We all know the last couple of years have been tough in the rental industry.  We know of several rental store owners that have tried to diversify by offering more merchandise sale items, equipment sales or specialty items.  We strongly advise to think twice about that.  Even with the recent downturn and rental rate pressures, remember this mantra we tell our clients:  “When deciding to go into another line of business, remember rental is always the most profitable business segment you can have.”

Why?  Here is a multiple choice question for you:

What margin (sales minus cost of sales) would you like on your revenues:

A: 10%-15%

B: 30%-35%

C: 60%+

Obviously, we would all choose C.

Answer A: Depending on the type of equipment, margins usually run 10%- 15% for new equipment sales.

Answer B: 30% to 35% for gross margin is for typical supply and merchandise type sales.

Answer C: Depending on the way you figure your gross margin for rentals, worst case is usually 60%–usually double to triple the margins on sales.  If you think rental has had it tough the last couple of years, ask your local equipment dealers, or your vendors and manufacturers how bad they have had it.