Orders are flowing in, inventory is flowing out, but you have to ask yourself, “Am I making any money?” Three rental experts tackled this question at the seminar “Job Costing: Pricing an Event from Start to Finish,” offered during the American Rental Association's Rental Show in Las Vegas in February.PENNY-WISE
Paying strict attention to what each job actually costs her company has “made all the difference in our business,” said Deborah Borsum, CSEP, CERP, head of Elmwood, Ill.-based Meetinghouse Companies. Her company relies on job-costing forms that examine the profitability of each job. By following the form, “You can get down to the penny what you made on each job,” she said.
Critical to cost analysis at the Meetinghouse Companies is a clear understanding of what each employee's hour is worth. A form that itemizes every cost — salary plus vacation, holiday and sick pay, state and federal taxes, and benefits costs — not only helps management figure what labor adds to a job but also how to run the company. Management uses the information to clarify costs when employees ask for a raise, “and we know what it costs us when we have 20 employees sitting at a staff meeting for an hour and a half,” Borsum said.
The Meetinghouse Companies creates pro forma analyses of jobs showing what percentage of profit is predicted for that job; management follows up after the job is finished to see how well the event producer performed. Raises and bonuses are based on those results. The final report also stays in the client's file. “If we were too close on the margin on that job, we may rebid it if we do it again next year,” Borsum said.
For Steve Anthony, head of Stockton, Calif.-based American Event Rentals, “Labor and transportation are my two biggest concerns” in job costing. He must rely on union labor at times; its cost compared with his own workforce is “literally Earth versus Mars,” he said. But managing the cost of labor is “critical to your success,” he said.
When predicting the cost of an upcoming event, “We estimate the worst-case scenario,” he said, envisioning instances when the truck will have to come back because of missing inventory. Jobs based on bare-bones margins can't include such contingencies, “so we double- and triple-check these jobs before they go out,” he said.WATCHING THE SCALE
Once his trucks are on the road, Anthony knows the per-mile cost of each truck. And he pays attention to what each truck weighs before it hits the road. “A driver who passes a weigh station in an overweight truck will kill you,” he said. “It will take a profitable event and make it unprofitable.”
Anthony treats the cost of inventory as sacred. “I will not discount my equipment rentals,” he said. “If my Samsonite chair is $1, I will not cut it.”
Rick Rutherford, with Diamond Party & Event in Salt Lake City, said his company costs out jobs once they hit the $5,000 mark. Crucial, he said, is including replacement costs in overhead. “If you don't put that into your job now, you won't be able to replace inventory later,” he said.
And calculating the full cost of overhead is vital, Rutherford said. Recognizing what a job truly costs enables rental operators to ask, “Is that job worth it?” Rutherford asked, “Do you want to take that job?” In off-season, a low-margin job might make more financial sense than it will in high season, he noted.WHO PAYS?
If handled badly, sub-rentals can turn a profitable job unprofitable, the experts cautioned. So many times, rental operators turn to sub-rentals because they don't want to disappoint a customer by failing to supply a requested item. And while it may seem like common sense to pass the cost of the item along as is, “If you don't mark it up, that pass-through rate is going to kill you,” Anthony said. “You need to mark it up to maintain your profitability. By the time you pick it up and touch it, you need to charge [for that],” he said.
Anthony noted that his company charges a 20 percent markup on all sub-rentals. “We tell our customers that from day one,” he said. “I can't just do a pass-through, even if the sub-rental company does delivery and setup. What you are doing when you are sub-renting is paying someone else's profitability.” And though the idea sounds good, he cautioned against reciprocal sub-rental arrangements. “It never works,” he said.
Maintenance is a major item in job costing, the panel agreed. The Meetinghouse Companies applies the cost of maintenance to each piece of equipment or decor it rents, Borsum said. Rutherford agreed; “Each trip you make to Home Depot — all that is part of your true cost of pulling off that job,” he noted.
American Event Rentals
American Rental Association
Diamond Party & Event
The Meetinghouse Companies