Equipment Rental Sales Business Plan

Equipment Rental

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Market Analysis Summary

The company expects to participate in a variety of different industries, including commercial and residential construction and farm machinery. The following sections will describe the industries in which ER hopes to compete.

4.1 Target Market Segment Strategy

ER currently has customers in the industrial and commercial fields, petro-chemical plants, contractors, sub-contractors, oil fields, and municipalities, with expansion potential in other areas. The Market Analysis table below gives the total potential number of businesses that could rent or buy our equipment in the local area.

Market Analysis
2000 2001 2002 2003 2004
Potential Customers Growth CAGR
Petro-chemical clients 1% 5 5 5 5 5 0.00%
Contractors and subcontractors 10% 160 176 194 213 234 9.97%
Municipalities 1% 8 8 8 8 8 0.00%
Farmers 3% 127 131 135 139 143 3.01%
Industrial clients 4% 86 89 93 97 101 4.10%
Other 2% 40 41 42 43 44 2.41%
Total 5.86% 426 450 477 505 535 5.86%

4.2 Market Growth

Most of ER's client industries such as the petro-chemical and farm industries have flat or very slow growth because these are mature or declining industries. However, often times there are other factors that make them attractive in the long run. The farming industry is heavily subsidized by the government and many of the farms in the local area are small plots with less than 100 acres. This means that most are poorly capitalized and seasonally require heavy equipment for planting and harvesting. This makes for an excellent cash-cow type client.

The one industry that can be counted on to grow significantly for the short-term is the contractor/commercial construction industry. The housing boom of the past five years has produced annual growth rates ranging from 5-10%. In evaluating our total market we plan to concentrate on this industry as our primary target market.

4.3 Marketing

The overall marketing plan for ER's products and services is based on the following fundamentals:

  • The segment of the market(s) planned to reach.
  • Distribution channels planned to be used to reach market segments: television, radio, sales associates, and mailings.
  • Share of the market expected to capture over a fixed period of time.

Market Responsibilities
ER is committed to an extensive promotional campaign. This will be done aggressively and on a broad scale. To accomplish initial sales goals, the company will require an extremely effective promotional campaign to accomplish two primary objectives:

  1. Attract quality sales/service personnel that have a desire to be successful.
  2. Attract customers that will constantly look to ER for their projects.

In addition, ER plans to advertise in magazines, newspapers, television, radio, and on billboards throughout the state.

Promotion
In addition to standard advertisement practices, ER will gain considerable recognition through these additional promotional mediums:

  • Press releases sent to major radio stations, newspapers, and magazines.
  • Radio advertising on secondary stations.
  • Incentives. As an extra incentive for customers and potential customers to ER's name, the company plans to distribute coffee mugs, T-shirts, pens, and other advertising specialties with the company logo. This will be an ongoing program for the company, when appropriate and where it is identified as beneficial.
  • Brochures. The objective of brochures is to portray ERs' goals and products as an attractive functionality. It is also to show customers how to use the latest in technology as it relates to construction and building services. ER will develop three brochures: one to be used to promote sales, one to use to announce the product in a new market, and the other to recruit sales associates.

Investment in Advertising and Promotion
For the first year of operation, advertising, and promotion is budgeted at a combined total of $14,000. A fixed amount of sales revenues will go toward the state ER advertisement campaign. On an ongoing basis, ER feels that it can budget advertising expenses at less than 10% of revenues to ER.

4.3.1 Pricing

Currently, ER maintains a commercial credit department for business customers with a 1% net 30-day limit. This loan will enable the company to establish its lending ability but will be structured so as not to hamper its ability to assist other customers (due on receipt with approved credit references). Most of ER's customers choose to deal with their own financial sources, however ER does have several financial sources to choose from, thereby giving them references should it become necessary to do so.

The company offers competitive prices, which are subject to review when necessary. ER has done sufficient work in this area to know that it can place a markup on merchandise and still retain sufficient funds to be competitive. Knowledge of market and competitor prices gives ER the advantage of pricing in-line with competitors. ER suppliers have and will continue to supply products that enable the company to meet the customers price range.

Most companies have a 15-20% markup on their merchandise. Having worked for most of the larger companies in the area, Mr. James has an advantage of knowing which companies are firm with the prices and how much others will decrease their prices. Several companies do not have a working list of rental prices and change with the market thereby causing a delay of several hours or even days to allow for a check of existing rental rates.

At ER, pricing is derived from an American Rental Association (ARA) formula used to price sales and rental items in relation to cost and resale/use value.

4.3.2 Marketing Communications

The company's promotional plan is diverse and includes a range of marketing communications:

  • Trade shows. Company representatives will attend and participate in several trade shows, such as Lagcoe.
  • Print advertising. The company's print advertising program includes advertisements in the Denton Parish newspaper, church bulletin, Denton Economics 101 directory, and restaurant menus in Memphis and Denton Parish.
  • Festivals. The company plans to take part in various local shows.
  • Additional methods include:
    • Yard signs - changed on a two week rotating schedule.
    • Magnetic signs - for trucks.
    • Business cards.
    • Sponsoring baseball and soccer teams.

