Better Call It Off, Saul

Better Call It Off, Saul

Better Call It Off Saul

There’s nothing worse than a missed deadline. It stings even more when the penalty for a missed deadline results in lost money.

In the equipment rental world, the most important deadline is the making sure to return your rented asset at the end of the rental period. This is done through a “call off”, the simple act of communicating to your rental supplier the desire to end the rental and “please pick it up”.

To help make sense of equipment call offs, and to explain how on-time or early call offs can be more efficient to both the equipment supplier and renter, let’s take a deep dive into this process.

Rental Call Offs Explained

Traditional equipment rental agreement runs on a 28 day billing cycle, which approximates a month (4 weeks) of use. At any time during the billing cycle, an equipment renter can call off the asset and request that the supplier pick it up.

Traditionally this was done through phone calls, emails, or texts, but more advanced operators use sophisticated software solutions (Total Control, ProControl, Command Center, IronUp, and more).

Unless a call off happens on schedule at the end of the rental agreement, it will result in a restructuring of the rental agreement’s total cost, but not always as you’d expect.

Equipment rental agreement costs can be broken down into two categories: rental rates and surcharges. Rental rates, what is the most clear aspects of the rental agreement costs and the basic aspect most renters use to compare rental options, come in three forms: a daily, weekly, and monthly rental rate.

Surcharges are tax-like costs, normally required but sometimes optional. Common surcharges includes:

  • Transportation, or delivery, fees
  • Environmental fees
  • Rental protection plans

Surcharges are either a flat rate, like transportation fees, or a percentage of the total rental agreement, like the environmental fees and rental protection plans (e.g. 15% of base rental rate).

Why Would Anyone Intentionally Miss a Call Off?

Usually, the equipment component of a rental contract is built in a way that provides the most cost-effective combination of daily, weekly, and monthly rates. Within a monthly billing cycle, this typically leaves at least five working days where the equipment’s daily use is “free” (no increase in total expense to the renter), since the monthly rate has already been attained and no additional daily or weekly fees will be added.

Traditionally, renters have enjoyed this “benefit”. Projects run into all sorts of delays on site; having an extra grace period to use the equipment without a rate increase can be very beneficial. At other times, skilled equipment managers with multiple projects in the same metro area may use the “free” period to self-transport equipment to another jobsite with equipment needs, allowing project managers to gain equipment utilization at reduced cost to both projects.

Better Call It Off

In a recent column, Josh Nickell of the American Rental Association listed early “returns” as one of the top fleet management best practices for suppliers:

“I’ve heard many sales team members tell a customer they had already reached the month rate and that it would be better to just keep the unit if they thought there might be any chance that they would need it. […] now is the time to offer early return discounts and make sure your customer knows about it.”

Every experienced equipment renter has at least one story where they “forgot” a rental, leading to an unintentionally long rental period, one where total cost may have exceeded the purchase price of the equipment. Without good reminders of rental contract end dates and upcoming rate increases, it’s incredibly easy to miss the end of a billing cycle. 

When we formalize the analysis behind these statements, it’s also immediately apparent that it is mutually beneficial for both renter and supplier to call off rentals early. 

Consider the example below, where an asset is being rented with daily rates of $452, weekly rates of $1541, and monthly rates of $3,211. 

Note that due to the equipment rate calculation, the marginal cost per day drops to $0 after the 11th working day (this graph excludes weekends). This is the “free” period of the rental, and it extends until the end of the four week billing cycle. If the asset is called off on-time, everyone’s good to go. The Supplier gets to bill the quoted monthly rate, and the Renter has exactly 0% variance from their projected cost. 

Early Call Offs

To understand the true benefit to both Supplier and Renter of an early call off, there’s another critical rental term to understand: time utilization. This is a critical metric for rental suppliers. It represents the hours an asset is rented against the total number of available hours in a rental period. The industry benchmark for construction equipment has traditionally been 70% – that is, suppliers strive to make sure inventory levels allow for any asset to be on rent at least 70% of the total rentable days in a month or year.

In the model below, we introduce time utilization. Assume that this supplier averages 70% time utilization, so there’s a 70% chance that on any next day there’s a customer willing to rent the asset. That is shown in the graph below as 70% of the total expected rental value for a new rental customer.

In this example, the asset is called off on Day 14. Since we’re assuming 70% utilization, the revenue opportunity for the supplier on Day 15 is 70% of the standard first day of the rental period, and so on. In this scenario, the supplier enjoys a 29% higher revenue potential with the asset rented to another customer.

The renter now has 1 fewer machine on their jobsite, freeing up overhead and capacity. Moreover, if they had forgotten about the call off and it extended into the next billing cycle, they would be charged at least $452 (the stated daily rate) for that first day of the new billing cycle. That’s a possible 3% cost overrun for just one day of forgetfulness, and it could extend even further! Miss a week and it’s more than 10% over budget without a second thought. 

In this scenario, the supplier is only incentivized to leave their asset on rent if the contractor is likely to forget about the call off for another 2 weeks…and good luck dealing with that billing dispute. In fact, the best rental suppliers in the industry have started to offer an early call-off discount for this exact purpose. 

Wrapping Up

No two equipment rentals are the same – different projects, assets, suppliers, rate structures, rental periods, and personnel guarantee that there’s no “one-size-fits-all” recommendation for the ideal day in a rental to call off an asset. Yet it is decidedly clear that in most cases, if a supplier enjoys high time utilization for an asset class and a renter has any chance at all of forgetting to call off the asset, it is very cost-effective for both parties to call them off early. 

For busy equipment renters and suppliers, keeping track of these trends can be a full-time job. The best ones use a supplier-agnostic system like IronUp, which automatically forecasts these cost curves and notifies both equipment managers and operations leaders when rate increases and billing cycles are upcoming. IronUp even allows users to initiate call off requests from a mobile app on the jobsite, reducing the number of texts, emails, and yellow sticky notes which are always getting lost.

Sam Giffin
Sam Giffin
COO

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