Business Improvement / Car Hire / Fleet / Repairs / Automotive Services

FINANCIAL PLANNING

2012-06-30T23:04:00.001-03:00

Today I remembered a quote of Benjamin Franklin, which has much meaning in few words: "Failing to plan is planning to fail". This has been a principle for me, which has proven its validity in different situations in my life and in business, and how it is important at the financial management. So I will share with you how to create a good "Chart of Accounts" for car rentals to help you on financial management.

When we set a goal and outline a plan to reach them, everything becomes easier, reduces anxiety of almost all people involved. It is possible because having a plan, everyone will share the same destiny, how to get there, tasks, resources required, milestones along the way, and time required to reach each of them until the target.

Also, a good planning should address: processes, trainings, risks and costs. Processes will outline "what", "who", "how", "where", "when" to do, the methods to apply, resources that will be consumed, the process' input and output. Trainings will empower the Human Resources on the processes, methods, technologies and skills. Risks are like stones in the path, so we must find out what are the potential risks, then design some managerial processes to mitigate them and guarantee that all tasks will be performed as designed, scheduled and budgeted. Costs are normally consequence of resources involved and consumed by the operational and managerial processes, and the time expended on each of them. However, whatever planning is perfect and accurate, unforeseen and / or improvement opportunities will surely arise, then the plan must be revised.

All above are some of the reasons to use the PDCA cycle, a method widely used for planning, control and improvement of processes in a company. It was created by W. A. Shewhart in the 20s and is known also as "Deming Cycle" due to the disclosure by professor William E. Deming, who in the 50s was considered, together with Juran, the pioneers of the quality movement, and responsible for the Japanese industrial miracle. PDCA stands for “Plan”, “Do”, “Check” and “Act”:

Plan: is the first stage of the PDCA and starts with a plan, based on the guidelines and rules of the company, starting with setting the goals, the path to reach them, and the definition of the method to be used. A well-designed plan avoids failures and losses in subsequent stages of the cycle.
Do: is the implementation of the plan, which consists in training the actors/employees involved in the method to be applied. It should also define and collect the data for later analysis.
Check: includes the analysis and verification of results and data collected, but may also occur during the implementation (Do), to verify if the work is being carried out as planned. During this stage can also be detected errors or failures, which should be analyzed in the next stage.
Act: this is the last phase of the PDCA cycle, where corrective actions are performed to locate and investigate the causes of failures, or deviations in the processes, found in the previous stage, and working to eliminate them. So the cycle returns to the first stage again.

If we want a financial management effective and reliable, the PDCA cycle is recommendable, and must start with the "Chart of Accounts", which must cover the same level of details that we want to manage and control in our car rental business, and a way to accomplish this is to begin defining the accounting's classes, as below:

1 - Asset
2 - Liability
3 - Owner's Equity
4 - Revenue
5 - Expense
6 - (Gain)
7 - (Loss)

Subdividing the classes above into sub-classes, e.g.:

1 - Asset

10 - Cash
11 - Receivable in long term
12 - Inter-office receivable
13 - Permanent

2 - Liability

20 - Cash
21 - Due to long term
22 - Due on revenue
23 - Cleaning account

3 - Owner's Equity

30 - Owner's equity

4 - Revenue

40 - Miscellaneous or other revenue
41 - By time
42 - By Km/Mile
43 - Insurance
44 - Coverage
45 - Fixed assets
46 - Courtesy or discount
47 - Additional charge
48 - Promotion
49 - Optional item and service

5 - Expense

50 - Miscellaneous or other expense
51 - Reimbursement
52 - Loss by charge less
53 - Discount on credit card
54 - Commission
55 - Repair
56 - Preventive maintenance
59 - Uncollectible

6 - (Gain)

60 - Miscellaneous and other gain
61 - Vehicle rental
61 - Lease
62 - Vehicle sales
63 - Vehicle rental of third parties
64 - Gain on rental cars by third parties
69 - Gain with financial investment

7 - (Loss)

70 - Miscellaneous and other loss
71 - Vehicle rental
72 - Lease
73 - Vehicle sales
74 - Vehicle rental of third parties
75 - Loss on rental car by third parties
79 - Loss with financial investment

After we have the classes and sub-classes defined, it is time to work on the accounts, those that we will manage and control in our car rental business. However, here, we will only work on the classes and sub-classes outlined below:

1 - Asset

10 - Cash

1010 - Cash
1011 - Petty Cash
(... 1019)
1120 - Bank
1121 - Bank name #1
1122 - Bank name #2
(... 1149)
1050 - Credit card
1051 - Visa
1052 - Mastercard
1053 - American Express
1054 - Dinners
1055 - Discovery
(... 1068)
1069 - Own credit card
1070 - Account Receivable
1071 - Billed to the customer's credit
1072 - Postdated check
1073 - Bank order
(... 1099)

11 - Receivable in long term

1100 - Receivable in long term
(... 1199)

12 - Inter-office receivable

1200 - Inter-office receivable
(... 1299)

2 - Liability

20 - Cash

2000 - Cash
(... 2009)
2010 - Loan
(... 2099)

21 - Due to long term

2100 - Account Payable
(... 2199)

22 - Due on revenue

2200 - Miscellaneous and other taxes
2201 - VAT
2202 - GST
(... 2219)
2220 - Vehicle licensing
(... 2229)
2230 - Other charges

23 - Clearing account

2300 - Clearing account
(... 2309)
2310 - Customer deposit
(... 2399)

4 - Revenue

40 - Miscellaneous or other revenue

4000 - Miscellaneous or other revenue
(... 4099)

41 - By time

4100 - Revenue by time
(... 4199)

42 - By Km/Mile

4200 - Revenue by km/mile
(... 4299)

43 - Insurance

4300 - Other rental insurance
4301 - LDW (Loss Damage Waiver)
4302 - CDW (Collision Damage Waiver)
(... 4399)

44 - Coverage

4400 - Other rental coverage
4401 - SLI/LIS (Liability Insurance Supplement)
4402 - PAI (Personal Accident Insurance)
4403 - PEC (Personal Effect Coverage)
(... 4499)

45 - Fixed assets

4500 - Other rental fixed asset
4501 - GPS
4502 - Baby seat - up to 3 years old
4503 - Baby seat - greater than 3 years old
4504 - Cellular phone
4505 - Smartphone
4506 - Umbrella
4507 - Trailer
(... 4599)

46 - Courtesy or discount

4600 - Courtesy
4601 - Discount
(... 4699)

47 - Additional charge

4700 - Additional charge
4701 - Airport tax
4702 - Additional driver
4703 - Refueling
4704 - DROP OFF
4705 - Underage
4706 - Surcharge
(... 4749)
4750 - Damage
4751 - Repair
(... 4799)

48 - Promotion

4800 - Promotion
4801 - Parking
4802 - Movie ticket
4803 - Theater ticket
4804 - Park ticket
4805 - Restaurant discount
(... 4899)

