Hold the line…the bottom line
By Adam Snook
By Adam Snook
I’ve been in and around the equipment rental industry for over 20 years, both as an employee, manager and owner. I’ve worked for Mom and Pop operations, helped set up locations for the largest industry players and grown my own multi-location operation. Whether working in the wash bay, delivering equipment, or repairing and selling equipment, I’ve enjoyed all of it. It really does get in your blood. There’s no better industry that I’ve found.
But I’ve been asked, “Why, if you enjoy the industry so much, are you not involved in it anymore?” multiple times.
The quick answer is that once you understand the financial aspects of the business, it loses its appeal as an investment.
New equipment has nearly doubled in cost in the last 20 years, while rates have remained stagnant or actually declined (and not on an inflation-adjusted basis). Wages, insurance, shop rent, service and delivery vehicles, maintenance, consumables – most of these cost 1.5 to two times what they were 20 years ago, yet rental rates have remained stagnant or actually declined.
When you ask any independent rental operators why they’re renting their larger equipment out at 40 percent off of book rates they’ll tell you that it’s the “big boys” destroying the rates. They say they don’t have any choice, and maybe they don’t. It’s tough to keep the lights on with aerators and paint sprayers going for the same daily rates as electric scissor lifts and 185 CFM air compressors.
When you ask the “big boys” why they’re renting equipment out at 40 to 60 percent off the book rates, first, you’ll get the “not me” reply. Then inevitably comes the “Well, the green guys are doing it.” When you ask the green guys, they’ll blame the blue and grey guys. Then they both blame the yellow guys. It always comes down to being told to get the job, no matter what.
What’s the point of having a rate guide if all you’re going to do is cut the prices in half? Twenty years ago, I was renting 45-foot articulated boom lifts out for $2,800 per month and I thought that was too cheap. Today I can get a 45-foot boom lift for $1,600 per month.
Can you name me another industry whose costs have doubled over the last 20 years, yet they’re selling their products for the same or less than 20 years ago, and still has companies in business?
Rental stores in this country need to develop a professional understanding of concepts like margin, markup and return on investment and understand that if their activities are not contributing to the bottom line, they are not worth doing. In this space, I’ll be offering some of my observations in hopes they spark a conversation about how we can do that better and still make money.
Adam Snook owns JustBins, a Regina-based provider of waste disposal solutions. His background includes building First Choice Rentals, an Alberta-based equipment rental and oilfield service provider.