The cost of equipment is high, but as many equipment suppliers know, the cost of unused equipment is even higher. For too many hire companies, the changing market of construction and mining has meant that they're struggling to hire off their depreciating assets. Understanding the cost of sitting equipment and what to consider before supplying a machine can help fleet managers build smarter strategies.
One of the struggles every owner/operator faces is how to manage their rental fleet without getting lost in the details. After all, you have invested a great deal of capital to build your fleet and you want to make sure it is performing to the best of its ability. Due to the importance of managing this asset, very quickly the question is asked “Which numbers can I look at to manage my hire fleet?”
As part of their thought leadership series (Do You Know the Utilization of Your Rental Fleet?), Northern America business management software Karmak touched on time utilisation and dollar utilisation when looking at plant and equipment:
It would be a mistake to say you can only manage by looking at two numbers, however in the hire industry, the foundation of all management should be looking at time utilisation and dollar utilisation. By looking at these two numbers, you can quickly see how your fleet is performing. This should be done as a whole fleet, at each location, as different equipment types, as any possible division of your fleet, and all the way down to the individual pieces of equipment.
What is time utilisation?
Example: (Days Rented) / (Days Available)
= Time Utilisation Percentage 260 / 365 = 71.2%
What is dollar utilisation?
Dollar utilisation is a little simpler. It is calculated by dividing annual rental revenue by original acquisition cost.
Example: (Annual Revenue) / (Acquisition cost)
= Dollar Utilisation Percentage $35,000.00 / $100,000.00 = 35%
What should my target utilisation figure be?
Dollar utilisation rates vary depending on what type of rental industry you are in. It is important to keep a closer eye on dollar utilisation than time utilisation. You can’t take time to the bank, so time utilisation alone does not help your business much. You need to protect the dollar utilisation side of the equation and only use the time utilisation number to give yourself a clearer picture of what you are seeing.
The grid below which will give you an idea of where you stand, how you got there, and what you need to do next.
What we learn from looking at these two figures is that they should be looked at as a pair. If we look at just one of them, it would be easy to miss obvious trends and issues. Keep in mind that what you pay for equipment is a huge factor in the overall equation. Some typically low dollar utilisation items, such as specialty heavy equipment, are very expensive.
With well-maintained equipment, most market hire rates are the same for a one year-old unit versus a four year-old unit. We have seen several market segments that have benefited from this approach, particularly when using equipment with long expected life spans such as heavy trailers. If you use these basic management metrics, you will find it is easier to have confidence in your rental fleet.
If you've noticed changes or increased downtime for a couple of machines - it's time to explore options to get your fleet moving.
Did you know we have a dedicated Business Development team who visit upwards of 100 sites across Australia each week? They move from site to site digging up new leads for businesses just like yours.
Tap into this valuable resource to help you succeed with PlantMiner by:
Our Business Development team is here specifically to help you find leads. We'll not only help match your equipment with requests that come through, but we'll give you access to contacts, projects and more. See how companies just like yours have tapped into this resources and found success with PlantMiner.
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