49 - Optional item and service

4900 - Optional item and service
4901 - Delivery vehicle
4902 - Collect vehicle
4903 - Daily of chauffeur
4904 - Daily of chauffeur bilingual
4905 - Hourly of chauffeur
4906 - Hourly of chauffeur bilingual
4907 - Daily tour guide
4908 - Daily tour guide bilingual
4909 - Hourly tour guide
4910 - Hourly tour guide bilingual
4911 - FPO (Fuel Tank of Fuel)
4912 - Toll-free
(... 4999)

5 - Expense

50 - Miscellaneous or other expense

5000 - Miscellaneous or other expense
(... 5099)

51 - Material and inputs

5100 - Reimbursement for material or inputs
(... 5109)
5110 - Material consumed
5111 - Motor oil
5112 - Brake fluid
5113 - Filter
(... 5129)
5130 - Reimbursement for service
5131 - Mechanical service
5132 - Tire repair
5133 - Towing
5134 - Bodywork
(... 5149)
5150 - Transportation
5151 - Municipal bus
5152 - Intercity bus
5153 - Taxi
5154 - Flight
5155 - Car rental
(... 5199)

52 - Miscellaneous expense

5200 - Miscellaneous expense
(... 5299)

53 - Loss by charging less

5300 - Loss by charging less
(... 5399)

54 - Discount on credit card

5400 - Discount on credit card
(... 5499)

55 - Repair

5500 - Commission
5501 - Commission to Travel Agency
5502 - Commission to Hotel
5503 - Commission to Representative
5504 - Commission to Employee
(... 5599)

56 - Repair

5600 - Miscellaneous repair
5601 - Engine repair
(... 5659)
5660 - Bodywork repair
(... 5669)
5670 - Internal repair
(... 5679)
5680 - Electrical repair
(... 5699)

57 - Preventive maintenance

5700 - Miscellaneous maintenance
5701 - Engine oil and filter substitution
5702 - Brakes pads, fluids refueling and V-belts
5707 - Injection and ignition system
5708 - Sails and cable
5709 - Monthly revision
5710 - Annual revision

58 - Uncollectible

(... 5899)

After completed the "Chart of Accounts", we can implement it (PDCA). Also, we could elaborate the company's budget, assigning estimated values to each account, e.g. for the period of one year. It is also a good time to review the processes - operational and managerial - of each sub-class, working to improve them through the use of better methods, empower employees, implement best-practices, etc. Then define the key performance indicators (KPIs) to be monitored (PDCA), so occurring a deviation, or whether something go out the track, take a corrective action would be necessary (PDCA).

Over time and with the dynamics of the business, it will be natural if there is a demand for new accounts, then it is time to review the "Chart of Accounts", restarting the PDCA cycle.

CAR HIRE, FOCUS ON TECHNOLOGIES OR CORE-BUSINESS?

2012-03-31T23:03:00.010-03:00

Once, talking with a CEO of a car hire, I wanted to know what their Information Technology (IT) department was performing for the business.

Proudly, he began to tell me about their IT's modern technologies, qualified professionals, the sub-contracted companies and infrastructure built to support their entire operations.

Believe me, even for a company that has the IT as their core-business, everything was amazingly high quality and very high numbers.

I wondered if all their capital invested would be paid back. If so, what would be their "Return On Investment" (ROI)? Well, I still do not know, but believing that they would have better alternatives for so.

That company would be looking at "Total Cost Of Ownership" (TCO) of their IT assets and projects? Maybe, but the CEO was too proud to answer this kind of question.

Not to say that a company should not have their own IT department, but I always believed that an IT department really adds value to their company, when instead of promoting the technologies employed, they're keeping focus on business requirements, are problems solvers, and accomplishments are speaking by themselves.

I have the conviction to say that the CEO would have given me other answers, if their IT department would be actually delivering the best options for their business.

Well, instead of have annual budget and "overhead" increasing, they could reduce them, focusing on their core-business, and transferring to a third company all those things that they are not specialist, so others could be doing better than them (supplier's core-business), e.g.: telecommunication, network, hardware maintenance, car rental system ("Software as a Service" is one of the best options), servers, data-center / cloud-computing, trainings, vehicles maintenances, etc.

SELL A DREAM

2012-02-29T23:59:00.007-03:00

Undoubtedly, my post today is quite different from all previous ones. Do not worry, it's only a play on words, summarizing the thinking of some customers.

Sometimes I go,

Without knowing where to go,

Step in narrow and wide paths,

But I never forsake my path.

Stop! Think! Following the path.

Climbing, descending, looking around,

My destination is close, or outside the path.

Is there a car hire around?

What I meant to say?

Work hard to capture your customers' attention.
If you want something different, do something different.
Sell dreams, instead of commodities.
Continuously innovate with agility (soon or later, your competitors will copy advantages of your products).
Listen your customers, they are always right.
Do not reinvent the wheels, do benchmarks, following best-practices.

It's a brief summary. Good luck!

DIAGNOSIS AND STRATEGIC PLANNING FOR CAR RENTALS

2012-01-31T23:55:00.007-02:00

Diagnosis the performance of previous year (i.e. 2011) should be a priority for all car rentals, looking for operational and economic indicators, using them as basis to define goals set for next year (i.e. 2012). Also, the indicators should be feasible to the PDCA cycle (Plan-Do-Check-Act).

Subjectively goals-settings, without metrics, are useless to apply the PDCA cycle, so avoid to do something like this: a) increase fleet utilization, b) increase the volume of rental agreements, c) increase profitability, etc. Instead, look for indicators to make those goals specific and measurable: a) increase Average Fleet Utilization in 10%, b) increase Annual Volume of Rental Agreements in 30%, c) increase Annual Profitability in 20%, etc.

Let’s see an example! Analysing 2011's performance, we found:

40% of “Average Fleet Utilization“ (AFU),
3.45 days of “Average Length of Rental” (ALR),
$172 of “Average Rental Revenue” (ARR),
200 “Numbers of Vehicles in Fleet” (NVF).

Working with a management team, we set aggressive, but achievable goals, combining data above with statistical data collected from the competition and market. This gives us specific goals for 2012:

(1) increase “Average Fleet Utilization” (AFU) by 20% (from 40% to 60%),
(2) Maintain 3.45 days of “Average Length of Rental (ALR),
(3) increasing “Average Rental Revenue (ARR) from $172 (49.86/day) to $240 ($69.57/day)

Now, with these goals set, and the combination of the indicators (formulas below), we will deploy the strategic goals into operational goals (unfolding), for which would recommend to consider additional metrics. However, in this article, to make easier to understand, it still worth demonstrating the effect of this example upon “Annual Gross Revenue".

