’s falling apart? How about your logo? Is it the new one or the old one on the truck? Do the trucks in your fleet “match” each other with the writing on the sides or are there differences? Too many times we see a delivery vehicle and wonder what the rental equipment looks like if their delivery vehicles present such a poor appearance.
Employees: Do they have uniforms or do they just wear whatever they choose? Is there a personal appearance policy or code at your business or can your employees do what they wish with their appearance (including facial piercings). The personal appearance of your employees is a component of customer service and perception.
Website: You do have a website, don’t you? Your website is a huge window for your customers to view your business. It’s also the main form of advertising these days. Just think what you’ve spent on Yellow Page advertising in the past. Now, invest a fraction of that in your website. The site must be professional, easy to navigate, and have all the basic information necessary to understand what you offer (we aren’t fans of posting rental rates online), where you are located, what your hours of operation are, how to contact the company, along with many other basic pieces of information. If it needs updating, do it! Look for our new updated site in a few weeks…
Facility and Signage: Even well run companies neglect their facilities (we are being specific only to the exterior here). If your building needs painting, do it already! If you have marquee signage, use it and change it frequently. Are the company signs on your building in decent shape? We see way too many rental companies that neglect the exterior of their facilities. Just because you don’t “own” the facility but merely rent it is no excuse. Perhaps your landlord will paint it on his dime. Nevertheless, improve your image by taking care of the exterior of your facility.
Rental Equipment: We’ll be brief here: Customers will treat the equipment in direct relation to how it looks. Looks great—great care is taken. If it is looks bad (ripped seat, peeling paint, rust, worn down tires, missing decals, etc.), then it will be treated poorly.
Look at your basic image points like a customer would and you might see your company in a much different light.
I work out at a gym near my home and have been a member there for nearly six years. It is a locally-owned operation that has been around for 10 years or so. A lot of people that work out there know others by at least a passing acquaintance and I have been around there long enough to be considered a “regular” known at least by sight to most and by name to many. I also struck up a passing acquaintance with the owners of the gym, two personable guys that are in pretty good shape for what must be their late 50’s. The two seem to around most times and spend a fair amount of time “schmoozing” with their clients.
About eighteen months ago, a brand new national gym chain opened up down the road from this gym. There was a lot of glitz and dazzle to the opening. It’s on a major road, highly visible with a location next to a popular restaurant. The front of the gym has big glass windows that passerbys can see into and see rows and rows of new equipment and weights. When the new gym opened, I asked one of the owners of my gym if he was worried about this new competition that had set up a few blocks away and obviously drew from the same client base that he did. He told me that he was not, that his gym had a comfortable feel, everyone knows everybody and people felt at-home working out here. I nodded and agreed. I didn’t say anything, but was hoping that he would take note of some of the aging equipment that surrounded us at that moment and perhaps make a few strategic investments in new equipment.
Last summer, I got a rotator cuff injury in my left shoulder. Though it did not require surgery, my doctor advised me to lay off any physical activity for a while and I completely stopped going to the gym late last June. After about an eight month layoff, I recently returned to my “comfortable” neighborhood gym. It looked the same as always, but I did note a few changes. First off, there did not seem to be near as many people as what I remembered and though I did recognize a few patrons, there seemed to be many other “regulars” noticeably absent. The second thing I noticed was that there had been NO investment in new equipment and in fact a fair number of machines had been completely removed leaving conspicuous empty slots in areas where they used to be. There were a number of pieces of cardio equipment (treadmills, ellipticals, bikes, stair climbers, etc.) that were not working properly. Of the 25 treadmills, I counted eight that were out of order, signs hanging from them confirming it. Lastly, I have been back now probably a half a dozen times and I’ve not seen either of the owners.
What does any of this have to do with a rental operation? How many of you have been facing increased competition from a national company? Most every national company we know of sets the bar high; nice facilities, late model equipment that looks good and is in good condition, etc. What about your company, your facilities, your equipment, your level of customer service, your involvement in your business as an owner? We often say that local customers prefer to do business with a local company, but only if they receive a comparable level of service and comparable equipment.
