Rental Utilization Calculations

Below the formulas and variables used in the Time, Dollar and Cost Utilization calculations are explained. Table 1 contains some basic general rules regarding analysis of Time and Cost utilization percentages.

Note: This table is mainly just food for thought as the meaning of the percentages reported could vary based on the type of rental market you are in and rental business type you operate. What is considered High and Low %'s vary on the type of rental items as well.

If Time Utilization % is	...and Cost Utilization % is	Analysis
High	High	Buy more of this item. It's frequently out on rent, and it's bringing a good rate.
High	Low	Rates are most likely too low. The unit is frequently on rent; it can probably draw a higher rate.
Low	Low	This is a lose/lose situation. The unit is probably costing more money to keep than it's bringing in. You may want to look at selling it.
Low	High	Rates are probably too high. The unit doesn't go out as often, but when it does it is drawing a high rate. It may be out five days a month at $100 a day, but if the rate was lowered to $75 a day, it might rent for 15 days a month. Equipment that falls into this category may just be seasonal however.

Table 1: Utilization basics

System Five has an optional Non-Availability feature that allows the user to factor in time a rental item is not available to be rented out when performing rental utilization calculations.

Also, to determine the maximum possible rental revenue for a time period the user will configure System Five with a default rental rate type (Utilization Rental Period) to use in these calculations. (i.e Use the day vs. weekly rate) There is a global system wide setting and if desired it can be overridden if set on an item by item basis.

So, if you had the global set to use the day rate of an item in the dollar utilization calculations but had a few rental items which only really ever rented out but by the week; the dollar utilization values calculated for those items would be more realistic when done using the lower week rate. You could override the rental rate for dollar utilization on those items and set it to your 'Weekly' rate instead.

General calculation notes
Rental Rates used:
	Report date range Utilization calculations use the rental rate in effect at the End date selected for the report Lifetime Utilization calculations use the Rental rate as of the date you are running the report. The more an items rental rate has changed during the report date range selected, the less accurate the Utilzation percentages calculated will be.
Non-serial/Unit quantity value used:
	The quantity used in non-serial/unit Utilization calculations is the Quantity on hand as of the End date of the report and does not take into account any increases or decreases in stock levels over time. The more an items quantity changes over the time frame being analyzed, the less accurate the resulting Utilization percentages will be. The quantity is used for calculating the Maximum possible rental time and revenue, therefore the accuracy of both variables is affected. Unit/serial items always have a quantity of one and are unaffected by this issue.
Maximum possible rental time date values used:
	For serialized/unit items the maximum possible rental time calculation for a report range starts from the date the unique unit/serial was added to inventory or the report start date, whichever is later. The end date of the report or Date sold is also used in determine max rental length (whichever comes first). For Lifetime utilization calculations, the date range used is the difference between the Date First stocked and today's date For non-serial/unit items, the maximum possible rental time starts from the date the Inventory record was first stocked or report start date. (whichever is later) and ends at the report end date

Time Utilization

Time Utilization is a percentage that reflects how much a rental item is utilized (rented).

Formula: [Time Utilization %] = [Duration in Days] / ([Report Length in Days] – [Days Unavailable])

Duration in Days = the number of days the item was rented (calculated from completed rental invoices)
Report Length in Days = the number of days between the start and end dates of the report
Days Unavailable = [Report Length in days] * [Non-Available Percentage]
- Non-Available Percentage = [Non-Available Type] * [Non-Available Value]

Dollar Utilization

Dollar Utilization is a percentage that measures the revenue earned over a period of time against the potential revenue that could have been earned. It will often be in sync with time utilization. If Dollar utilization is much lower than Time Utilization it will likely be due to user discounting of the standard rental rate, or the rental utilization rate set for the item is incorrect. i.e. having an item set to use the higher daily rate in utilization report calculations but in fact having it always rent out at the lower weekly rate.

Formula: [Dollar Utilization %] = [Revenue Earned] / [Maximum Possible Revenue]

Revenue Earned = the rental sales for the item (calculated from returned items on completed invoices)
Maximum Possible Revenue = [Rate per Day] * [Number of Days in Report] * (1 - [Non-Available Percentage])
Rate per Day = Utilization Rate as recorded for the item or system default (as described above) * Length of Business day

Cost Utilization

Cost Utilization is a percentage that indicates the percentage of the landed cost that has been recouped from an item via rental. This is often looked at over a one year period of time. (i.e., Based on your what you are renting, there is likely an industry standard target % of the items purchase price you should aim to recoup in rental revenue over the course of a year to ensure greatest success).

Formula: [Cost Utilization %] = [Revenue Earned] / [Landed Cost of Unit]

Revenue Earned = the rental sales for the item (calculated from returned items on completed invoices)

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