CONSIDERING YOUR ROI – WHY IT MATTERS
With 30-years’ combined industry experience, Platform Sales Australia discusses the importance of identifying a valuable fleet asset versus a financial burden on profitability.
Balancing a wide-range of assets to meet Customer needs is a critical component that impacts the success of any hire business. More importantly however, is ensuring that those assets generate enough income to build sustainability for the future.
In many cases, when purchasing a new asset, the initial investment can overshadow the bigger picture, such as total cost of ownership (TCO), utilisation, hire-rates and resale value at end-of-life. These much broader considerations are what will truly impact the return on your investment.
TCO considerations might include finance costs (such as leasing/depreciation), ongoing service and maintenance, downtime, labour costs (wet hire), as-well-as the expected resale value of the asset at end-of-life. Taking the time to investigate and understand these costs will ensure that you are able to apply accurate hire rates, based on utilisation.
Here are some considerations, based on our experience.
Shopping around for the best interest rate is usually a given, however it’s important to consider the residual too. Further research should be undertaken on the current sale price of your potential asset at a similar age to when you would consider disposing of it – the value should ideally exceed any residual you may be liable for.
Service and Maintenance
Most equipment will require quarterly and annual servicing/inspections. Depending on how long you plan to keep the asset, a major inspection will likely be required as well. When investigating costs, ask the Supplier to provide a quote for the asset’s maintenance. This will provide increased visibility into costs, allowing for more accurate budgeting and determining suitable hire rates.
Let’s face it, equipment breakdowns happen. This doesn’t usually mean that your asset is inferior, however, the frequency of breakdowns and the Supplier’s ability to repair the equipment in a timely manner will impact your Customers, and therefore your business.
Researching both Supplier and equipment reliability will go a long way in reducing overall downtime associated with breakdowns. Parts availability and supply history will also provide valuable insight into the commitment that comes with your asset. Common parts should always be available.
Remember, every day that an asset is out of service, impacts both Customer satisfaction as-well-as your ability to generate income.
The market can often dictate hire rates, so we found it important to research current hire rates for the same/similar equipment while comparing this with the costs we detailed earlier.
The margin you add to these costs should also consider your overheads.
If you decide on a 30% margin and your overheads are 20% of your revenue, then your actual margin is only 10%. Will this sustain your business while maintaining a competitive hire rate?
Determining the correct hire rate to cover your total cost of ownership with a potential margin is one thing, but it also needs to link to an expected minimum utilisation rate. When we research our own ROI, we explore expected minimum (required), and maximum (optimal), obtainable utilisation days and factor this into our hire rate equation.
There are many more points to consider when researching total cost of ownership specific to your business such as, whether there is a market for the equipment and if not, can one be created? What are the costs of marketing the equipment, and what are the costs of training staff?
Proactive research into your assets’ ROI and all that it entails will ensure that you are building a sustainable future for your business.
Platform Sales Australia, suppliers of the largest range of innovative and advanced powered-access platforms, built by leading manufacturers worldwide. Call or enquire to speak with a qualified technician today.