One of the most difficult tasks in evaluating your fleet is determining if each asset in that fleet is making money for you. With depressed rental rates in the marketplace today, it's becoming one of the most challenging tasks you face. It used to be that if you covered your depreciation cost you could feel confident you were making money. Several years ago we developed a formula that we believe gives you a more reliable and very accurate assessment of your profitability per asset. It is as follows:
Determine the total fleet Original Equipment Cost (OEC) and Single Asset OEC = Percentage of asset to total fleet.
Take that percentage and divide it into monthly Sales & General Administrative costs (SGA) plus Debt Service (Principle and Interest) = Cost Per Month (CPM) of the asset.
Now you can match the CPM of the asset and the rental rates you are getting and see exactly how profitable each asset is for your company.
I know this might sound complicated, so if you are struggling with this calculation, please do not hesitate to contact me at the email address below.
Two weeks ago I wrote an article on rental software and we received hundreds of requests for suggestions and reference recommendations. Rest assured, I'll get back to each of you soon. I will also follow up on that article with another containing more detail on rental software in the coming weeks.
Questions or comments? Contact Mike Farley at email@example.com.