Formulas:

Volume of Rental Agreements (VRA) = (NVF x 365 x AFU) / ALR

(A) VRA = (200 x 365 x 0.4) / 3.45 = 8,463
(B) VRA = (200 x 365 x 0.6) / 3.45 = 12,695

Annual Gross Revenue (AGR) = VRA x ARR

(A) AGR = 8463 x 172.00 = 1,455,636.00
(B) AGR = 12695 x 240.00 = 3,046,800.00

Calculated values:

Consequently, this calculation demonstrates that an increase of 20% to AFU (very achievable from a low 40% base) PLUS a 71% to ARR have a potential to increase revenue by 109%. However, this is the tip of the Iceberg, so you should check for Marginal Cost, monitoring also other metrics and indicators.

OPERATIONS OF FLEET MANAGEMENT

2011-11-30T23:59:00.005-02:00

In the highly competitive business environment, quality and timeliness of business information, for an organization, it is not a choice between profit or loss, but can be a matter of survival or bankruptcy.

Therefore, tools for visualization of information, assisting in decision-making becomes increasingly essential for business owners, directors and managers. However, it is necessary that the leaders become aware of this information, being aware of how to use them in managing their operations.

If management is based on stable processes and their metrics, then the information will work as indicators of efficiency or inefficiency of the operations, facilitating the decision-making.

In a car rental company, there are several operations, which must work in synchronization with each other, so a system for business management, specializing in rental cars, must integrate and automate all complex operations, taking care of a all information required for a good management, facilitating decisions which should be taken almost instantly when operations is running.

Almost all people in car rental agree that "Fleet Management" is usually complex, because it involves many operations which must be managed with efficiency: purchase; car wash; availability control; distribution between locations; control of parking lot; pricing; maintenances - preventive and repairs; overbooking; blackout; due vehicles; miles/kilometers lost; depreciation; deactivation based on odometer or future date; revenue analysis per vehicle; maximization of incomes based on a mix of vehicles; vehicle performance; location of each vehicle; vehicle history records; vehicle's characteristics; fuel charges; rotation of wheels; tire tread depth; status of each vehicle; damages; vehicles being used by employees; then sales. Much information to manage, right?

Well, fleet management will be easier if your system is smart enough, warning you about "what to do", and "when do it". Recalling that a fleet management in a car rental depends on many other operations interconnected, either predictable or unexpected, as: bookings; vehicles exchanges; renters approaching the counter to rent a car; insurance replacements; fleet renewal; etc. Actually, a smart system should provide all what were outlined above (healing your headache), saving your time on decision-making, being effective.

BUSINESS SUCCESS

2011-10-31T23:25:00.003-02:00

Uncommon success comes with uncommon approaches to business. Your product or service must be genuinely unique. Gives attention to service and product, delivering a high quality.

Have a strong belief, from the very top, that taking care of customers and employees must be the number one. Empower workers as entrepreneurs and pay them on the bottom line, will make them to act like owners, taking care to avoid the risks, but working hard for the same rewards as entrepreneurs, reaching a superior service.

Agility is fundamental to delivery soon the right product or service, that customers are looking for. However, if you are NOT being faster than your competitors, then something must be changed quickly.

Do not assume what your customers want, but do a survey to find out what they really want as soon as possible.

Do you want some benchmark? Well, learn about the world best companies, not only those in your industry, but also from other markets.

DEPRECIATION OF ASSETS

2011-09-30T22:27:00.002-03:00

Many business owners and managers are aware that is very important to correctly price their products and services, CRM, process-based operations, standardization, PDCA, quality assurance etc., but are negligent when the subject is the depreciation of assets, noting too late, that the renewal of its fleet will be costly.

Certainly, other factors can, or should, be considered for fleet renewal, but one of the most important, in determining the right time to do it, is the calculation of the depreciation, rarely considered in strategic planning.

In fact, in another article of this blog, I described how to calculate a selling price, and avoid wasting your money. The depreciation value represents cost, and should be considered. But what is the depreciation?

Depreciation is the loss of values of the assets. This devaluation occurs because the wear on these assets, or loss of utility due by their use, action of nature, or obsolescence, which occur over the years. If these assets are the main sources of revenue, as are the vehicles for a car rental company, then the depreciation should be computed and treated carefully by entrepreneurs and managers.

There are several methods to calculate the amount of depreciation, such as:

Linear
By use
Accelerated

The linear method is the most widely used, especially in accounting. However, the "Accelerated Method" and "By Use" are recommended when there are factors or characteristics that will accelerate the process of devaluation, being more common in productive processes, but they should be seriously considered by all car rental companies for their strategic decisions.

Let's calculate the depreciation of a vehicle, using the Linear method. We must determine the Depreciation Rate, a constant, on the Capital Cost, which is computed considering the lifetime of the asset.

Depreciation Rate (%):

Period of wear / obsolescence: 5 years, which corresponds to 60 months (5 x 12)
Rate of wear / obsolescence total: 100%
Rate = 100% / 60 months = 1.6667%

Monthly Depreciation:

Capital cost of the vehicle: $30,000
Value = $ 30,000 x 1.6667% = $501.01

The monthly amount of depreciation calculated above, $500.01, must be added to other vehicle costs, so you can calculate the sales price/rent per day or hour. Example:

Cost per day: $ 500.01 / 30 days = $16.67/day
Cost per productive hour: $ 500.01 / 30 days / 8 hours = $2.08/hour

Theoretically such a vehicle should be replaced within a maximum of 60 months. Otherwise, if we consider that in a rental car operation, customers lose interest in older cars, we could determine, using statistical analysis, the accelerating rate of devaluation, which may be used in one of the above methods. Example:

Depreciation Rate (%):

Period of wear / obsolescence: 5 years, which corresponds to 60 months (5 x 12)
Rate of wear / obsolescence total: 100%
Index of accelerated wear: 2.5 (life will be reduced to 24 months)
Rate: 100% / 60 months = 1.6667%
Accelerated rate: 1.6667 x 2.5 = 4.1668%

Monthly Depreciation:

Capital cost of the vehicle: $30,000
Value = $ 30,000 x 4.1668% = $1,250.04

Therefore, the value of the monthly depreciation accelerated, $1,250.04, should be added to vehicle costs, so:

Cost per day: $ 1,250.04 / 30 days = $41.67/day
Cost per productive hour: $ 1,250.04 / 30 days / 8 hours = $5.21/hour

Do you want to look more closely at the depreciation calculation for your vehicles? If so, CARS+, the leading management system for car rentals for global brands and independents, will help you!

INFORMATION TECHNOLOGY FOR BUSINESSMAN

2011-08-26T21:40:00.005-03:00

If you're not a computer expert, but a businessman, maybe you felt like an illiterate at some moment, hearing many jargons, acronyms and titles used in computing. Well, it should not happen in this way.

