Editorial: August 2009

With the economy still in a downswing rental companies and their suppliers are feeling the pinch. During the last economic downswing price cutting became a major issue in the industry as rental companies struggled to cope. As rental rates declined so did the profit margins of many other companies who had to follow suit to remain competitive.

Pricing is a touchy issue when the market is down but this should not be your determining factor for setting your rates.

Should you base it on cost, utilization, customer input or what your closest competitor is charging?

When the economy is in a slump it is tempting to cut rates to obtain new customers. However, instead of gaining more market share you could end up triggering a price war that cuts into everybody’s profits and set a trend that would be very difficult to reverse when the economy bounces back.

You don’t need to compete on price to compete in the rental industry.

Competition is healthy, but it can also be destructive if you are cutting rates for the wrong reason. Low prices may increase traffic but it will give you less profit.

But let’s face it, customers are more concerned with their bottom line…not yours.

It’s inevitable that customers will have a big influence on rate setting, especially if they are playing one rental company’s price list against others. Retaining these price conscious customers while bidding depends on your ability to convince them that your prices are not just based on the demand for the product, but the value of the product and everything that comes with it.

Justifying a reasonable rate depends on your ability to educate the customer about what it costs you to provide this service.

The equipment and machinery offered by rental companies today are using sophisticated technology and modern materials. All of this costs money and the costs of these components are going up regularly.

A price of a pick-up or service truck is much higher today and fuel, insurance, and labour have also been volatile even when the economy was booming.

Getting the rates that you need to cover costs and make a profit depends on your ability to explain to customers what they are getting: A quality product that will not fail them on the jobsite.

The onus is on the rental operator to show the customer what costs are embedded within every rental and why this is a value they should pay for.

It is tempting to cut rates to match your competitor during tough economic times, however; there are many other factors to be considered. The key to making price adjustments is to focus on the value of the service you provide and to understand how a small price change today will cost you tomorrow.