When to Walk Away

 

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?

 

We do.

 

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!

Comments

[Ramseyhardware]

Depends on the item. Figure a $1 per minute to handle an item from writing contracts loading unloading and cleaning. Stump grinders and drain snakes have a much higher rate than something like a table or dewatering pump

[Ray Hoekstra, Jr.]

What a great question. As a "hands on" owner/operator of two rental stores, I have been oftentimes dumbfounded and bewildered with my competitors' rental rates during the past couple of years.

Since I am very intimate with the purchase and repair costs for every piece of equipment that I own, there is not a disconnect to the real value of my equipment and what it takes to sustain that value. I am frustrated with the obvious discounting that is prevalent in my market place for several reasons. First of all, they are not creating additional volume with lower pricing, but rather they are leaving "money on the table" with the remaining amount of existing rentals. Secondly, they are sending a clear message to their clientle that all of their rates are negotiable and ultimately they are devaluing our services. Thirdly, I think it is a misconception to think that we can maintain customer loyalty or expand our customer base by getting our foot in the door with artificial low teaser rates. I firmly believe that all of these tactics will haunt them in the days to come.

So, having said all of that, I have begun to question my own expectations for a reasonable return on investment. And, I have also questioned my every day business practices and I am asking myself "What am I missing?", "Do the large national firms know something that I don't?", and finally "What has happen to common business sense?".

In the meantime, I have held true to my existing rental rate structure. If it was good enough when we entered this recession, it should still be good today. This is no denying that I have had to make some minor concessions along the way, but we have done that modestly. Have I lost business in the last couple of years? You bet! But my equipment is still in excellent shape and my customer service has never been better and I am positioned very well for the upturn.

I am really looking forward in hearing your comments on this topic. The matrix for sustaining profitibility and maintaining the value of our fleet is very complex. The diversity of our rental inventory, current resale values of our existing inventory, and replacement costs for new inventory all impact our real cost to some degree and those variables are ever changing. My real net worth in my business and my cost of doing business is changing on a yearly, and sometimes a monthly, or even a daily basis.

So to answer your question..."When do I walk away?" I don't ever try to, and I do maintain the same rental rates that I had in 2007. In all candor, I have not been immune to double digit declines in my rental revenues and I am very anxious to what the future holds. But, if my business philosophy and strategy eventually leads to my demise, at least I will be able to say "I did it on my terms and not someone elses".

I firmly believe that the boom times for our industry is just around the corner and I am patiently waiting for its arrival.

[Jerry Kortesmaki]

I have walked away from some items and let my competition have them. It is impossible to be everything to everyone. The size of my property has limited my inventory, so I have to make the most with shat will fit. I walked away from skidsteer brushmowers when I could not make money with them. That is the key to this descission, the tools to track expenses. The next thing is custtomer satisfaction, if it is not making you money you won't be happy with it and that will show to your customers. But having the right mix of inventory makes it work, dollies and snakes make great ROI while skidsteers might not do as well but the cash flow end makes them manditory to pay the bills. Reality is we have to make a profit or we will not stay in business so walking away is part of what we have to do sometimes to survive(aka be profitable).

[Rob Lewis]

You hit on a good topic. It doesn't surprise me to see that everyone is focusing on how cheap they can get it. The big companies like Sunbelt, RSC, United, Neff, etc, have no choice but to act this way. They have to bring in money for the pieces sitting. Departmentalization takes the focus away from how much a cheap rate actually costs and puts the focus on how much are we bringing in as a whole. Sure there are reports that show it, but the reports don't show the down time and maintenance on each machine so they look at the mosaic, not the little pictures that make it up. Ray said it perfectly when he said that he has his hands on everything that has to do with his business. You know firsthand how much you lose by putting out a $150/month scissor lift or a $600/month Deere 310 backhoe (yes these are true prices from local companies). It's a wonder why more companies haven't been in the bankruptcy court, but I don't think we have seen the fallout completely.