For most production rental companies, sub-rentals represent some sort of failure. I look at the issue differently. Sub-rentals are a sign of success. I love everything about them. They signal profit and opportunity – two things that every business owner should strive for.

Learn to love sub-rentals and all they represent.

Thirty years ago I was taught by rental industry legends that sub-rentals were bad, bad, bad. I watched rental companies chase away their customers with poor equipment substitutions or late deliveries all to save a dollar or make a project appear more profitable. Turns out it was all based on bad math.

Business is pretty simple:

1. Sell something for more money than it takes to deliver it.
2. Grow faster than your expenses.

To succeed at #1, you need to manage COGS. To succeed at #2, you need to sell more without adding excess overhead.

The Cost of Selling is an Expense. The Cost of Goods Sold is provided for in the sale price.

There are three kinds of sub-rentals:

A. You have run out of rentable asset and need more. The cost of the sub-rental is provided for in the net revenue for that item.

B. You have sold something you don’t own yet or perhaps don’t intend to own. The cost of the sub-rental is provided for in the net revenue for that item.

C. You have made planning mistakes such that your rentable assets are out of position forcing an otherwise unnecessary sub-rental. The sub-rental is an opportunity cost, a balance between scarcity and choice.

If you struggle with the idea of sub-renting for A or B, you don’t have a operations problem. You have a margin problem. You are selling below your ideal profit level or measuring the profitability of a job more closely than the profit of the company. Possible solutions are to lower overhead or sell even more and make it up on volume, but the more sustainable solution is to fix your pricing. If that means you need to elevate your value proposition, amp up your marketing, and train your sales team – so be it. That will probably increase your expenses, which is still not an operations problem.

Sub-rental Type C on the other had is totally an operations problem and it is easily solved.

Step 1 is to determine how often this situation really happens. Emotionally, many owners tell me it happens all the time. When we quantify it, the number of occurrences is a lot less. And of those verifiable circumstances, even fewer are the result of real-time mistakes in planning.

Are the logical decisions made in the course of planning ideal for optimizing your rental assets? That is the right question.

For more on how to address everyday operational challenges, define best practices, or improve you operational scalability – Join me and a room full of your peers at Jumpstart Your Live Events Operation May 15-16 in Dallas, TX.