RENTAL OPERATIONS
suggests you find out what they ’ re renting now . And look at what you sell . He points to three characteristics of equipment that can make pro users reluctant to buy , and apt to rent . Equipment that is , first , expensive ; second , large and challenging to store ; and third , difficult for owners to maintain .
Brained Rental tracks data for its rental equipment , and most important among that is “ utilization .” Mau said , “ We have an asset that has a dollar value , and we talk about utilization . That determines the effective value of us owning the piece of rental equipment . The rental model works only if we can keep turning units , keep them in utilization between 60 and 80 percent .”
Mau gives an example : “ If a piece of equipment rented 100 percent of the time could earn $ 1,000 a week , and it in reality brings in $ 600 , that ’ s 60 % utilization , and it ’ s in the acceptable range . If it actually earns $ 900 , then we should buy another piece of that equipment to rent . If it brings $ 200 a week , that ’ s too low , and we should not keep it in our fleet . We would sell it and invest in something with a higher utilization .”
Nickell backs up Mau ’ s accounting and adds that an average piece of equipment will pay for itself every 15 months . “ On average , equipment in general earns 30 to 40 percent EBITDA
Brainerd General is not the only rental biz in town , but it has acquired others over the years .
( Earnings Before Interest , Taxes , Depreciation , and Amortization ) margin ,” he says , though he admits rental generally earns fewer dollars per sq . ft . than a retail business . “ It ’ s higher profitability than equipment sales . And you can sell the equipment after a few years .”
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