I'll try to share with you what I have been learning in more than 25 years working as an specialist in the Information Technology (IT), because it is time for you know how to choose and discuss IT solutions for your business, rather than delegate by omission, or stay 100% depending on IT people. An IT decision can boost or destroy your company.

Even being an IT specialist, my knowledge, experience and interests include business, engineerings, administration, entrepreneurship, quality assurance, best practices, operations and processes. Although I had began early with the electronics, computer science, and math, I never limited myself to these knowledges, always looking for practical applications of these sciences in the companies I've been working, as: electrical engineering, construction, financial, industrial, car rentals, IT and software.

I've learned with clients and leadership of teams, how important is to emphasize on the IT applications, rather than treat it as a core activity, making the complexities of IT imperceptible to customers.

Currently, I feel comfortable and prepared to discuss any matter of the business environment, whether in the strategic or operational level, be about the administrative, financial, Human Resource (HR), accounting, costing, production, logistics, fleet, CRM, TQC, etc. Also, the interest in people, their cultures and contexts, makes customers more engaged and interested in contributing and working together, making it easier to eliminate their problems, find solutions and/or make improvements.

As in the fashion industry, there is the "fashion technology", which are not always what's the best in IT, but will make many professionals go in their search and advocacy. They will try to deploy these technologies in your company, because those will keep them updated to the labor market. Therefore, entrepreneurs, directors and managers should be alert to this. So what do about it?

Being the IT so strategic to your business, such as Marketing, HR, Logistics, Financial, Costing, Production, Manufacturing, etc., then you should devote all attention to the IT as you do for the others. Remember that an IT decision can leverage or destroy your company.

Here are some tips:

Require simplicity, eliminating the use of jargons, acronyms and/or titles specific of the IT area, substituting them by synonyms or analogies of common sense, or normally used in your industry.
Develop your knowledge in the IT, as you have done for other strategic areas. There are good magazines that can help you with this.
Prioritize the requirements of your business, Total Cost of Ownership (TCO) and Return On Investment (ROI), instead of the characteristics of IT solutions, avoiding decisions based on technological requirements.
Consider the measurable benefits, including TCO and ROI, quality, productivity, and impacts on customer satisfaction.
Avoid reinventing the wheel, try to benchmark and adopt best international practices, therefore it will cost cheaper and will yield better results.
Focus on core business of your company, then consider outsourcing of what are common sense, or another company can do better for you.

No resources in Information Technology is so complex that it can not be explained simply and practice using the language of your business.

THE IMPORTANCE OF STANDARDIZATION

2011-07-27T13:23:00.002-03:00

In consulting to various clients I've been watching some shortcomings, which are not related to software or hardware, but the lack of and standardization: Processes, Service Instructions, and Trainings.

The consequences of this are usually the loss of efficiency, higher operating costs, and the difficulty in developing a corporate image more homogeneous, which could be observed by their customers as a factor that differentiates the company from their competitors.

I do not want to lecture here on how to define and document a Process, Service Instruction, or Training, but to draw attention to the importance of each one, because there are rules and procedures detailing them, as are the Quality Assurance principles, outlined by the ISO 9000 family of standards (which the ISO 10000 series is an integral part) emphasize the importance of managing human resources and the need for adequate training, so look carefully at the ISO 9001:2008 and ISO 10015, to name some of them.

It is recommended that all people of all levels of the organization are trained to meet the organization's commitment to provide products according to the quality required by a changing market, where requirements and customer expectations are increasing continuously. However it will be effective only if your company already has their Processes, Service Instructions, and Trainings, standardized, documented and easily accessible to everyone. This, therefore, will be the beginning of a process of continuous improvement towards Total Quality, exceeding expectations of your customers.

VISION STATEMENT

2011-06-30T23:36:00.005-03:00

In the previous article about Leadership, was mentioned that a Leader must have a Vision, which must be shared with the team. In this article let's talk about the Vision Statement, which will help you apply in your organisation, in case you don't have one yet.

Where your organisation is headed? The answer for this question will be the Vision Statement, however let's talk how to define it.

What are the characteristics of a Vision Statement?

Future casting

Using a gerund verb to define your future casting.

Clear and Visible

Metaphoric speaking, if you can actually see yourself in top of that mountain, your team will see either.

Audacious

Thinks big, being audacious, thinking in what you want to accomplish for your organisation.

Descriptive

Use a single sentence, which is the vision description.

Time bound of 5 years (3 up to 10 also works, however I recommend 5 years)

Looking at a diagram representing where your organisation is right now, point 'A', and where you wanna be in 5 years, point 'B'. If you think on how you're going to get there in point 'B' and the gap in between 'A' and 'B', then it drives you to the Mission statement, which answer "why your organisation exist"; but 'B' is your Vision statement, "where your organisation is headed".Why it is important? Will be a big problem if your Vision is out of the context of your Mission.

The purpose of the vision statement is to inspire, energize, motivate, and stimulate your creativity, not to serve as a measuring stick for success; that is the job of your objectives and goals, so following the rules, let's create Vision Statement for a car rental company, named "Super Rental":

Future casting

We will be creating loyalty customers.

Clear and Visible

We serve customers anywhere and quickly.

Audacious

Our clients consider us the best company to rent, and our employees the best company to work.

Descriptive

Be the most innovative car rental company in the world, delivering safe vehicles anywhere and quickly, for customer enjoyment, rewarding their loyalty, as well as the employees' accomplishments.

Time bound of 5 years

2011: In 5 years be the most innovative car rental company in the world, delivering safe vehicles anywhere and quickly for customer enjoyment, rewarding their loyalty, as well as the employees' accomplishments.

So, the Vision Statement for Super Rental company will be:

Vision

"2011: In 5 years be the most innovative car rental company in the world, delivering safe vehicles anywhere and quickly for customer enjoyment, rewarding their loyalty as well as the employees' accomplishments".

LEADERSHIP

2011-06-30T14:00:00.007-03:00

Leadership must be shared because it is impossible for the leader to take care of everything and everyone, so he needs to delegate, allowing his followers to analyze the details, make choices, take decisions and actions.

As customer contact is essential to the business of a company, which will determine whether the customer will purchase and will become a loyal customer, the leader in his side, who is often away from these direct contacts, must be a server and coach of his followers, for they be able to perform this role very well. So, yes, this attitude will inspire and share the leadership with their followers.

Also, the leader must be visible and have ethical attitudes, as a leader does what he says, becoming an example to be followed, and this visibility is expected, and without this there will be no leadership.

Another important factor is to share a clear vision to reach the target with his followers, once is easier to achieve what we can see or predict. So, remain focused on his vision, correct the direction, think broadly and openly, overcome obstacles, lead and motivate, coaching periodically his followers are some of the leader's roles.

You have heard that no one leads a group of people to remain in place, unchallenged, unmotivated? Leadership involves a sense of change, where all are engaged to perform, for the action that leads to the realization of this change: a greater market share, consolidation of market leadership, a change in corporate structure, etc.

