Setting rental rates is a balancing act: how can your computer help?

1. Setting rental rates is a balancing act:how can your computer help? CRA Rental Rally, San Diego October 27, 2004 Bill Veneris & Chris Redfern Alert Management Systems

2. “The economy is improving, the rental business is buzzing, but what about those RATES?” - August 2004 “Most of the large rental companies report they are raising rates -- but with caution” - September 2004 “Setting the right rental rates demands fine-tuning of time and dollar utilization” - October 2004

3. “We’ve always been able to get good rates until the consolidators came in and cut them, which meant I had to cut rates in order to compete and keep the business. What was I supposed to do, give them my customers?” - Don Ahern, Ahern Rentals

4. ”When the consolidators came in, it was all about market share and becoming the biggest. They overpurchased on fleet and flooded the market, upsetting the supply and demand balance. Pricing was not a primary concern. The industry was chasing time utilization and exposure at the expense of rate.” - Graham Hood, Neff Rental

5. ”If the question is, can we return to rates that existed prior to consolidation, my answer would be no. Once commoditization begins in an industry . . . . it’s very difficult to reverse the trend..” - Willie Swisher, Stephenson’s Rental Services

6. “In many equipment categories we are actively sacrificing utilization in favor of higher rental rates…” - Chuck Miller, Sunbelt Rentals

7. “Without computerization, you’re just drawing straws in the dark.” - Fred Hageman, partner with Hageman, Stansberry & Associates

8. What’s your pricing strategy?

9. The five components of price • price objectives • cost • competition • demand • legal considerations

10. price objectives

11. The goal of our pricing strategy is to maximize profit.

12. Cost-Plus Model Net Cost + LTD Maintenance Costs + Share of Operating Costs + Profit --------- PRICE

13. Cost-Plus Model

14. Fine-tuning the revenue side of the model • Damage Waiver

15. Fine-tuning the revenue side of the model • Damage Waiver • Sales Tax

16. Rate calculation methods • Prorate vs. Fixed Rate

17. Rate calculation methods

18. Flexible rates and demand

19. Customer-specific rates • Targeted rate • discounting

20. Cost-Plus Model: Skid Steer Dealer • Profit for general rental store was $6,723.

21. Cost-Plus Model: Skid Steer Dealer • Profit for general rental store was $6,723.

22. Cost-Plus Model: Skid Steer Dealer • Profit for general rental store was $6,723.

23. Rental is a volume-sensitive business

24. Elastic vs. Inelastic demand

25. Volume, Price, and Competition

26. Volume, Price, and Competition

27. Benchmark is 65% Dollar Utilization

28. Dollar vs. Time Utilization

29. Effect of rental term on time utilization

30. Predictive modeling is an art, not a science.

31. Setting rental rates is a balancing act:how can your computer help? CRA Rental Rally, San Diego October 27, 2004 Bill Veneris & Chris Redfern Alert Management Systems