Editor’s note: This edited article is reprinted by permission from the November issue of the quarterly newsletter Rental Insight, developed and written by Daniel Kaplan, a well-known Morristown, N.J.-based analyst on rental trends in the construction equipment industry. The newsletter is produced in collaboration with Yengst Associates, a marketing consultancy firm specializing in industry data and market research for construction equipment markets. The price per electronic copy in PDF form is $500 per year for four quarterly issues. For more information or to subscribe to Rental Insight, call 203-762-8096, fax 203-762-8330 or e-mail. Publically traded equipment rental companies such as United Rentals, Stamford, Conn., and Hertz Equipment Rental Corp., Park Ridge, N.J., already are using ARA Rental Market Metrics™ to calculate and report financial performance. In the Rouse Analytics Rental Metrics Benchmark Service. In accordance with the ARA Rental Market Metrics. Key metric for measuring performance is blended recovery for all used rental fleet sales vs. Fair Market Value (FMV or Retail). The table above illustrates sales recoveries (as a% of Rouse FMV) by equipment category for. The American Rental Association (ARA) is pleased to announce that PFW Systems Corp., a dealer management system provider in the equipment rental industry, has achieved ARA Rental Market Metrics certification. The ARA Rental Market Metrics program provides additional value to the equipment rental. The major rental companies in the U.S. All trade or have debt that trades publicly. Quarterly they report their earnings. Analysts study the results and make comparisons with comments and recommendations that effect bond prices or stock prices. The truth is that these analyses are flawed because the basis on how each rental company reports its metrics varies greatly. What the equipment rental industry needs is consistent methodology including recommended standards and formulas on the metrics. Listed below are areas that all rental companies use to measure and manage their businesses and the metrics analysts evaluate. • Time utilization. This is a time measurement of equipment by category that is calculated on a monthly basis. Simply said, this is the percent of time equipment is out on rent. Some rental companies use a 22-day month, some prefer a 28-day month and others like utilizing a calendar month. • Dollar utilization. This is the measure of the dollars earned by each individual piece of equipment in each category and is computed daily, weekly and monthly divided by the original equipment cost (OEC) or first cost of the equipment. Some rental companies calculate dollar utilization based solely on the description above. Some rental companies add revenue from delivery charges, loss and damage waiver fees and fuel surcharges to the revenue earned by a piece of equipment. Adding these additional revenue items can lift the true dollar utilization by 8 to 10 percent. When a rental company does not have the equipment on hand to meet a customer’s needs, the company often subrents the equipment from a third-party rental company. This subrent revenue should not be included in the revenue line for calculating true dollar utilization. • Rental rates. Rental rate trending is, without a doubt, the industry’s most highly followed metric. Wall Street analysts seem fascinated by rental rates, the same as rental companies themselves, with many often criticizing the competition for what they charge. Rental rates seem, at first glance, to be simple to quantify. Either the rate charged to the customer increases, decreases or remains the same. However, there is more to the issue of rental rates than what meets the eye. For example, let’s say a boom lift is out on rent to a contractor at the rate of $3,000 per month. The contractor negotiates a lower price, say $2,700, which is a 10 percent discount. The result is a 10 percent decline in the rental rate. Now let’s say the rental company has a national account with firm pricing for a year. Let’s say this major national account enjoys a rental rate of $1,800 for the same boom lift. If the boom lift that was initially rented for $3,000 per month to a contractor is now rented to the national account for $1,800 per month, is there a price change? In this example, the rental rate for the piece of equipment has dropped 40 percent, but some rental companies may not report a rental rate decline because that’s the firm price for the national account. Some rental companies would report this as a rental rate decline of 40 percent. Ara Rental Market MetricsWhen it comes to determining reported rate declines, this is where we are at today. Calculating dollar utilization will reveal this rate change and some rental companies are defining what I described above as “yield,” a term usually used to describe the annual rate of return on an investment. • Defining revenue sources. Rental companies have come to realize the importance of a stable revenue base. As a result, many rental companies highly covet longer term industrial equipment rental contracts. Wall Street seems to embrace this. However, rental companies code their rental revenue into three large buckets, which are then broken down to many smaller buckets within the categories of construction, industrial and fragmented.
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