Rental revenue in the U.S. is finally beginning to stabilize after a rocky 2020 according to a new survey from Baird/RERMag.com. On average, rental rates rebounded from a 1.8% drop in the fourth quarter of 2020 to a 0.5% drop in the first quarter of 2021. Most respondents said that revenue and utilization met expectations, while some even said revenue and utilization were better than expected. Respondents also indicated they expect rental revenue to increase 5% in 2021.
According to M Science, while rates hit a nadir in October 2020 at -2.7% year-over-year (YOY), the decline was not nearly as precipitous as the YOY drop in 2009 following the Great Recession (-12%). The research and analytics firm concluded that:
“Ultimately, we believe the performance demonstrates the discipline and advancements made across the rental equipment market over the past decade, which has been characterized by consolidation, increased price transparency, and a much greater use of data across both small and large operators.”
But there is still work to be done, regardless of market behavior. While the industry’s overall outlook is improving, it is not unreasonable to assume that another macroeconomic factor could disrupt the rental market. As such, equipment rental companies should consider how a reimagined approach to the status quo of setting, managing and updating rental rates could improve revenue and increase resiliency.
Rate-Setting Status Quo in Equipment Rental
For equipment rental companies, the pricing status quo is driven by sales reps who determine discounts from published price lists, which are usually long, overly complex spreadsheets. While customer discounts are typically executed on the backend of the invoicing system, this approach lacks visibility into the discount structure at the point of sale for both customers and sales reps. This lack of transparency means a customer at the point of negotiation has no way of knowing how much to spend or what rental duration will earn additional price breaks. Additionally, sales reps don’t know how to sweeten the deal and end up giving a discount based on intuition or gutfeel, which opens rates up to a large margin of error when it comes to consistency and fairness.
Status quo pricing ultimately harms revenue and rental duration because it favors a transactional customer-vendor relationship over a deeper, more rewarding relationship. Furthermore, without visibility into price breaks, all sides are negatively impacted: the customers decide to shop around, the sales rep loses commission, and the company loses revenue.
Taking a More Rational and Transparent Approach to Rate-Setting
The good news is there’s a better way for equipment rental companies to overcome status quo pricing, and that’s by taking a more rational and transparent approach to setting rates. For example, customers that rent a piece of equipment for a longer duration (e.g. month) from a region should get a better deal than customers that rent the same piece of equipment for a shorter duration (e.g. week) in that region. A taller crane should have a higher rate than the shortest crane. A customer that spends $100k per year should get better rates than one that spends $10k per year. This rational approach to pricing will ensure higher utilization and revenue for rental companies because increased transparency, consistency and fairness will incentivize customers. Likewise, sales reps are now equipped to secure better deals, generate more revenue, and more importantly, build deeper, more mutually beneficial customer relationships. But what’s the easiest, quickest and most efficient way for rental companies to execute rational pricing? Through the adoption of cloud-native price optimization and management tools.
Advanced price optimization and management software is helping equipment rental companies increase margins and revenue through better, more rational rental rate setting, and while doing so, gain more strategic control of their business performance.
When it comes to solving the status quo pricing challenge, price optimization addresses price complexity head on by simultaneously accounting for all factors that influence price, measuring price elasticity, and rationally aligning prices in accordance with business rules to produce optimized price guidance for each unique selling circumstance.
Price optimization and management software can tackle the typical rate-setting challenges for equipment rental companies by:
- Delivering market-aligned rates across day/week/month spreads
- Ensuring alignment of cat classes
- Accounting for specific regional and rate zone disparities
- Providing override guidance with guardrails to reduce over-discounting without losing revenue
Due to the branch-based nature of the equipment rental industry, change management and rollout support are both critical success factors. Our recent webinar, “Outside the Algorithm: How to Deploy AI & Drive Organizational Change,” features Garni Thomas, director of strategic initiatives at Mobile Modular Management Corporation, a division of McGrath RentCorp, and is a valuable resource for learning about how Zilliant drives adoption and business results during a period of enormous change.