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Every time I ask a rental company CEO how business is, I hear "It would be great if all my competitors didn’t low-ball their rates." And if I go into a region and talk to all or most of the rental companies in that area, I hear that competitors are low-balling their rates. But if they all tell me that (and of course they are not participating in this folly), then who is it exactly that is low-balling the rates?

Sure, there are people out their sometimes offering rates lower then yours, but I suspect your sales personnel, along with customer demands, generate a good chunk of these comments, whether they actually take place or not. Let’s face it, you pay similar dollars for similar units in the rental fleet and have to generate enough rentals to pay for the unit, along with the interest, cover your direct expenses associated with your rental activity, cover your general and administrative expenses, and after all that, produce a profit and adequate return on equity.

The only way to offer better-than-market rental rates is to rent units that are paid off or buy used units and thus, have a lower acquisition cost compared to a new unit. Or, units with low time utilization might warrant a lower rate to generate more utilization. It would not be unusual for a rental manager to set rates based on time utilization.

While we’re at it, let’s discuss what’s more important, profits or cash flow. The answer is cash flow - without question - because the only reason you are in business is to generate cash. Also, keep in mind that a minor fluctuation in rental revenues has a material effect on cash flow. For example, a 10-percent drop in rental revenues could generate a 30-percent reduction in cash flow. Remember those note obligations.

And a profitable rental rate discussion would not be complete without noting that rental rates are not in the top three reasons customers did not give you the business. Availability, delivery requirements, quality of unit and extras required on the unit comes before rental rates. Customers might tell you they can get it cheaper somewhere else, but if you have the unit, it works and you can deliver it when they need it, your chances of getting the business is still good.