My gym contract comes up for renewal in July. Despite an almost six year relationship with my current gym, I feel justified in taking a look at the new, upscale national competitor. I have a feeling when I do take a look down the street, I will likely see a few familiar faces. What about your rental company and your customers? Are you giving any of them reason to take a look at your competitors?
Over the years, we’ve all seen job satisfaction surveys of employees. Almost always, “money” or pay rate is several notches down on the most important factors regarding job satisfaction. At HS&A, we’ve found that employees need to feel that they can make a difference in the company they work for. Employees need to feel that management and ownership knows, trusts and respects them and, in return, those employees are willing to “go the extra” mile for the company to make sure it is successful. Here are a few tips to give your employees a “voice:”
Get to Know Your Employees: Spend a few minutes with all of your employees on a regular basis. Find out about their spouse, their family, what their hobbies and interests are. Share yours. Too many “bosses” blow past their employees and go straight to their office with any personal interaction.
Share information and goals: In this downturn, employees may be nervous about their job stability or even the financial stability of the company. It is important that your managers know the key metrics of their departments and, more importantly, a goal on key performance metrics that can be controlled at their level.
Seek input: Your employees are on the front line. They often have ideas to improve efficiency, increase revenues or decrease expenses. Have an “open door” policy and encourage input from all levels of employees.
Let your managers make decisions: Set parameters on what decisions can be made and by whom. Don’t be afraid of empowerment. Owners and/or upper management should not have to be consulted on each and every decision.
Perform Regular Employee Reviews: Regardless of whether or not a salary adjustment is in order, each employee should have a formal review at least annually. The purpose of the review is to establish clear expectations, reinforce good performance, improve unsatisfactory performance, and foster a spirit of cooperation and teamwork.
Deliver Praise When Praise is Due: It is important for an employee to get positive feedback and, if appropriate, be rewarded for a job well done.
Hold Employees Accountable: Be clear and firm with employees. If a reprimand is due, deliver it in a private and professional manner. Document it. Know that your other employees will take note of how these situations are handled (and in some cases not handled).
Lastly, remember you (as the owner or manager) are the example that other employees will follow. Your employees will do what you do. If you take an interest in your employees, your business, your customers, your equipment and have a positive, professional attitude, they will too. If you take any of these areas for granted, they will too. Be a positive, proactive leader and you will create a loyal team.
Last week, we asked if you “Know When to Walk Away.” We appreciate the responses we received and we will personally contact those respondents to share our thoughts and guidelines. A blog is an interactive communication forum and we encourage input from those of you who are on the front lines of the rental industry.
We love that old song where Kenny Rogers sings,
“Know when to hold ‘em”
“Know when to fold ‘em”
“Know when to Walk Away!”
“Know when to Run.”
Do you know when to Walk Away?
Each piece of rental equipment that you’ve invested in has to have a minimum rental price and a “Walk Away” rental price. It’s a business decision and based on solid business principles. If the unit is in service, it must be serviced! There is a cost to just “putting out a piece of equipment” because it is idle.
Some rentals are better off left to the competition.
We have models we’ve developed over more than a decade that focus solely on financial metrics of rental companies in the U.S. The models and metrics are necessary tools to be profitable in the rental business and its segments.
Do you know what your Walk Away rental rate is? You should or you are not a leading rental company.
Tell us if you know when to Walk Away.
If we get 10 posts or more from different rental companies we will reveal our answers next week on our blog regarding our advice to clients when to Walk Away.
Post it and we’ll answer it!
For most rental companies, payroll is the #1 cash expense. When we review rental companies and see that many are now underperforming, we look at all aspects of the rental company and payroll is first. Most times it is too high of a metric these days.
We recommend tracking your payroll expense weekly as a % of your total revenue. Use the following guidelines and advice and you’ll see improvement!
We use fully burdened payroll which includes base pay, overtime, workers comp, vacation pay, sick pay, commissions, bonuses, contract labor, temporary labor, payroll taxes, employee insurance and any other employee benefit expense. Get in the habit of tracking payroll expense to revenue every pay period. Remember, don’t cheat and count “fully burdened” payroll to be precise.
