SWOT ANALYSIS

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. 

1. Questions examples:
1. What are we doing better than our competitors?
2. What know-how/experience do we already have?
3. What do we do well?
4. What do we do for clients that makes them love it?
5. What products bring in the most money?
6. What services bring in the most money?
7. What are the best assets that we have?
8. What is the best of our locations?
9. 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.

1. Questions examples:
1. What is making us lose money?
2. What does waste our time?
3. What in our products is requesting our attention?
4. What in our services is requesting our attention?
5. What rental locations are not good enough?
6. What processes are bad?

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

1. Questions examples:
1. How can we do more for existing clients?
2. How can we increase our marketing share?
3. 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.

1. Questions examples:
1. What are our competitors doing that we're not?
2. What is going on the economy that can be hard for us?
3. What is going on the car rental industry that we're not able to do?
4. 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:

1. Take the strengths, trying to match them up with the opportunities.
2. Match the weaknesses up with strengths.
3. Set strengths up to offset weaknesses.
4. Set strengths up to capitalize on opportunities.
5. 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)

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

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:

1. DIRECT COSTS (daily and kilometer basis)
1. (A) Depreciation:  0.0926% / day         ← 1 / (3years x 12months) = 0.0278 / 30days = 0.0926%
2. (B) VLF:               0.0083% / day         ← (3%per year / 12months) / 30days = 0.00083%
3. (C) Tires:             $0.02000/km            ← ($200 / 40000km per tire) x 4 tires = 0.03220/km
4. (D) Oil/Filter:        $0.03000/km            ← ($200 / 6000 km)
5. (E) Maintenance:  $0.00700/k              ← ($1000 each 15000km)
2. PLANNED RESULTS
1. (F)  Profit:             20%
2. (G) Bonus:           2%
3. (H) Investment:     3%
4. (I)  Commission:   10%
5. (J)  Others:           0%                         ← Note: it is only to emphasize that you can list others
3. INDIRECT COSTS AND EXPENSES (prorate)
1. (K) Operational:        $50000/monthly
2. (L) Prorate:               $8.33 per car daily          ← ($50000 / 200cars) = $250 / 30days = $8,33
4. COST CALCULATION (by Vehicle Class)
1. (M) Car's Capital Cost:       $15000                 ← Note: take the average or the highest class' price 
2. (N) Monthly Depreciation:    $13.89/day           ← $15000(M) x 0.0926%(A)
3. (O) VLF:                             $1.25                   ← $15000(M) x 0.0083%(B)
4. (P)  = (C) + (D) + (E)             $0.057                 ← $0.02 + $0.03 + $0.007
5. (Q) = (P) + (L)                      $8.387                 ← $0.057 + $8.33
6. (R) Total = (N) + (O) + (Q) =  $23.53/day          ← $13.89 + $1.25 + $8.39
5. CALCULATING RENTAL DAILY RATE
1. (S) = (R) x 100 / [100 - ( (F) + (G) + (H) + (I) )]      ← Note: the Markup formula
2. (S) = 23.53 x 100 / [100 – (20 + 2 + 3 + 10)]
3. (S) = 2353 / (100 – 35)
4. (S) Price = 2353 / 65 =        $36.20/day
6. CALCULATING EXPECTED RESULTS
1. Profit:           $36.20 x 20%  = $7.24
2. Bonus:          $36.20 x 2%   = $0.72
3. Investment:   $36.20 x 3%   = $1.09                ← Note: saving for future investments
4. 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:

1. Offering 20% discount, we will eliminate the profit.
2. If you are not paying commission on a Rental Agreement (RA), then this % could be negotiated as a discount.
3. 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).
4. 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).