Here six rules to help you improve your leadership:

LEADER is the bearer of legitimate authority, the one in whom followers acknowledge their claim to be heard, respected and followed.
LEAD is to connect your employees to your business.
LEAD is getting and keeping employees who work and act like owners.
LEADERSHIP is the art of getting desired results, agreed and expected by employees engaged.
LEADERSHIP is the art of making others feel like doing something you are convinced that should be done.
LEADERSHIP is the art of mobilizing others to struggle for shared aspirations.

"The only definition of a leader is someone who has followers. Some people are thinkers. Other prophets. The two roles are very important and necessary. But without followers, there can be no leaders" (Peter Drucker)

Also, know how to avoid common mistakes of a leader is crucial:

Inability to interpersonal relationships

A leader is primarily a manager of people, before being a manager of processes and operations. A leader who does not listen to his followers, does not communicate and think he is never wrong, certainly affect his relationship with his team, superiors and peers, also missing the opportunity to learn and innovate. So a leader with these characteristics will have difficulties in building a high performance team.

Not open to new ideas, or different ones

A big mistake is when a leader does not accept the ideas of others, since the idea does not belong to him. This suggests there is uncertainty, because the leader does not know everything.

Not focused on results, nor take reponsibility

The leader who is not focused on accomplishments will remain in a danger position, because it will reflect negatively on the goals, and worse, if the leader does not assume responsibilities that are inherent to his activity, the chaos is installed.

Failure to take the initiative

If the leader does not take any initiative, then someone will take it. In an increasingly competitive world, an initiative was not taken in time, will mean loss of market share to competitors.

Inability to practice self-development and learning from their mistakes

A leader who can not learn from their mistakes, will also have difficulties in having a high performance team as the team is a "mirror" of the leader, offering resistance to change and improvement.

So do not let your company go without a leadership, drive it as recommended in this article, working with your team, getting better results going forward.

Books recommendations:

Strategic Planning For Success: Aligning People, Performance, and Payoffs

Leadership: Theory and Practice

The People CMM: A Framework for Human Capital Management (2nd Edition)

COMPETITIVE ADVANTAGES

2011-06-09T23:24:00.001-03:00

Your company don't need to be the best of the world, but must know their Competitive Advantages, so if you never dedicated time thinking on them, it's time to start, putting them in your Strategic Planning. However it can take months or years until you figure out what are your core advantages.

Begin looking for the "Competitive Advantages" asking:

On what, my company is the best?
Why customers rent, or buy, from us?

Do this constantly until you have clearly identified the core advantages. Involve your team to help you find out the right answers, listing them as below:

On what, we are the best?	Why Customers rent, or buy, from us?
Making customers happy	They love our 100% dedication to understand and meet all their needs
Providing the best vehicles for safe driving	They know that our vehicles are in the fleet until 9 months or 100000 km of use, receiving periodical maintenance
Retaining the best professionals	They have experts and dedicated professionals, who understand the industry and their needs, always ready to help them
Controlling costs and calculating sales prices	They know that we offer the best prices, getting the best services and products
(...)	(...)

Maybe your list will be larger than this above, however after months or even years, you will reduce the items, getting focus actually on your Competitive Advantages.

THE MACRO-ENVIRONMENT (PEST ANALYSIS)

2011-05-31T21:41:00.013-03:00

We have here another acronym of a useful tool, and framework, to understand either the growth or downturn of a market, doing a scan of the external macro-environment of your company. The PEST Analysis stands for:

Political
Economic
Social
Technological

Whereas SWOT Analysis will help to measure a business unit, idea or project; PEST Analysis will help you measure a market or a contextual environment.

In spite of there are variations for the PEST acronym, being very common STEEP, PESTELI, etc, adding factors like Ethical, Environmental, Ecologic, Legal, International, etc. It is an unnecessary job, because all them can be assigned to one of those PEST factors – Political, Economic, Social or Technological. My preferred is always the use of originals: PEST or STEP. Use whichever is easier to remember, avoiding the variations. See figure below with some important factors that you can consider, as well as others can be added.

Political

Environmental regulations and protection
Legislation to the industry
Regulatory bodies and processes
International trades and regulations
Contract enforcement law
Government policies:
Government term and change
Trading policies
Funding, grants and initiatives
Lobbying/pressure groups
International pressure groups
Wars and conflict
Political stability

Economic

Economic growth/downturn
Home economy situation
Home economy trends
Overseas economies and trends
Inflation rates
Unemployment policies
Taxation
General taxation issues
Taxation specific to product/services
Seasonality/weather issues
Market and trade cycles
Specific industry factors
Market routes and distribution trends
Customer/end-user drivers
Interest and exchange rates:
International trade/monetary issues

Social

Lifestyle trends
Income distribution
Demographics
Social mobility and labor
Work/career and leisure attitudes
Entrepreneurial spirit
Consumer attitudes and opinions
Media views
Law changes affecting social factors
Brand, company, technology image
Consumer buying patterns
Fashion and role models
Major events and influences
Buying access and trends
Ethnic/religious factors
Advertising and publicity
Ethical issues
Living conditions

Technological

Competing technology development
Research funding:
Associated/dependent technologies
Replacement technology/solutions
Maturity of technology
Manufacturing maturity and capacity
Information and communications
Consumer buying
Mechanisms/technology
Technology legislation
Innovation potential
Technology access, licensing, patents
Intellectual property issues
Global communications
Energy uses and costs
Total Cost of Ownership
Changes in Information Technology
Changes in Internet
Changes in Mobile Technology
Rate of technology transfer

PEST factors are important role, however they are beyond the control of the company, normally must be considered as either threats or opportunities, which can be applied in the SWOT Analysis. They are macro-economic factors, so they usually differ per continent, country or region. They are virtually unlimited. The firm must prioritize and monitor those factors that influence its industry/company. Below an example for a car rental company in a country in the American continent, outside Brazil and USA.

Maybe you figured out that PEST Analysis can vary from business and strategic planning, marketing planning, depending also of the product and service of your portfolio, therefore you can reduce or increase the list of items for each factor.

BEST PRACTICES AND GLOBAL STANDARDS

2011-05-21T23:54:00.005-03:00

I'm surprised to see how many entrepreneurs still spend a lot of money and time trying to reinvent the wheel, because they have not realized that there are many best-practices available in the market, which could be adopted in their companies, saving money and disappointments.

Even today, some business owners, directors and managers believe that innovation must necessarily start from an idea of their own, from scratch, creating their own solutions. That's not true! Imagine if the cars makers or computers manufacturers would be thinking in that way... What we would have today? Maybe the same cars and computers built ten years ago.

Pay attention! If the wheel has been invented, why waste time trying to reinvent it again? This is only an analogy, but think twice about this when starting a new project or enhancements. We actually find best-practice processes for almost everything. See some examples below.

