Blog / The Fastest Ways to Increase Equipment Rental Business Profitability

The Fastest Ways to Increase Equipment Rental Business Profitability

It’s a challenging time to be in the equipment rental business. The global pandemic has had a significant impact on the economy, causing shifts in demand and revenue for the equipment rental and service industry as a whole. From heavy equipment and construction to oilfield service equipment, rental companies have had to reassess and readjust their strategy, offerings, and overall operations to stay in business.  

Recessions, with as much turmoil as they bring, also tend to provide room for new opportunities and growth – you just need to know where to look. Right now, many rental businesses are struggling to pinpoint where exactly they are losing money. If you don’t know the cause of the problem, how are you going to fix it?  

As an equipment rental business, the easiest path to growing profits is to focus on your margins. Specializing in supporting rental companies in their approach to financial and operational management for over 20 years, we are sharing the common areas we see a negative impact on profitability and what specific margins you should be measuring. From there, we provide our fastest ways to increase equipment rental business profitability this year.  

Where Are You Losing Money?  

One of the most profitable equipment rental businesses today is construction because it relies on individuals and companies who rent tools and heavy equipment for building development, home renovation projects, landscaping jobs, and demolition, all of which have seen a huge boost during the pandemic. From excavators to forklifts to wheel loaders, contractors, developers, and even homeowners are looking for affordable, reliable equipment to complete their projects at unprecedented demand. 

But while the high rental demand is there, many of these construction-based equipment rental businesses are still struggling to generate an acceptable profit level. From lost equipment to double bookings, customers will choose the company who has the right equipment at the right price. Mistakes, inefficiencies, and lack of insight can wreak havoc on your bottom line, and that is universal across the rental industry as a whole.  

Here are 8 of the most common areas where equipment rental organizations are losing money today:  

  1. Faulty Equipment 
    When equipment is not serviced correctly for planned maintenance and repairs, it causes more downtime and less rental revenue.  
     
  1. Weak Customer Service  
    Mistakes, delayed orders, and broken equipment are all reasons for losing customers. But what about when you have to turn away customers due to inventory? If your asset fleet investment doesn’t match customer requirements, they will go to your competitors.  
     
  1. Lack of Operational Visibility  
    When you have to manage multiple systems for your financials and rental/service operations, you can never really see the big picture. This limits your ability to analyze performance, make timely, accurate decisions, and invest in higher-producing parts of your business.   
     
  1. Outdated Software 
    Older legacy systems are difficult to work with, drain resources, and lack the flexibility you need beyond rental and service (i.e., manufacturing, warehousing, jobs). Without the usability and functionality your employees need to do their jobs, they are constantly struggling and wasting valuable time to make ends meet.  
     
  1. Misplaced Equipment  
    Lost or missing equipment is often the result of disorganization. Many rental companies still don’t have the systems in place to track equipment in real-time on location and are relying on paper and manual processes in the field. 
     
  1. Double Bookings 
    An inability to manage equipment rentals and services based on usage and time is going to result in several scheduling issues and, as a result, double bookings, unhappy customers, and lost revenue.  
     
  1. Process Inefficiencies 
    Without a system to collect data from all areas of your rental and service business, you have no insight into equipment utilization, rental rate, asset profitability, etc., and therefore, you have no way of knowing what processes need improvement.  
     
  1. Limited Reporting and Analytics    
    Do you know the profitability of an asset? Old legacy systems and separate software make it extremely difficult and time-consuming to consolidate and access data and reports. You need instant access to accurate financial and operational reports and dashboards to tell you what is financially viable and strategically assess your operations.  
     

Operating Profit Margin vs. Gross Profit Margin  

Many equipment rental and service operators get really excited when they see an existing or new line of equipment generating large amounts of revenue. But at the end of the day, it’s profitability and return on investment (ROI) that matters. In order for you effectively serve your customers, pay your employees, and grow your business, your equipment rental and service business must be profitable. There are two measurements of profitability that we are going to highlight: operating profit margin and gross profit margin.   

  • Your operating profit margin is a percentage that shows how much of every dollar ends up as operating profit for your business. It tells you how much profit you make in relation to the total revenue you bring in.  
  • Your gross profit margin is a measure of how much money you have left over from every sale after  taking out what it cost you to produce or acquire the product or service you just sold. How much did you invest in that equipment, and what does it cost you to maintain it? This measurement shows you how successful you are at generating revenue and is a great indicator of the overall efficiency of your rental business.  

Knowing these numbers will provide a better understanding of where you are generating and losing money. That way, you can take a step back and figure out:   

  • Which customers, products, or projects have the best margins  
  • Which customers, products, or projects have the lowest margins, and you should consider phasing out  
  • Where your production inefficiencies are  
  • What strategies you should implement moving forward (i.e., re-renting or sub-rentals) 

Armed with deeper performance insights of where you are profitable and where you are not, you can answer the most basic question: How do I make more money this year?   

Fastest Ways Increase Equipment Rental Business Profitability  

At Open Door, we specialize in core business management for the equipment rental industry in North America, and we want to provide you with the advice and tools you need to solve the unprofitable areas in your business while maximizing your rental revenue.  

Our equipment rental industry experts have pooled their knowledge and identified 8 ways to boost your rental business profitability in 2021. Our practical tips include everything from restructuring your organization to strategically investing in integrated rental management software.  

8 Ways to Increase Equipment Rental Profitability in 2021 

Maximize Your Equipment Rental Revenue Today 

With over 20 years of rental experience, we know the equipment rental and service industry inside and out. We know the value of an all-in-one rental management ERP system and what a centralized, scalable business application can bring to your bottom line. To help you assess whether your equipment rental business is ready for ERP software or not, we are offering a no-charge business discovery session. We will evaluate your current processes, systems, resources, and requirements, and deliver our recommendations on how to improve your profit margins moving forward.