For party/special event rental companies your payroll expense target is 40-45% payroll expense as a percentage of total revenue. For contractor oriented rental companies your total payroll expense should be 20% to 25% of total revenue. If you are a general rental center (homeowner/contractor mix) your payroll should be 25% to 30% of total revenue.
If you are doing better than these benchmarks or metrics, your rental company likely has above average EBITDA/Cash Flow margins. If your payroll expense is above these benchmarks, you are likely struggling. PAYROLL IS THE #1 ENEMY OF PROFITABILITY. IF YOUR PAYROLL EXPENSE IS OUT OF
Just in case you don’t know or were afraid to ask what “Cap-ex” means, it is a shortened version (ie: texting/tweeting) for “Capital Expenditures.” This boils down to “What type and how much equipment are we going to buy next as a rental company?”
As rental companies, large and small alike, age their rental fleets in today’s economy, Cap Ex decisions are always a “zero sum game” in the long run in our opinion. It is a “Pay me now or Pay me later” issue. Here’s why:
In order to maintain an overall rental fleet age of 5 years or less—which is and always will be an industry benchmark--a rental company must purchase 10% of its overall rental fleet value EVERY YEAR, year over year. Here’s how the math works:
Let’s say you have a rental fleet with an original cost/value of $1 Million dollars (or $10 Million or $100 Million--the numbers will work out the same.). 10% of your $1 Million (or whatever your fleet cost number is) in fleet is $100,000. You therefore must purchase $100,000 in fleet per year to maintain a 5 year average age old fleet.
Part of the equation is that you would also sell off $100,000 per year in ORIGINAL cost of fleet as well. You won’t get $100,000 for selling this used equipment but what you are looking at is the original cost of the fleet you sell (usually the oldest units of your fleet).
· $1 Million in ORIGINAL cost of fleet
· 10% of that fleet equals $100,000
· After 5 years of Buying new fleet AND Selling off old equipment at a 10% clip (all at original cost) per year yields the following:
· Half of your fleet will be 5 Years Old or Newer and half of your fleet will be 5 Years Old or Older over time.
· That equates to an Average Age of Fleet (based on overall dollar expenditures) of 5 Years!
This equation does not take into account any “Growth” CapEX, which would be additional expenditures (or less divestitures) to grow your revenues with increased fleet to over the $1 Million example.
The bottom line is this: Continue to invest in your rental company’s rental fleet or pay the price later with additional repair and maintenance expense or potentially lose out to those rental companies that have a newer and more desirable rental fleet. It is our strong opinion that any rental company’s fleet age should be 5 years old or NEWER to survive, thrive and succeed long term in this industry!
A rental facility should be an attractive, well-located, environmentally compliant, long-term “home” for your business that also has room for growth. Total triple net facility expense (facility rent, taxes, insurance and maintenance) ideally should be no more than 5% of your total revenue. We have encountered some higher rent areas (California, Northeast US, etc.) where total facility expense is 8% of total revenue, however, that is the absolute maximum we feel is acceptable.
Here are a few tips whether you own your facility or lease from a third party:
If you own the property:
· It is always best to own the property outside the entity that conducts the day-to-day operations of your rental business. There are a number of legal, tax and operational reasons for this. Consult your attorney and tax advisor and they can fill you in on the specific reasons for your business.
· Charge your rental business a fair market rental rate for the facility. Your real estate should be viewed as a “stand-alone” investment that should get a fair return. If you are “subsidizing” a lower rent or paying no rent at all, you have two investments with less than an acceptable return on investment; your real estate and your rental business.
If you lease from a third party:
· You should have a five year base lease with option periods that give you flexibility for an additional 10 to 15 years. If you are nearing the end of the lease and you have no option periods, the landlord has all the leverage. This can be very problematic if you are planning to stay in the facility or if you are trying to sell the business. We can tell you some horror stories of greedy (or grumpy) landlords with outrageous demands in these types of situations.
· Avoid long term lease obligations; a five year base term with option period is ideal. We have seen rental companies struggle with 10, 15 and 20 year lease terms when a relocation or termination is needed. The need for lease termination may be caused by the need for a bigger (or smaller) facility, a geographic re-location is desired or your business is sold and your current facility is not right for the acquirer.
We will address other facility issues including compliance, zoning and housekeeping in future posts.