Desiring a more organized business and better processes, maybe looking for Quality Assurance? Well, 5S and ISO 9001: 2008. They will help you!

5S' book: 5S for Service Organizations and Offices: A Lean Look at Improvements);
ISO 9001:2008's book: (ISO 9001:2008 for Small Businesses, Fourth Edition: With free customisable Quality Management System files!.

Are your projects going beyond the due dates, or worse, your company does not set dates for completion? The PMBoK is the best alternative for project management. Agility would be still better? If so, in spite of the Scrum had been designed for software development, it has been working very well for other industries, even for individuals, because it is simple and effective.

PMBoK's book: A Guide to the Project Management Body of Knowledge: (Pmbok Guide);
Scrum's books: The Enterprise and Scrum and Agile Project Management: Creating Innovative Products (2nd Edition).

People are discouraged? A big problem! To build products and delivery high quality services, you must do a retention of experienced employees, instead of compete for talents or recruit the best, because this is usually expensive. Retain a workforce with the knowledge and skills and willingness to acquire new competencies, team-based, flexible work arrangements, addressing diversity issues, conducting formal mentoring programs, align business and human resources strategies, empower employees to make decisions and award their accomplishments. A good formal framework to drive you on this direction is People Capability Maturity Model (P-CMM). Of course, there are also a couple of good companies doing well with Human Resources, so you can choose one of them for a benchmarking.

P-CMM's book: The People CMM: A Framework for Human Capital Management (2nd Edition).

Does your company have a Customer Service Center (CSC), which is responsible for fulfilling customer requests or resolve problems that are reported by them, whether they are internal or external customers? The quality of services has been below the expected? In this case, ITIL will help you! ITIL is a framework created for Information Technology people, however it is perfectly applicable to any type of CSC, for example: a customer care department, central of reservations and vehicle maintenance workshop. ISO/IEC 20000 is also a similar approach.

ITIL's books: Defining IT Success through the Service Catalog (Pink Elephant Guides) and The Visible Ops Handbook: Implementing ITIL in 4 Practical and Auditable Steps;
ISO/IEC 20000: - Implementing Service Quality based on ISO/IEC 20000.

The strategies are well developed, but are having trouble sharing them with all employees and is difficult to deploy them effectively? If this is the case with your company, then you should know the Balanced Scorecard (BSC).

BSC's book: The Balanced Scorecard: Translating Strategy into Action.

While all the subjects covered in this blog can be applied to many companies, the examples are generally directed to the car rental industry. So let's talk a little bit of how to find out existing standards and best-practices of this market.

Many standards and best-practices have been established by global companies such as Enterprise Rent a Car, Hertz, Dollar, Thrifty, Avis, Europcar, National, Alamo, Sixt, etc. So if your company is a franchisee of one of them, you can get such information. However, if your company is an independent brand, or are looking for understand the standards and best-practices, then I recommend:

Hire an experienced organizational consulting, specializing in the car rental industry (Thermeon Corporation - http://www.thermeon.com - founded in 1967, specializing exclusively in the car rental industry since 1983).
Purchase a software, which has embedded the best-practices and standards of the global car rental industry, even for a local business (Thermeon Corporation - http://www.thermeon.com - CARS+ is the premier software for many global brands).
Study about the SIPP codes, which are the industry standard for describing vehicles, usually with 4 characters long, they are used to summarize the key features of a vehicle, for example ECMR:

First letter (size of vehicle)

M = Mini
N = Mini Elite
E = Economy
H Economy Elite
C = Compact
D = Compact Elite

Second letter (number of doors)

B = 2/3 doors
C = 2/4 doors
D = 4/6 doors
W = Wagon/Estate
V = Passanger Van
L = Limousine

Third letter (transmission and drive)

M = Manual drive
N = Manual, 4WD
C= Manual, AWD
A = Autodrive
B = Auto, 4WD
D = Auto, AWD

Fourth letter (fuel, A/C = Air Conditioner)

N = Unspecified fuel, no A/C
R = Unspecified fuel, A/C
D = Diesel, A/C
Q = Diesel, no A/C
H = Hybrid, A/C
I = Hybrid, no A/C

Browse through the website of ACRISS on:

Sample Car Codes: http://www.acriss.org/car-codes/sample-codes/
Pseudo Car Codes: http://www.acriss.org/car-codes/pseudo-car-codes/
Expanded Car Code Matrix: http://www.acriss.org/car-codes/new-car-code-matrix/
Abbreviations: http://www.acriss.org/reference/abbreviations/
Special Equipment: http://www.acriss.org/reference/special-equipment/

Know the Enterprise Rent a Car history.

Book: Exceeding Customer Expectations: What Enterprise, America's #1 car rental company, can teach you about creating lifetime customers (a very good history and benchmark, not only for the car rental industry)

From now on, not reinvent the wheel, but try to find out if there is any best-practice or some company to become your initial reference, maybe a benchmark, then improve and innovate.

GOAL SETTING USING “SMART”

2011-05-06T15:37:00.013-03:00

Nowadays, goals are usually 1 up to 3 years of action statements. Goals are envisions, plans and commits to achieve a desired end-point. However the goals can not be too easy or too difficult, because in this way would be discouraging, not very effectives.

Let's make an analogy! Take a bottle and some rings. The goal is to put the rings on the bottle's neck, throwing the rings. If the bottle is very close, we will have 100% of accuracy. However, if the bottle is so far away, the accuracy will be close of 0%. Of course, for both settings would be very discouraging, wouldn't be?

Therefore, if your goals seem to be so close, move them more far away from you, otherwise, if they are too far away, put them more closer. We must find out a mid point. However, how we can do this? We can use SMART!

SMART is an acronym for: Specific, Measurable, Actionable, Responsible, Time bound.

Specific – be specific when defining goals, usually using words like: “increasing” and “decreasing”. A specific goal has a much greater chance of being accomplished than a general goal.

Examples

Increase customer satisfaction in 20%.
Increase vehicle utilization in 15%.
Decrease costs with refueling in 10%.
Decrease time expended to open a Rental Agreement to 5 minutes.

Measurable - establish concrete criteria for measuring progress toward the accomplishment of each goal. To determine that they are measurable, ask questions such as: How many? How much? How to know that I accomplished the goal?

Examples

Increase customer satisfaction in 20%.
Increase vehicle utilization in 15%.
Decrease costs with refueling in 10%.
Decrease time expended to open a Rental Agreement to 5 minutes.

Actionable – it means that when you read it one year from now, you must remember your statement, which you wrote, outlining what you can do about it. In another words, after identify the goals that are most important to you, begin to figure out ways you can make them come true, developing abilities, skills, attitudes, marketing plans, financial plans, etc, so you will be able to accomplish them.

Examples

Increase customer satisfaction in 20%

CAR WASH

Increase their quality of service, enhancing their processes.

