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Mine your data for rental rate management

As the economy improves, it's important to make sure that your rates evolve along with the marketplace. A small tweak in rates can mean big opportunities. Fortunately your rental system has a wealth of data to give you a head start.

Rate management really starts with customer management. That's where rental businesses have a big edge over most other industries. A tremendous amount of business intelligence is captured consistently by a rental system during transactions - rental term, type of item, geography, mutually acceptable rates and fees, and much more.

And here's the exciting part: rental computers are oblivious to economic cycles. Any company with a rental management system continued to capture that data with consistency right through the downturn - even the most short-staffed operation. All that data is sitting there, ripe to mine for rate management.

One of the most powerful uses of rental data mining is the tweaking of the balance between rates and utilization. In my experience, independent rental operators don't revisit this balance often enough. There are a number of strong motivations to keep the rate/utilization balance fluid - profitability, customer relationships, inroads against a competitor, changes in fleet mix, to name a few. If the standard 'rate book' stays static for a long period of time, changes in price and utilization are usually not strategic, they're simply driven by the moment.

A review of a rental system's utilization reports should point to some immediate opportunities to manage rates in tandem with customer relationships. For example, many systems allow a rental company to set rates by customer group, or even by individual customer. This is sometimes calculated as a discount taken automatically off a standard rate, but in some systems it can also set as a fixed, negotiated rate-set for a specified term. The latter method is preferable in rental operations that adjust their standard rates periodically, because the negotiated rate won't fluctuate.

Rate management decisions come under a microscope when an economic cycle turns upwards, because they impact both the immediate and the long-term. There will always be a grey area between the impulse to get the highest possible price for a rental, and the possibility of losing the deal. Data mining can reduce some of that murkiness. It can point to a decision that is the exact opposite of what someone would decide through 'gut feeling.'

As just one example, consider a situation where time utilization on compressors is 72%. Before elevating rates on all compressors, mine the data. Who is renting the compressors, and for how long on average? Should the daily rate be raised and the weekly rate lowered to promote weekly rentals? Would that produce less compressor revenue per day on average, but a higher contract value?

And another question: "Is the utilization level the result of general market demand, or primarily one customer? If the latter, targeted rate management would suggest approaching that key customer and negotiating a special compressor rate-set for 12 months to lock in that business. This is a tactic that can lead to other types of rentals later on, but it also isolates a high-demand customer from market trends to give you better visibility … and that allows you to set more effective rates on the balance of your compressor inventory.

Even an older rental system contains a wealth of data that is relevant to current rate decisions. The decision process, when it's done correctly, starts with an understanding of existing customers, examines rates and utilization in light of strategic goals, and ultimately serves both your customers and your rental business.

Customer profile: Rusty Parr, AV Party Rentals

If you go to AV Party Rentals' website, you'll see that the California-based company promises "Everything from teaspoons to tents - since 1968." Keeping track of that inventory is no small task, as owner Rusty Parr can attest. His focus on inventory management and customer service led him to purchase a CounterPro system more than 20 years ago, and helped motivate his move to Enfinity last year.

"CounterPro was and still is a really solid system," Rusty says. "We weighed two things in deciding to move to Enfinity: we wanted to utilize some Windows features like bouncing between different modules - it's pretty nice to be able to use different applications at the same time on the screen. We also knew that our existing server was nearing the end of its life, so it made sense to look forward and put the investment into Enfinity."

Rusty chose to run both CounterPro and Enfinity parallel for a while in 2010 - now AV has switched over to Enfinity-only and, "it's working well," he says. "We feel really confident doing business on Enfinity."

An "enlightened" marketing strategy
Rusty uses Enfinity's Enlighten software module to generate custom reports to supplement Enfinity's standard range, most often for marketing purposes. "Enlighten lets me pull data that I wouldn't normally look at every day, organized in ways that are meaningful to the way we operate here. The Enlighten format is very adaptable, and if I want to manipulate the information even further, I can export the data to an outside spreadsheet.

"I was just using Enlighten this week to write Thank You notes to customers; it's obviously not practical to write notes to everyone who rents from us, so the system lets me be selective. I can tell which customers rent from us on a weekly or monthly basis, what tickets are above what revenue line … we can already see how we'll use Enlighten to target marketing areas and prospects. For example, it gives us the ability to tell what zip codes are more productive than others."

In AV's business, fine-tuning the inventory mix is equally important to customer service and profitability. And while CounterPro and Enfinity's reports are not mirrors of each other, this 20-year CounterPro user is finding that change can be beneficial. When questions do arise, "SBC's support has been really good," Rusty says. "As a party rental business, we have different needs than an equipment rental company. SBC listens to us about that."

Rusty says that some of the Windows capabilities his employees really like about Enfinity are the ability to print to different printers and the ability to print PDF files right away. "We know there are a lot of interesting things that Enfinity can do, and we're still exploring all of them. Because we made the transition while the economy was at a lower point, it's given us the time to become familiar with the system and the analysis it can provide. Now that business is picking up, the timing has worked out well for us."

http://www.avparty.com

Refresher: Monthly journal and analysis report

Question: Why aren't the rental income on the posting summary of the monthly transaction journal and the monthly income on the department summary of the rental analysis the same?

Answer: The numbers on the Monthly Journal and Analysis Report are generated in different ways. You cannot crosscheck the figures from these two reports because the revenues are not recognized at the same time for analysis and for accounting.

If you are renting a widget to a cash customer, the income for that widget appears on the journal when any payment is received. If you are renting the same widget to a charge customer, and use the accrual accounting method, the income is realized when posted to Accounts Receivable. When the cash accounting method is used, income is realized as payment is received.

For analysis purposes, it's important to report revenues consistently, whether you rent an item to a cash customer or a charge customer. When you view the analysis history for an item, you make inferences about the seasonality of that item, and specifically about the demand for that item during certain months. If the revenues were reported inconsistently, you would not reliably be able to make those types of judgments.

For this reason, CounterPRO always reports the analysis figures on the day the item is returned or when a Periodic Invoice is billed. Enfinity spreads the revenue evenly over the life of the transaction for either standard contracts or periodic invoices.