Are Your Rates Set for Profitability?

It was recently reported that rental rates increased 7% in 2012, according to Rouse Asset Services. It’s yet another solid indication that our economic recovery is continuing to gather steam, but the question is, have they gone up enough?
Everywhere you look, prices are increasing. For heavy equipment owners like you, the increases are even more acute as equipment manufacturers grapple with meeting emissions regulations, as well as the rising cost of raw materials such as steel, aluminum and rubber (see the article “AWP Manufacturers Work to Mitigate Price Increases to Customers” on page 26). Add to this the growing expense of running your business, especially now as everyone adjusts to the effects of Obamacare, and you’re facing a cost of doing business that’s quite a bit higher than it was just a few short years ago.
No one wants to pass cost increases onto their customers, but there comes a time when it becomes necessary in order to ensure profitability. During a recent conversation with Andy Studdert, chairman and CEO of NES Rentals, we discussed how this leading rental company is managing to increase its rates to a fair and profitable level without alienating its customers. Studdert said it comes down some simple tenets that include promoting value over price; making incremental, not drastic changes; and lastly, simple discipline.
“Industry needs to recapture its pricing position because we’re actually renting our equipment as an industry for less than it costs to replace it, and that’s unsustainable,” he says. “We [at NES Rentals] educate our customers that if we can’t get this pricing from you, we need to deploy this asset somewhere else.”
In other words, sometimes you have to fire your customer. No one wants to do that, of course, but in order for everyone to achieve sustainable profitability, the industry needs to make a concerted commitment to it.