4.4 Industry Analysis

Industry Description (information provided by imarketinc.com)

Market size statistics - Industrial trucks and tractors
Establishments primarily engaged in manufacturing industrial trucks, tractors, trailers, stackers (truck type), and related equipment used for handling materials on floors and paved surfaces in and around industrial and commercial plants, depots, docks, airports, and terminals.

Estimated number of U.S. establishments1,004
Total people employed in this industry37,854
Total annual sales in this industry$13,004 million
Average employees per establishment38
Average sales per establishment$16 million

Market size statistics - Farm machinery and equipment
Establishments primarily engaged in manufacturing farm machinery and equipment including soil preparation machinery, for use in the preparation and maintenance of the soil, planting and harvesting of the crop, preparing crops for market on the farm, or for use in performing other farm operations and processes.

Estimated number of U.S. establishments2,594
Total people employed in this industry79,978
Total annual sales in this industry$30,474 million
Average employees per establishment31
Average sales per establishment$13.3 million

Market size statistics - Construction machinery
Establishments primarily engaged in manufacturing heavy machinery and equipment, such as bulldozers, concrete mixers, cranes.

Estimated number of U.S. establishments2,266
Total people employed in this industry125,081
Total annual sales in this industry$58,196 million
Average employees per establishment57
Average sales per establishment$34.3 million

4.4.1 Market Statistics

Market Description (information provided by S&P and imarketinc.com)

The market in ER's area is very large with new construction being at an all-time high. ER is in need of inventory to be able to supply the local area and neighboring communities. The company has been able to sub-rent some equipment but would like to obtain certain items to put into its fleet thereby increasing profit margins. ER plans on offering a substantial line of equipment for rental and sales to meet customer needs as well as service for the equipment and those owned by others in the area.

The housing industry has proceeded at a red-hot pace for several years running. An all-time record was set in 1998, when 886,000 new-site single family homes were sold. That represented a 10% gain from the robust total of 804,000 homes sold in 1997, and an 8.1% rise from the prior record of 819,000 units in 1977. Single-family housing construction accounted for $47,539 million of the total $124,953 million generated in the industry.

Home sales were strengthened even further during most of 1999's first 10 months. In that period, new single-family home sales increased by 4.8% on a year-to-year basis, to 791,000 units, according to the U.S. Department of Commerce. Through October 1999, seasonally adjusted sales had exceeded 800,000 on an annualized basis in every month since the start of 1998.

The record setting string of home sales since the second half of 1997 has forced builders to pick up the pace of their construction activity. During 1998, total starts increased by 9.7% to 1.62 million units. Starts for single family units moved up 12% for the year, and those of multi-family units were ahead by 1.5%. As an indication of building activity at year-end 1999, housing starts in November 1999 came in at a seasonally adjusted annual rate of 1.6 million units.

Market size statistics - Single-family housing construction
General contractors primarily engaged in construction of single-family houses.

Estimated number of U.S. establishments218,276
Average people employed in this industry831,158
Total annual sales in this industry$124,953 million
Average employees per establishment4
Average sales per establishment$.6 million

Market size statistics - Residential construction, nec
General contractors primarily engaged in construction (including new work additions, alterations, remodeling, and repair) of residential buildings other than single-family houses. This includes hotels, motels, apartments, and multi-family homes.

Estimated number of U.S. establishments25,201
Total people employed in this industry114,523
Total annual sales in this industry$25,545 million
Average employees per establishment5
Average sales per establishment$1.1 million

Market size statistics - Heavy construction, nec
General and special trade contractors primarily engaged in the construction of heavy projects not elsewhere classified. This includes canal, drainage system, athletic and recreation facilities, land preparation, rock removal, waste water and sewage treatment plant, and trenching construction.

Estimated number of U.S. establishments16,914
Total people employed in this industry211,440
Total annual sales in this industry$50,637 million
Average employees per establishment13
Average sales per establishment$3.2 million

Market size statistics - Bridge, tunnel, and elevated highway construction
General contractors primarily engaged in the construction of bridges, viaducts, elevated highways, and pedestrian and railway tunnels.

Estimated number of U.S. establishments1,414
Total people employed in this industry43,889
Total annual sales in this industry$14,047 million
Average employees per establishment34
Average sales per establishment$12.9 million

Market size statistics - Highway and street construction
General and special trade contractors primarily engaged in the construction of roads, streets, alleys, public sidewalks, guardrails, parkways, and airports.

Estimated number of U.S. establishments19,694
Total people employed in this industry302,944
Total annual sales in this industry$66,045 million
Average employees per establishment16
Average sales per establishment$13.3 million

Market size statistics - Nonresidential construction, nec
General contractors primarily engaged in the construction (including new work additions, alterations, remodeling, and repair) of nonresidential buildings other than industrial buildings and warehouses. This includes commercial, institutional, religious, and amusement and recreational buildings.

Estimated number of U.S. establishments44,505
Total people employed in this industry540,550
Total annual sales in this industry$205,214 million
Average employees per establishment12
Average sales per establishment$4.9 million

4.4.2 Competition and Buying Patterns

ER's closest competitors are located in Memphis Parish. They include the following five companies:

  • CBC Equipment;
  • Northern Equipment;
  • Jones Rental Service;
  • Rental Service Center;
  • Memphis Rental.

Being located in or near Memphis, they charge a drop off and/or pick up fee. ER can, in most cases, wave this fee which will allow the customer more funds to purchase/rent additional equipment.

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