Equipment rental: Putting the subrenting formula into practice
By Casey Bowden

Equipment rental: Putting the subrenting formula into practice

Equipment rental operators share their perspectives

Garrett Shurling, president/CEO, Badger Rental Services, Garden City, Ga., and a member of the American Rental Association (ARA) Equipment Rental Shared Interest Group, is adamant about tracking his subrentals and missed rentals, which he checks monthly.

“We do a considerable amount of subrenting. We are a family-owned-and-operated single store and also proud to be a debt-free company and have been for quite a few years now. When we cannot meet the demands of one of our more important customers, we have to rely on other companies that we have a good relationship with. We help them and they help us,” he says, adding, “we are very careful to make sure that if we have one of our own machines come back in the yard, we replace that subrented piece of equipment with our equipment for obvious cost reasons but also to make sure our customers have the very best equipment we can offer.”

Typically, Shurling will look at subrenting a unique piece of equipment that is outside his normal inventory. For example, “we will subrent a large piece of earthmoving equipment that we are not set up to haul or maintain or we don’t have the parts for. If we don’t anticipate getting calls all the time for it or if it is something we are not confident we could provide our customers with the very best experience if we purchased it and maintained it and we are not known for it, we will continue to subrent those items,” he says.

Making the decision on whether to purchase a piece of equipment is complex, Shurling admits. “You have to take into account whether this is a very popular item or not, is it a once-and-done opportunity that the customer will need only one time and is it a very expensive piece of equipment. Then it is an obvious point to go out and subrent. If we anticipate that one of our really good customers will need it on a consistent basis and it can serve the needs of our other clientele, then we certainly prefer to purchase that piece of equipment and have it under our control so we can make sure the maintenance and quality of that piece of equipment is the highest it can possibly be,” he says.

Since he is trying to cashflow the whole operation, “return on investment [ROI] is very important to us. If it is a type of equipment that doesn’t have a great ROI, we will be less likely to purchase another unit as compared to if it is one of our sweet-spot pieces of equipment that has a great return day in and day out, then we will likely purchase that piece of equipment,” Shurling says. “Dollar utilization is very important to us, so we have to be very financially responsible since we are a debt-free company. We have to make every single dollar count. What is the best use of that dollar going to be — to buy a mini excavator or an air compressor, etc.? What is the absolute best use of that dollar to invest in our fleet?”

The decision-making process is done with his leadership team. “It is about gathering our team, collecting the data and using that data to ask quality questions and hopefully that will help us determine from a sales perspective, a maintenance perspective, an accounting perspective, etc., whether to purchase that equipment or continue to subrent,” Shurling says. “We want to know that we can make money with it, are capable of servicing that equipment to the level that it will be the very best experience for our customers and if it is something that fits our portfolio of rental equipment. If it fits those criteria, we will do it.”

Aspects that don’t really come into play are storage and delivery costs. The only time delivery costs would matter is if the piece of equipment is too large or specialized for his trucks to haul. “We like to be the face of our company with our customers. If it is too large or we don’t have the training and the other customer has to familiarize the customer with it, then we let the other place handle it. If the cost would be prohibitive, we wouldn’t do it. We do not feel the pressure to say ‘yes’ every time if it is not a good fit for us. We will point the customer in the direction of another company that can better serve their needs,” he says.

Tony Murray, president, American Rentals, Long Beach, Calif., who just completed his term as ARA Region Nine director, does track his subrentals, but he doesn’t do so for missed rentals “because our culture is that we say ‘yes’ to everything. We never say ‘no.’ We subrent a lot. We track through our rental software, checking the report weekly. We also have a separate spreadsheet that we look at for our subrentals,” he says.

In that separate spreadsheet, Murray “throws out the anomalies, meaning it is out of our service area. If we are renting for a customer who happens to be working in Moline, Ill., it doesn’t matter. We don’t look at that. Then we throw out any anomalies of items that are not in our wheelhouse. For instance, we don’t rent ride-on floor scrapers, conveyer systems or really big dirt — 100,000-lb. — excavators. We throw out all of that. I want to see our core items in our core territories that we are re-renting and then I want to see a pattern, not an anomaly. Everybody runs out of light towers on Halloween and 19-ft. scissors at the end of the year for inventory. I want to look at patterns, meaning we ran out of a core item for a week — not just a fluke. I want to see if we are consistently subrenting a core item. If we are, we add it to our fleet,” he says.

Murray also tests new items for his operation. “For instance, a bigger 50,000-lb. excavator or a big roller that we don’t own, we will subrent it and see if we can build a customer base and keep it busy. Then, after a few months, if we can see that we can keep it busy, we will go ahead and get one,” he says.

