Most business owners are aware that they should be measuring and monitoring more metrics about their equipment rental business, but what to measure and how to start are the biggest questions.

Business owners have become too dependent on their CPA to make financial decisions. However, financial accounting (i.e., tax deferment) is much different from managerial accounting.

Based on data aggregated from more than 100 companies by Peer Executive Groups, there are six essential KPIs that separate the equipment rental elite from the rest of the pack.

1. Change in business value

Benchmark: Greater than 10% growth year-over-year.

Calculation: Multiply Earnings Before Interest Tax Depreciation and Amortization (EBITDA) by five.

All the other stuff is nice, but your business’s value and the rate of change of that value is most important.

A multiplier of EBITDA is the primary baseline metric that equipment rental businesses are valued at prior to an acquisition. That multiplier can change depending on the business. The smaller businesses with a small footprint and client base are typically closer to three times EBITDA whereas a more established business with a larger footprint can be closer to seven times EBITDA.

This multiplier is determined based on the opportunity for future cash flows. The assumption is that, based on how established the brand is, the relationships with clients, and their footprint that their earnings will happen over a useful life of five to eight years.

For example, in United Rentals acquisition of Blue Line Rentals in 2018, United Rentals assumed that BlueLine’s nearly 50,000 customers would have a useful life of five years. United Rentals was acquiring those future earnings in the markets in which BlueLine had a strong presence. BlueLine’s EBITDA at the time of acquisition was $313 million, nearly 40% of their $786 million of total revenue. The acquisition was for $2.1 billion, which equates to more than six times EBITDA for the trailing 12 months at the time of acquisition.

This pattern exists across every major acquisition.

NES Rentals was acquired for $965 million which was nearly five times EBITDA. Neff Rentals was acquired for $1.3 billion, more than five times EBITDA and so on. NES and Neff EBITDA was around 40% of their sales, a very healthy ratio. Meanwhile, BakerCorp was acquired for a much higher multiple of EBITDA with a 29% EBITDA to sales ratio.

2. Rental Sales Growth

Benchmark: Greater than 10% year-over-year.

Calculation: Divide the change in year-over-year revenue by the previous year’s total revenue.

Understanding the Trailing Twelve Months (TTM) rental sales growth rate is far more telling than a top-line revenue number.

The S&P 500 is currently growing at around 10% to 12%. This is an indicator of the economy. If the business is falling far short of that, the owner needs to look into why.

Keeping a close eye on rental revenue growth rate as it relates to change in business value is important. For instance, if the value is not growing at the same rate as the rental sales growth rate, that simply means that you may be investing that revenue back into the business and expenses are growing linearly with revenue, which would cause EBITDA to remain the same despite the revenue increase. In this case, the next step is to look into your operational metrics to learn how to be smarter about where to invest money.

3. Asset Utilization

Benchmark: Greater than 50%.

Calculation: Divide rental revenue by Original Equipment Cost (OEC) as recommended by the ARA.

Time utilization or dollar utilization? It doesn’t really matter; do one or the other or both.

Asset utilization is a delicate dance. It is important to breakdown asset utilization by category to understand where equipment falls in the below asset utilization matrix. The sweet spot is in the 60% to 70% range—if the company is falling outside of 40% to 80%, adjustments should be made.



Technology is a must to maximize asset utilization efficiency, maintain an average fleet age and understand where assets fall in the asset utilization matrix.

Enterprise Resource Planning (ERP) systems such as Wynne Systems, Point of Rental and Alert will generate and maintain this data for business owners. Monitoring and taking action on the data is up to the company. Make these systems a part of the workflow when dictating what units go out to maintain an evenly distributed utilization rate. Next, assign the entire fleet to the asset utilization matrix based on time and dollar utilization.

Rental owners need to take emotion out of their equipment purchases and disposal. Holding onto a unit or category of equipment that falls in the problem child quadrant because “Our customers have to have it” is not a good enough reason. Once equipment falls in that quadrant, owners should put them on a performance plan to understand why the equipment is a problem. It could be the rate, the market, the maintenance cost or the specialization. If it is not easily fixed, those units should be removed from the rental fleet to keep the bottom line from being affected any longer.

4. Debt-To-Asset Ratio

Benchmark: Less than 30%.

Calculation: Divide long-term debt by total original asset cost.

This ratio may look different depending on the age of the rental equipment business but, ultimately, this number needs to be kept low.

The larger rental companies will typically acquire assets by way of debt creating an above-average debt to asset ratio.

United Rentals, for example, has a 60% to 65% debt to asset ratio. They are able to acquire most of their assets with debt because of the favorable rates they receive from the banks due to their size. However, this brings on a significant risk as noted in their 2018 annual report:

“Our significant indebtedness (which totaled $11.7 billion at December 31, 2018) requires us to use a substantial portion of our cash flow for debt service and can constrain our flexibility in responding to unanticipated or adverse business conditions.”

For most rental equipment businesses that are just starting out, their assets will likely be highly leveraged with debt. The favorable financing options that OEMs offer to get businesses off the ground promote a lot of healthy start-up activity and they should be taken advantage of. Many times, businesses don’t have any other options to acquire assets with 100% debt.

However, as the business grows, an effort should be made to keep the debt-to-asset ratio low. Having more equity in the equipment versus long-term debt gives the business more flexibility and leverage during favorable economic conditions and less pressure during a downturn in the economy.

5. Personnel Expenses as a Percent of Sales

Benchmark: Less than 35%.

Calculation: Wages, taxes and benefits divided by revenue.

Personnel expense is the biggest cost to manage.

This acts as a good measure of how a business is managing its team. If the overhead wages percentage is increasing, it means you either had a surge in hiring or more likely are getting less out of each employee. This metric the business uncovers truths about the effectiveness of the team, management and locations.

Independent rental equipment businesses need to learn to do more with less to compete. Low overhead wages as a percentage of sales is indicative of an effective, lean team.

Companies should aim to be in the 15% to 30% range. Large public companies such as United Rentals allocate about 13% of their revenue to personnel expenses.

6. EBITDA

Benchmark: Greater than 30% of revenue, greater than 10% year-over-year growth.

Calculation: This is the net income before adding back interest, taxes, depreciation and amortization.

EBITDA is the measure of profitability and free cash flow. As mentioned earlier, EBITDA is what is typically used as a measure of valuation. When calculating EBITDA, make sure to only look at operating expenses. Owner compensation or expenses beyond the business should not be taken into account.

If businesses focus on improving rental sales growth, asset utilization, debt-to-asset ratio and overhead wages as a percent of sales, then EBITDA growth will surely follow.