KPIs: The Magnificent Seven

GF 4.8: KPIS - The Magnificent Seven

Hello and welcome to Get Flushed, the world’s favourite sanitation podcast. My name’s Pete and this series is brought to you with the support of Sanitrax International.

In last week’s show, Dave Andres mentioned that I had prepared a segment on Utilization, which I originally planned to share at the end of last week’s episode. When I started to record, I felt it was quite technical and a little bit dry, so I decided to leave it out and come back to it this week.

I wanted to cover Utilization because it concerns The Float and is directly linked to the last few episodes about Emergency Response. It also forms part of a wider discussion about Key Performance Indicators which we haven’t really had on the show so far.

Before I get into all of that, I have a few news items that I’d like to share. The first is about future episodes of the show. I’ve scheduled a number of interviews with new guests over the next few weeks. They include Portable Restroom Operators with recent experience of large-scale deployments to big events and emergency situations, specialist manufacturers who produce and distribute sanitation-based products and a graphics expert who supplies stickers and labels to the restroom industry. I’ll also be catching up with some of my previous guests and sponsors for updates on their progress since they last appeared on the show.

in: 2022

I’m also hoping that: 2022

While I’m talking about: 2022

At this stage, everything is done remotely by telephone or one of the apps like Zoom or Google Meet. I record the conversation and edit the audio, so it doesn’t matter if you make mistakes, lose your way or venture off track. I’ll send you a pre-release copy of the show and of course, guests are free to share and use the final recording as much as they like. When I record interviews, I like the conversation flow freely and tend not to use pre-set questions or follow a script, but we can talk about that before we start recording. The only thing you need to do is wear headphones or ear pods to prevent any echo when we record. If you’re keen to talk, you can get in touch through social media or email [email protected]

Ok, let’s get on with today’s episode, which I’ve called The Magnificent Seven.

LINK

 

What is Utilization?

I’m going to look at SEVEN different ways restroom operators can measure and track utilization, which I define as how much assets are used within a business.

I’m going to talk about SEVEN different indicators that are used to measure utilization in one form or another. These can be used to assess how well your restroom business is performing. These are very simple explanations, but they provide a good place to begin. I decided to look at this a bit more detail because the portable restroom industry has a few specific characteristics that should really be taken into consideration when setting KPIs for utilization. Over the course of this episode, I’m going to think about why Key Performance Indicators are import, which KPIs are most useful to restroom operators, HOW restroom operators can actually track those measures and how that information should be used within the business.

I’m not saying that these seven definitions are the only ones that count and it’s ok if you use other examples or measure utilization in a different way. As they say, there’s always more than one way to skin a cat. But these are the ones that I find most helpful.

Tracking utilisation allows you to make informed investment decisions. The high demand for wash stations over the past year is a good example. At the moment, you’ll struggle to find anyone with sinks available for hire so it makes good sense to buy more. Eventually, operators will find themselves with a glut of sinks in their yards. At that point, demand will have been met or tailed off so it wouldn’t make sense to buy any more.

In general terms, it’s not good business sense to carry equipment with low utilization rates because that equipment is less likely to give you an adequate return on your investment. When that happens, you can decide whether to carry the cost or let the equipment go.

But at the same time, overly high utilization often leads to wear and tear and makes you more likely to lose sales if the equipment the customer wants is never available because it’s always out on hire.

So let’s have a look at my Magnificent Seven

1. The first and perhaps the easiest to measure is HEAD COUNT, which is basically the number of units in your fleet vs the number of units you have on hire at any given time. If you have 100 toilets and 95 are on hire, your headcount utilization would be 95%.

It sounds silly, but you measure the headcount by, well, counting. Of course, that’s not always as easy as you’d expect. I’ve seen enough people struggle with even the simplest stock-take to know that counting can be a real challenge. Even in a well-organised yard, I’ve seen people skip units, double count or they just struggle to tally up. And counting gets even harder when the yard is a disorganized mess or units are dispersed on hire.

Counting does get much easier if the company uses individual plant numbers and digital records or an app. A spreadsheet on an ipad is better than handwritten notes, albeit still prone to user errors. Even better is fully integrated software like ServiceCore that will show you exactly what’s in the yard, what’s on hire in real time at the simple click of a button.

2. Second on my list is Physical Utilisation which measures the amount of time a piece of equipment was committed to a customer and not available to other customers.

Analysts recommend a formula for Physical Utilization in the Hire Industry. 72% of your fleet should be out on rent at any given time, 20% of the fleet should be in the yard and ready to rent, and no more than 8% of fleet should be non-rental ready, in other words, on the way to or from a hire, at the yard in need of a clean or set aside for repair.

ets would give you a total of: 2800

Some analysts argue that this indicator will help you decide when to buy and sell equipment. They argue that if Physical Utilization is below 72%, you probably have too many pieces of that equipment. If it’s below 72%, you don’t have enough and should buy more.