For Murray, it boils down to “strictly utilization and profitability,” he says. “A great example is that we didn’t own any 3,000-lb. breakers. We were subrenting two and had been consistently subrenting them over the last several months. It is a pain to go get them, so we should own them and so I told my staff to get them.”

With the supply chain disruptions, “we are in odd times. Right now, you can’t add fleet. It is all dependent on the cost of the asset and whether we want a 100,000-lb. excavator, which is expensive. Do we really want to own it? Probably not. I think we are unique. We don’t say ‘no.’ Others might say if we don’t own it, they say ‘no.’ That is not us,” he says.

While space is not a factor, trucking is. “Trucking is very expensive for us in California — hauling it back and forth from a rental yard,” he says, adding that those costs can help him make a decision.

“But right now, we also have to look at can we get it? Every manufacturer we talk to is saying 2023, so that adds to the equation, too,” Murray says. 

Rental management software can help you keep subrenting data in check

Rental operators know the importance of data, so when the question of whether to subrent or purchase a piece of equipment comes up, they can make sound decisions without delay. Most rental management software companies have integrated the tracking of subrentals and missed rentals into their systems.

“We track both and also offer an operational dashboard to manage subrentals,” says Wayne Harris, CEO, Point of Rental Software, Fort Worth, Texas. “The dashboard provides full visibility of all re-rented items, who it’s from, where it is at, beginning and ending dates, cost, etc. In addition, a missed rentals log allows users to specify a reason why they missed the rental, log customer information for future follow-up if/when the item is purchased or becomes available and calculate approximately how much revenue was missed.”

Alert Rental Software, Colorado Springs, Colo., also tracks both. “We have a subrentals feature for event, handling bulk items, and we handle subrental of individual assets, typically for equipment operations, a little differently at the fixed asset level,” says Mary Crosslin, co-president and chief operating officer, and associate member director on the American Rental Association (ARA) board.

“We also have a feature for recording missed rentals that is separate from subrental. Together they tell the full story of your missed opportunity or revenue. We believe in this so strongly that they are baseline in our system,” Crosslin says.

“Immediate value in the subrental reports is efficiency and cost savings, with the long-term value in the collection of that data being able to plan for your expansion. The subrental changes report, along with the automation of the ticket change notifications report being pushed directly to departments, will help prevent rework or an unscheduled return. The cancelled orders report may make you aware that subrental is no longer required,” she says.

Crosslin says an additional value for Alert’s subrental module is that “it links to the purchase order (PO) system, and while you are ‘handling’ the overbooking, you can have it create the PO for you. This saves time and prevents forgetting to write the PO for the subrental or purchase. The missed rental report can both shed light on opportunities as well as highlight potential issues in your operation. Because you can code the reason for the lost rental, you can know if the reasons are because inventory is down for maintenance or priced too high for the branch’s market, etc. It’s not always about what equipment people are requesting that you don’t already own,” she says.

According to Harris, these reports are used for a variety of strategic business development decisions, including evaluating purchase decisions, visibility into netted totals by comparing the cost of the subrental to the profit made, analyzing quantities between regions/districts/branches to determine the optimal number of units for maximizing return on investment (ROI) without turning away customers and many more.

Using the data in the reports can help a rental operator determine whether or not to purchase an item.

“Within your rental software you already have your purchase amount and date, along with your revenue on the rental item. You also likely have a place to store a target ROI — or you at least know your own expectation for your business,” Crosslin says.

“Rental operators need to know how much revenue they need to make to justify the expenditure, vs. subrenting the equipment in the near-term. This is where the missed rentals reporting plays a role — it can tell you the opportunities you lost because you didn’t have the inventory to rent,” she says.

Harris agrees. “While entering a contract for something unavailable or not owned for whatever reason, users can see whether an item should be transferred from another branch, subrented or purchased. We also allow users to initiate a transfer, re-rental or purchase order directly from a transaction, linking everything together,” he says.

“Most rental software products are robust,” says Karen Ackerman, CERP, general manager, Special Event Rentals, Calgary, Alberta, Canada, and a member of ARA’s Event Rental Shared Interest Group (SIG). “Software companies are keen to respond to their customers’ needs. If any rental operators are looking for that information, they should make sure they are using and getting everything they need from their software,” she says.

Like Ackerman, Jason Campisi, general manager, South Jersey Party Rentals, Pennsauken, N.J., relies heavily on his rental management software system to provide him the information he needs so “in the heat of the season we know where we want and need to be on those product lines, particularly those that break — the times out and ROI. We can easily extract that information,” he says.   — Connie Lannan

Casey BowdenCasey Bowden

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