DIAGNOSIS AND STRATEGIC PLANNING FOR CAR RENTALS

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.