FLEET MANAGEMENT

Decrease operational costs in 10%.
Implement Preventive Maintenances of Vehicles available in our system.

RENTAL AGENTS

Increase their quality of service, having monthly trainings with Supervisors.
Schedule an Annual Training to learn about world best practices.

PRICING MANAGEMENT

Create “Special Rates and Privileges” more attractive for frequent customers.
Create “Special Rates and Privileges” more attractive for corporates.
Create “Special Rates and Privileges” more attractive for tour agents.

Increase vehicle utilization in 15%

PRICING MANAGEMENT

Create “Special Rates” for Weekends.
Create “Special Rates” for Holidays.
Create “Special Rates” for Low and High Seasons.

MARKETING DEPARTMENT

Advertise our Special Rates to 100% of our frequent customers.
Meet all Tour Agents to advertise our Specific Weekend Rates.

Decrease costs with refueling in 5%

FLEET MANAGEMENT

Monitor refueling using resources available in our system.
Decrease non-revenue movements with our vehicles in 20%.
Negotiate a decreasing of 2% in Fuel prices with Gas Stations.

Decrease time expended to open a Rental Agreement to 5 minutes

RENTAL AGENTS

Monthly trainings with Supervisors.
Implement pre-printed Rental Agreements available in our system.

Responsible – define who will be in charge, taking actions to accomplish what is outlined in your statements.

Examples

Increase customer satisfaction in 20%

CAR WASH (Supervisor: Tom)

Increase their quality of service, enhancing their processes.

FLEET MANAGEMENT (Fleet Manager: John)

Decrease operational costs in 10%.
Implement Preventive Maintenances of Vehicles available in our system.

RENTAL AGENTS (Operations Manager: Lucy / Supervisors & Agents)

Increase their quality of service, having monthly trainings with Supervisors.
Schedule an Annual Training to learn about world best practices.

PRICING MANAGEMENT (Marketing Manager: Bob / CFO)

Create “Special Rates and Privileges” more attractive for frequent customers.
Create “Special Rates and Privileges” more attractive for corporates.
Create “Special Rates and Privileges” more attractive for tour agents.

Increase vehicle utilization in 15%

PRICING MANAGEMENT (Marketing Manager: Bob / CFO)

Create “Special Rates” for Weekends.
Create “Special Rates” for Holidays.
Create “Special Rates” for Low and High Seasons.

MARKETING DEPARTMENT (Marketing Manager: Bob)

Advertise our Special Rates to 100% of our frequent customers.
Meet all Tour Agents to advertise our Specific Weekend Rates.

Decrease costs with refueling in 5%

FLEET MANAGEMENT (Fleet Manager: John)

Monitor refueling using resources available in our system.
Decrease non-revenue movements with our vehicles in 20%.
Negotiate a decreasing of 2% in Fuel prices with Gas Stations.

Decrease time expended to open a Rental Agreement to 5 minutes

RENTAL AGENTS (Operations Manager: Lucy / Supervisors & Agents)

Monthly trainings with Supervisors.
Implement pre-printed Rental Agreements available in our system.

Time bound – establish a period of time, with a specific deadline date, to accomplish each goal, reaching the end-point.

Examples

Increase customer satisfaction in 20% by (1 year; at May 15, 2012)

CAR WASH (Supervisor: Tom) by (1 month; at June 15, 2011)

Increase their quality of service, enhancing their processes.

FLEET MANAGEMENT (Fleet Manager: John) by (1 year; at May 15, 2012)

Decrease operational costs in 10%.
Implement Preventive Maintenances of Vehicles available in our system.

RENTAL AGENTS (Operations Manager: Lucy / Supervisors & Agents) by (1 year; at May 15, 2012 )

Increase their quality of service, having monthly trainings with Supervisors.
Schedule a annual training to learn about world best practices.

PRICING MANAGEMENT (Marketing Manager: Bob / CFO) by (2 months; July 15, 2011)

Create “Special Rates and Privileges” more attractive for frequent customers.
Create “Special Rates and Privileges” more attractive for corporates.
Create “Special Rates and Privileges” more attractive for tour agents.

Increase vehicle utilization in 15% by (6 months; November 15, 2011)

PRICING MANAGEMENT (Marketing Manager: Bob / CFO) by (2 months; July 15, 2011)

Create “Special Rates” for Weekends.
Create “Special Rates” for Holidays.
Create “Special Rates” for Low and High Seasons.

MARKETING DEPARTMENT (Marketing Manager: Bob) by (6 months; November 15, 2011)

Advertise our Special Rates to 100% of our frequent customers.
Meet all Tour Agents to advertise our Specific Weekend Rates.

Decrease costs with refueling in 5% by (6 months; November 15, 2011)

FLEET MANAGEMENT (Fleet Manager: John) by (6 months; November 15, 2011)

Monitor refueling using resources available in our system.
Decrease non-revenue movements with our vehicles in 20%.
Negotiate a decreasing of 2% in Fuel prices with Gas Stations.

Decrease time expended to open a Rental Agreement to 5 minutes by (6 months; November 15, 2011)

RENTAL AGENTS (Operations Manager: Lucy / Supervisors & Agents) by (6 months; November 15, 2011)

Monthly trainings with Supervisors.
Implement pre-printed Rental Agreements available in our system.

Through understanding the effect of goals setting on individual performance, your company will be able to improve organizational performance. It happens because people will perform better when they are committed to achieve specific goals, knows the importance of the expected outcomes of goal attainment, works as a team, track performance to see how effective they have been, receive constantly feedbacks, work on an environment with many elements of motivation. So, works together with your HR department to motivate individuals follow your plans.

SWOT ANALYSIS

2011-04-22T21:49:00.001-03:00

SWOT analysis is a strategic planning method used to evaluate Strengths, Weaknesses, Opportunities, and Threats involved in a business or project. It is straightforward model that assesses what an organization can and cannot do, as well as its potential opportunities and threats. It is an extremely useful tool for understanding and decision-making on business and organizations.

This method will be helpful for any car rental company, engaged on renting to people needing a temporary replacement car or a vehicle for a special occasion, leasing vehicles, fleet management services and sale of used cars and trucks.

Let's start learning how to put all together in the SWOT matrix, 2 x 2, having Strengths (1,1), Weaknesses (1,2), Opportunities (2,1) and Threats (2,2), making them work, and be useful for our company.

In the first column we will list those issues that we can control, because they are internal to the company, while in the second column will be those issues over which we do not have control, once they are external to the company.

What to evaluate?

Strengths – the attributes of the company that are helpful to achieving the objective. We can capitalize on them.

Questions examples:

What are we doing better than our competitors?
What know-how/experience do we already have?
What do we do well?
What do we do for clients that makes them love it?
What products bring in the most money?
What services bring in the most money?
What are the best assets that we have?
What is the best of our locations?
What are our best processes in operation?

