Equipment that sits idle does not make you money. This isn’t exactly groundbreaking information – it’s common sense. But beyond this exceedingly obvious point, the importance of equipment uptime to driving not just revenue, but earnings and profitability, is often not sufficiently understood.
Imagine this: you run a hotel. Let’s say you rent out a single room 200 nights of the year, at $200/night. The other 165 days, that room is providing you zero revenue.
If you were able to rent out that room, even just for one additional day, that would reflect a $200 increase in revenue. More importantly, it would be high-quality revenue. The costs associated with the additional night of rental are essentially zero (perhaps some minor electricity use, housekeeping, and some minor wear and tear). In other words, what makes the additional $200 so attractive is that essentially all of it falls right to your bottom line.
The same applies to your rental business: nothing drives up your earnings more rapidly and extremely than finding a way to add one more high-margin rental. Because here, too, in most cases, the majority of additional rental falls to the bottom line. Therefore, nothing is likely to have as strong a potential in improving earnings than finding ways of reducing equipment downtime.
Rental businesses usually track equipment usage via a wide, constantly growing series of uptime measures, and the two most shared forms are time utilization and financial utilization.
Time utilization provides what fraction of the time a piece of equipment is rented out, which is when it receives revenue. It is driven up by greater equipment availability, but in the absence of any financial metrics, it will not give insight about the value of improved uptime on revenue, let alone profitability.
Financial utilization provides revenue information, relative to the investment value of a fleet of equipment – otherwise known as the “financial yield” of the assets. If a unit of equipment costs a company $40,000 and nets $20,000 in rental revenue per year, this 50% utilization will give provide information about one part of the earnings picture. However, again, there will not be much about the contribution of uptime improvement on a company’s overall profitability.
Even mapping the total annual cost of purchasing, servicing, maintaining, and managing that one piece of equipment does not provide a full picture of the value of improving uptime. As with the hotel room, it is the last, additional rental that carries the highest margin and contributes the most to the rental company’s profitability.
Put differently, it is the incremental improvement of equipment usage which will drive the bottom line the most.
So why is there equipment downtime? A significant part of the answer is that equipment requires service, maintenance, repair, and that all these activities require parts.