3. Number 3 is Time Utilization which refers to how long and how often equipment is out on hire. Time Utilisation can be measured in days, weeks or months and it’s important because if equipment isn’t being rented, it is not generating income.

I’m going to be careful about setting numbers, but many analysts suggest that the ideal target for time utilization in the hire industry is 65%. On those figures, a well-utilised restroom would be on hire for between 237 days each year to meet that target. Just remember that holding a large float will distort your overall utilisation rate. But I’ll come back to that later.

4. Number four on my list is FINANCIAL UTILIZATION or Dollar Utilization. This is basically, how much income or revenue the equipment earns compared to its cost.

This is essentially a very simple calculation. You take rental revenue generated by the equipment and divided that by the total cost of acquisition. This metric can also be expanded to include revenue from other services or products, such as fuel and delivery fees. But that means you’ll need to code any spending against that item in your accounts.

I’ll be careful with the numbers, but it’s common to see a Dollar Utilisation target of 65%. In other words, if a restroom trailer costs $20,000 over the first year, it will need to generate $13,000 to hit the 65% mark.

Knowing Financial Utilization will help you identify which equipment is making the most money for your company. In theory, that will help you plan your spending. Just remember that used equipment tends to be much cheaper than buying new and that might distort the numbers here, especially if you can hire new and used for around the same price.

5. Rental Rate: Rental revenue/number of contracts

The rental rate KPI is another easy one to measure, but it’s also one of the most important. Basically, you calculate your total revenue over a set period of time and divide it by the number of contracts over that period. That will give you an average value per contract. You can calculate this on a daily, weekly, monthly or annual basis. And where you have multiple units on one contract, you can also divide the rental rate by the number of units to give you an itemised performance.

Measuring your rental rate will help you set the minimum rental amount that will allow you to maintain revenue and meet any repayments. It will also tell you whether individual contracts are performing as expected against target. If the rental rate on a contract falls short, you probably under-priced. If it’s too high, you might need to pay that customer more attention in case they decide to get a cheaper deal elsewhere.

6. Fleet Age: Average number of months a fleet has been in use

This KPI measures the general age of your fleet in relation to when its equipment units were purchased or first deployed. Knowledge of the age of units within your fleet can also help you to keep track of wear and tear. I know that plastic restroom cabins can last a really long time, but tired looking units don’t always send the best impression and can undermine your reputation when customers drive past. And if you’re looking to buy or sell a restroom operation, the age of the fleet should be one of the first indicators you take into account.

7. Non-Rental Ratio

That last of my Magnificent Seven concerns Maintenance and Repairs. I’ll call it the Non-Rental Ratio – how many items in your fleet are not available for hire. This is important because units that are out of action don’t earn money. And if they break down or fail while they’re on hire, customers will eventually get fed up and shop elsewhere.

You can – and should - measure this in several ways – a headcount of non-ready units against the total fleet, the time taken to return each unit to service, the opportunity costs incurred when a unit isn’t available for hire. I said earlier that industry analysts suggest 8% as the ceiling for non-rental. I’d also add a time limit for repairs. Before Covid, I would have said if it couldn’t be fixe din less than two weeks, it needs to go. With freight delays and difficulty obtaining supplies, that’s probably a lot longer right now.

CONCLUSION

Achieving and maintaining optimum utilization is a balancing act. And the ebb and flow of business means that the rates you achieve are always going to be in perpetual change.

But knowing where how your business is performing at any given time is key to building business success. Detect changes at an early stage and you have more chance to take remedial action. Knowing what’s on hand today will give you a fair idea of your capacity to respond if there’s an emergency and you’re called to respond.

And when disaster does strikes, it’s common for utilization rates to go as high as 100% - in other words, every last unit you have is deployed. If you borrow or sub-hire units from other providers, you might even see a utilization rate over and above that.

I’ll also point out that lots of companies set targets for utilization when they review performance and set budgets for the year ahead. If you’re a manager and Utilization is set as one of your Key Performance Measures, pease remember that holding a large float on stand-by will drastically reduce your utilization score. Those units are likely to sit in reserve for long periods of time, which will give you a much lower utilisation figure.

One way to avoid that is to assign the units in your float to a separate account or category in your metrics. That will give you a more accurate indication of your working capacity and what you hold in reserve.

Tracking utilization is always going to be easier if your company uses software to collect data rather than manual records. And its just as important to think about how and when you use the data you collect.

If your system generates dozens and dozens of automatic reports every morning and sends them out by email, please remember that managers and staff are likely to feel overwhelmed by the sheer volume of data they receive. Don’t be surprised if they set up a mailbox rule to divert those messages to a separate folder or mark them as read. A better approach might be to work through the figures as a team in your weekly, monthly or quarterly meetings.

Ok, that’s all I’ve got for this week. I’m sure we’ll come back to KPIs at a later stage, but for now, thank you for your time. I’ve been Pete and you’ve been listening to Get Flushed, the world’s favourite sanitation podcast brought to you with the support of Sanitrax international.