Weaknesses – the attributes of the company that are harmful to achieving the objective, but they are also areas of opportunities. We must work on them to shore them up.

Questions examples:

What is making us lose money?
What does waste our time?
What in our products is requesting our attention?
What in our services is requesting our attention?
What rental locations are not good enough?
What processes are bad?

Opportunities – the external conditions that are helpful to achieving the objective. We invest on them.

Questions examples:

How can we do more for existing clients?
How can we increase our marketing share?
Are there new targets we have potential to reach?

Threats - the external conditions which could do damage to the business’s performance. We must identify them.

Questions examples:

What are our competitors doing that we're not?
What is going on the economy that can be hard for us?
What is going on the car rental industry that we're not able to do?
What are the obstacles do we face?

We need to collect data to populate the SWOT, however we must do this with focus on information based on:

Customers: getting feedback using marketing research methods as surveys, questionnaires, focus groups, in-depth interviews, projective techniques, etc.
Employees: information survey, looking for capabilities that they have, which are strengths or weaknesses, knowledge/training gaps, etc
Resources: brand, assets, money, buildings, software that we have or don't have.
Processes: things that we do, good or not so good.
Environmental: what happening in the world, continents, regions, country, states, cities, and localities.
Economy: loan, costs, mortgages, interests, taxes, vehicle depreciation, etc.
Industry: looking for what is happening in our industry, associations, etc.
Competitors: basically who they are, what they are doing, how they are doing, what are their missions and visions, etc.

After have our matrix completely populated, what we do with those information? We want to actually take those information, and create a list of ideas to deal with them, prioritizing, and defining, actions in a “Goal Statement”. How we can generate ideas? Well, doing this:

Take the strengths, trying to match them up with the opportunities.
Match the weaknesses up with strengths.
Set strengths up to offset weaknesses.
Set strengths up to capitalize on opportunities.
Be aware of threats, looking for opportunities that can offset the threats.

What the SWOT Analysis ought not be? It shall not be an exercise of imagination for your team around the table, but must be based on precise data collected as outlined above, sharing the strategy effectively inside the company, making sure that we will do something with them, reaching great goals, which will be pushing the company forward.

PRICE x TOTAL COST OF OWNERSHIP (TCO)

2011-04-08T01:00:00.003-03:00

Suppose you are about to decide on buying software for your business. Both options have the following modules: fleet management, prices management, reservation management, contract management and maintenance management. The price of the software "A" is $2,500, while the software "B" is $10,000. Which of them would you buy?

I guess that without thinking twice, your choice would be the "A" software. However, before reply so fast, how about doing other questions, which are not usually asked? See questions and answer in the table below:

Now, which of them would be your choice? Well, of course that would be the "B" software, instead of the "A" software that you had chose at the beginning, because in 6 months you would be saving $1,850. Estimating for 1 to 2 years, you would be saving more than $10,470 with "B" software. Great, right?

So next time, when you will be purchasing an asset, does not matter if it is a software, vehicle, equipment, etc, remember that is very important to evaluate not only the price, but also its lifetime cost. In that way you will be analyzing the "Total Cost Ownership" (TCO), which is used to analyze and support planning and decisions involving computer systems, vehicles, equipment, buildings, medical equipment and laboratory etc.

DO NOT WASTE YOUR MONEY

2011-04-07T12:05:00.005-03:00

Companies, large or small, often lose money without knowing the cause. Or worse, realize that something is wrong only when it is too late to renew fleet or make new investments. What could be wrong?

Analyzing the problem usually we find out that the causes lays in prices or discounts. In such cases, the prices are usually: based on the competitor's, sometimes prices miscalculated or the discounts are excessive. If your company does so, beware!

What can be done? Here’s one way of approaching this problem. Firstly, list all direct costs for each vehicle class. Calculate company indirect costs and expenses - they can usually be prorated. Finally, define the expected percentages for: profit, bonuses for staff, commissions, investments, etc. A worked example is below:

DIRECT COSTS (daily and kilometer basis)

(A) Depreciation: 0.0926% / day ← 1 / (3years x 12months) = 0.0278 / 30days = 0.0926%
(B) VLF: 0.0083% / day ← (3%per year / 12months) / 30days = 0.00083%
(C) Tires: $0.02000/km ← ($200 / 40000km per tire) x 4 tires = 0.03220/km
(D) Oil/Filter: $0.03000/km ← ($200 / 6000 km)
(E) Maintenance: $0.00700/k ← ($1000 each 15000km)

PLANNED RESULTS

(F) Profit: 20%
(G) Bonus: 2%
(H) Investment: 3%
(I) Commission: 10%
(J) Others: 0% ← Note: it is only to emphasize that you can list others

INDIRECT COSTS AND EXPENSES (prorate)

(K) Operational: $50000/monthly
(L) Prorate: $8.33 per car daily ← ($50000 / 200cars) = $250 / 30days = $8,33

COST CALCULATION (by Vehicle Class)

(M) Car's Capital Cost: $15000 ← Note: take the average or the highest class' price
(N) Monthly Depreciation: $13.89/day ← $15000(M) x 0.0926%(A)
(O) VLF: $1.25 ← $15000(M) x 0.0083%(B)
(P) = (C) + (D) + (E) $0.057 ← $0.02 + $0.03 + $0.007
(Q) = (P) + (L) $8.387 ← $0.057 + $8.33
(R) Total = (N) + (O) + (Q) = $23.53/day ← $13.89 + $1.25 + $8.39

CALCULATING RENTAL DAILY RATE

(S) = (R) x 100 / [100 - ( (F) + (G) + (H) + (I) )] ← Note: the Markup formula
(S) = 23.53 x 100 / [100 – (20 + 2 + 3 + 10)]
(S) = 2353 / (100 – 35)
(S) Price = 2353 / 65 = $36.20/day

CALCULATING EXPECTED RESULTS

Profit: $36.20 x 20% = $7.24
Bonus: $36.20 x 2% = $0.72
Investment: $36.20 x 3% = $1.09 ← Note: saving for future investments
Commission: $36.20 x 10% = $3.62

* Observe that the amount for costs is preserved: 36.20 - (7.24 + 0.72 + 1.09 + 3.62) = 23.53

Looking at items 2, 4 and 5 above, we can deduce:

Offering 20% discount, we will eliminate the profit.
If you are not paying commission on a Rental Agreement (RA), then this % could be negotiated as a discount.
If your price is higher than the competitor's, you may need to reduce costs or planned results. This assumes the competition is not mis-calculating prices or offering excessive discounts (in order to chase market penetration).
Fleet occupation level has not been considered above, but you should consider this in the formula as a correction index, something like: Capital Cost + 20% (considering 80% of occupation).

For companies using CARS+InterNET software, it allows you to limit maximum discount, which is validated when edit a price, or offer a discount. Please contact Thermeon to learn how do it (www.thermeon.com).