Over the last 25 years equipment rental businesses have become more sophisticated about how they measure the performance of their rental businesses. We’ve also seen the emergence of large equipment rental companies with national or super-regional footprints. Many of these companies have developed methods for measuring their performance using rental metrics.
Originally pioneered by former Hertz Equipment Rental Corp.’s CEO Dan Kaplan, rental metrics gave large companies a way to look at their fleets as a whole and also a method to slice and dice the business to look at the performance of specific equipment classes or specific geographic areas. The problem with rental metrics was that each company had its own way of computing the numbers and therefore no analyst or investor could compare one of these large company’s performance against another.
In 2011, ARA published ARA Rental Market Metrics which set out comprehensive definitions of four key rental metrics: dollar (financial) utilization, time utilization, fleet age and calculations to determine how rental rates change from one period to the next.
Here are the definitions for what we call OEC or Original Equipment Cost weighted metrics:
- Time utilization is a dimensionless aggregated value that quantifies the fraction of the fleet that is on-rent for a given period. Time utilization is the ratio of the OEC weighted fleet used for the period in days divided by the total days in that period.
- Financial utilization is a dimensionless measure of aggregated annualized revenue that quantifies the fraction of the fleet OEC value that is on rent for a given period. Since it is annualized, it also can be viewed as the inverse of a simple payback period for the fleet.
- Fleet age is the instantaneous measure of the average number of months a fleet has been used since its equipment units were put in service for the first time. As such, the “age” is not the average over a time period, but is the age on any fixed point in time.
- Rate change is a revenue-weighted metric that provides a percentage change in rental rates from one period to the next. Change in yield measures the changes in revenue from actual days on rent from one period to the next.
ARA’s revenue-weighted metrics allow the rental business to analyze changes in the type of contracts written or look at the actual days a unit is on rent. Because rental businesses use computers and specialized software, these measures are easily computed.
Rental metrics provide a way of measuring business performance in exactly the same way for any rental business that uses them; they do not depend on the size or composition of the rental fleet. ARA Rental Market Metrics allow every rental business to compare itself to every other rental business regardless of size because they are size neutral.
There are two ways to get the power of ARA Rental Market Metrics. One is to ask your software provider to include these calculations in its software package. Another way is to contact Rouse Analytics (www.rouseanalytics.com) and ask the company about its service that provides an overview of your firm’s rental metrics for free. Rouse Analytics also has a more comprehensive service that allows you to benchmark your rental business against others in your market area and includes all ARA Rental Market Metrics by equipment type.
If you’re a rental business owner or manager who knows that numbers drive your success, you should be adopting ARA Rental Market Metrics because they are the industry standard.