CRA President’s Message: April 2012

Here is why you need Rental Metrics.

Lord Kelvin said, “When you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind.” Rental Metrics are all about numbers. They are financial standards for the equipment rental industry. Most of these metrics are associated with fleet efficiency and use. In the past, there have been no consistent benchmarks with which rental companies could measure their performance against their peers’.

For example, if you asked four different rental companies how they calculate their rental revenue or financial use, you could get four different answers. Some would include as rental revenue delivery and pick-up revenue, damage waiver revenue, sub-rental revenue and/or fuel surcharges and environmental levies revenue. The rental industry standard now is to count pure rental revenue only, with none of the above revenues included.

Another example: if you asked a number of rental companies how they determined the value of their rental fleets, you might find they use different methods. Some would use the depreciated book value, some the gross book value, some would include freight costs and taxes in the total and some would not. Used and leased rental equipment would also be valued differently as well as refurbishment costs.

Several key performance metrics for equipment rental businesses are unique to the equipment rental industry and have varied from company to company. The lack of consistent industry reporting methods for metrics makes it virtually impossible for industry financial analysts and investors in the equity and/or debt instruments of these firms to understand industry performance or to make meaningful comparisons among firms in the industry. Moreover, equipment rental businesses that are privately held have no consistent benchmarks to judge their performance against firms that are publicly traded. The inability of privately held firms to demonstrate financial efficiency to investors also inhibits capital flows into the equipment rental industry and inevitably results in a higher cost of capital to the industry.

Recently the American Rental Association undertook a project that has been long overdue. That project was aimed at producing a standardized set of key performance metrics for the equipment rental industry. The result of that project was a white paper that defined methods for calculating and reporting rental performance metrics for rental companies and allows for consistent benchmarking and reporting comparisons among equipment rental companies. These new industry standards are known as ARA Rental Market Metrics.

Some of the equipment rental metrics that are defined in this paper are: definition of a day, time or physical utilization, financial utilization, fleet age, original equipment cost and percentage change in period-over-period rental rates.

All of the major software providers have now endorsed the standards of ARA Rental Market Metrics. In the near future their software will be updated to calculate these new standards for us at the push of a button and we will all be on the same page. This will be a great opportunity to help us improve our individual company performance and profits by comparing our company metrics to industry benchmarks. There is also the opportunity for worldwide adoption of these performance metrics.

ARA Rental Market Metrics is only available to CRA and ARA members and is a great membership benefit. Members must log in using their ararental.org username and password. Not a member? Join today! Call Pascale if you need help at 1-800-486-9899 or e-mail her at pascale@crarental.org.

Ed Dwyer owns and operates C & T Rentals in Winnipeg, Man. He is past president of the Manitoba Rental Association and also an active member of TAB (The Alternative Board).