Executive Hire News › Archives › October 2009 › Crosshire : Don't give profits away
Crosshire : Don't give profits away
The debate about rates and returns on investment has taken a back seat with many hire outfits, as they have reacted to the current economic situation by showing a willingness to follow the lemmings over the cliff and allow their prices to be dictated by their clients or competitors. I wonder how many of you will agree that one of the problems we have created is that many of us have reduced rates too far and on too many items.
There have always been good reasons to discount heavily on certain items for sound commercial reasons, but now good sense has long departed from some, and blanket discounts on everything are becoming the order of the day! Why give away your most profitable lines? I came across a hirer recently who declared that he no longer charged for the inevitable transformer and extension leads that accompany many power tool transactions. This is crazy: even at a low rate, they almost certainly generate more profit than the tool they are connected to.
At the rate we charge for adjustable props or fence panels, they beat all mechanical plant hands down on return on investment, because we have them in small quantities as a service to the low volume user. We all know that the same items in high volume at a low price are also profitable but that’s not what most of us are about. I recently had to buy a few items from a DIY superstore. Their show areas were full of high discount seasonal goods and their volume movers, such as white paint, were dirt cheap, but the items I needed were slow moving plumbing fittings that I know I could buy at much lower prices if I wanted 20 from a trade counter. I paid up for the convenience, the free car parking and the chance to wander around and see so many items that were priced to generate colossal returns on their actual cost.
Like all retailers, the DIY outlets are hurting, but they have not chopped their prices across the board, whereas I know of more than one hire company that will adopt a ‘name your rate’ attitude if an enquiry for a slow moving item comes along. As Plantool Ltd MD, Rodger Webb, pointed out in his Executive Hire Forum contribution last month, there are many official bodies with their arms deep in our pockets. We are in danger of letting our clients join them if we keep giving away those lines that do actually generate good returns.
Another false economy is the temptation to supply third division consumables with premier division equipment. We recently won back some business from a punter who turned up waving a diamond core bit at us, saying that he had bought it when he hired a drill from a competitor. Needless to say it was ‘budget priced’ and an angry chicken scratching in the dust would probably find more diamonds than were present on this particular drill bit. He declared that he had come back to us because the drilling machine from our competitor was no good. We knew that, in this case, it was probably not the machine but the bit and, sure enough, he was back within hours claiming our machine was no good as well! When we proved that a quality diamond bit was much superior and would solve his problem, he swore never to use our competitor again. A good result for us, but a lesson that the selection of all products we supply is critical to retaining business.
There is more than the odd bit of evidence that business IS moving slowly in the right direction and the optimists certainly seem to outnumber the pessimists. Some of the corporate hirers have started to spend again and no doubt will want to see returns on their investment. Competitive pricing may be with us for a while, but we have to get core hire rates out of the gutter before we find ourselves sitting in it.
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