Improve the Bottom Line - Pay Attention to Revenue and Expense Details
Optimize your revenue without increasing investment
Anders Norlin Box Credit
The U.S. economy has been growing steadily for the last few years. Most portable storage companies have seen their fleet and profitability grow at a healthy rate. While the economy appears to continue to be strong, it is likely that the growth rate will decline a bit. Fine-tuning your ancillary charges, damage waiver, fuel surcharge, cleaning, content insurance, etc., helps you optimize revenues without increasing the investment in storage containers.
Another way to improve the bottom line is to obviously trim costs. This is something easily done by focusing on being more efficient.
Improving results comes from reducing costs and increasing revenues, the latter being more exciting than the former. In the portable storage industry, increasing revenue most often comes from increasing the rental fleet, which means increasing the need for capital. The effort takes time and can be challenging. Another avenue for increasing revenue is obviously to increase what you can collect from your existing rental fleet in the form of fees.
Traditionally, our industry uses a 28-day billing period, which allows for thirteen billing periods in one year. However, some companies are still using the historical calendar month billing and thereby forego 8% of their rent potential. For those companies, an instant switch of billing periods will make a significant improvement to the bottom line. It is fully understandable that there will be customer complaints and one can expect a minimal loss of customers. On the other hand, the overall improvement of the rental revenue in the long run offsets the negative reactions and loss of a few customers. A more subtle way to switch from monthly to 28-day billing is obviously to set a date after which all new customers are on a 28-day billing cycle. Depending on your billing system's capacity, this method can be challenging.
The typical ancillary charges are fuel surcharges and damage waivers, which the customer typically accepts or at least has become accustomed to accepting. Considering the current decrease in the cost of oil and consequently lower fuel costs, the fuel surcharge may be challenged by customers in the near future. Earn goodwill by being proactive and lowering your fuel surcharges; it should pay off in the long run.
The damage waiver is a profitable ancillary service offered to the customer. From the customer's perspective, it is insurance that protects him from charges for damages to the container he rents. Typically, the damage waiver fee is a percentage of the rental costs. However, one could use another formula for the damage waiver fee and thereby increase revenues. The cost basis of the damage waiver fee could be the average cost of containers or the average cost of damages. As long as it is well presented, customers are likely to accept the fee.
Containers get dirty while out on hire and should be cleaned before being presented to the next customer. Charging a cleaning fee and taking responsibility for the cleaning, both exterior and interior, means that you, first of all, have control of the cleaning process and quality of the cleaning and, secondly, you have created another revenue source. Most customers consider this a convenience and will not object to the fee.
Damage to the contents of a container can be an issue and it is beneficial for both the customer and the portable storage operator if the customer has insured his content. Contrary to the damage waiver, content insurance should be offered through a bona fi de insurance carrier. Self-insuring, as most operators typically do for the damage waiver, is too risky.
The other side of the coin is reducing
your costs. Trimming expenses makes good business sense and it can be done in a positive tone. Most portable storage companies can reduce their expenses by 5% by just being more cost conscious. A cost savings campaign starts with promoting the effort internally. Typically, company owners are aware of what part of their companies can be run more efficiently; however, asking for the employees' input may give light to new areas where there are opportunities for cost savings. Also, keep the cost savings theme in front of your employees, and yourself for that matter, continuously. Stickers, buttons, T-shirts etc. with a suitable message may sound funky, but it goes a long way. Having a routine to review certain cost categories on an annual basis should be a must in every business. Paying attention to the smallest amounts is key in an industry where revenues are reoccurring. A minor change of revenue or expense multiplies, based on the size of your rental fleet and the length of the average rental period. As they say, “the devil is in the details.”
Anders Norlin is the Managing Member and owner of Box Credit LLC, a company that provides financial solutions and advisory services to the portable storage industry
Published on November 10, 2015 | Categories: Finance
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