When it comes to rentals, Jeff Wearing is quite thankful for his "bread and butter."

"It's these daily rentals, the ones that go out many, many times, that generate the most profit," he says. "The 'gravy' items, the larger pieces, don't go out as often, but give you a good return on your investment. The key to success is finding that right mix of bread, butter and gravy."

Wearing, owner of Ready Rent-all in Decatur, Ga., has been in the rental business for 32 years, after working for a friend at U-Haul.

"He was renting hoists on the side, and I started to realize the whole concept of renting was up and coming," he says.

"Up and coming" is now here, in a big way, and there is no sign of rental's penetration slowing down. According to the American Rental Assn., United States rental revenues for general tool and construction totaled $22.5 billion in 2004, a double digit increase from the year before.

"I don't see anything in the short term that will change that trend away from buying to renting," says Mike Abbruzzese, ARA's senior director, information services. "Ninety percent of our members are independent dealers with one to three stores, and 75 percent of those are in construction. Some were independent distributors that sold their businesses to a consolidation, and now they are getting back into business by way of rentals."

In this bottom-line age, two words can describe the push for rental equipment: cost control. Contractors can have the use of premium equipment, without the responsibilities of ownership. For the distributor, it presents a stream of potential revenue, renting to contractors that want to:

• Keep equipment inventory at a minimum
• Operate with little overhead and minimum storage space
• Reduce downtime and save on repair costs
• Save on disposal costs of obsolete equipment
• Know the exact cost, shown on the rental invoice
• Have more mobility, and bid on jobs far away
• Save capital for other, potentially more profitable uses

The construction tool and equipment rental industry includes traditional rent-to-rent companies such as United Rentals and NationsRent. They are motivated to keep utilization rates as high as possible to maximize cash flow, and typically do not sell equipment, except used machines to make room for new fleets.

Rent-to-sell companies are usually authorized dealers for equipment manufacturers that are in the business of selling machines, parts and service. They enter the rental business as an additional source of revenue, but typically do not invest in large fleets of equipment and keep it rented.

Ready Rent-all, a full-line distributor, has most of its eggs in the rental basket. Though it draws business from metropolitan Atlanta to northern Georgia, two thirds of it is in construction/industrial and 15 percent of that is sales of equipment, such as generators, lifts, compaction equipment and saws.

"We rent what we sell and we sell what we rent," says the company Web site.

But Wearing warns, "Selling rentals is different from selling product. It's a high-risk business, from a liability and theft standpoint. Every time equipment leaves your store, even if you check employment, a driver's license, and have a deposit, you take the chance that equipment may never come back. No matter how airtight your rental contract is, there can still be loopholes, and if someone wants to abscond with your equipment, you might as well kiss it goodbye."

Ready Rent-all tracked its larger equipment rentals with a Lo-Jack system years ago, but has since moved to GPS devices. That could change in the near future, as GPS is not foolproof, Wearing says.

For Reading Rentals, based in Reading, Pa., safeguarding its assets comes in the form of tags.

"All our equipment is tagged, and our computer system tracks everything," says owner Nancy Marshall-Vokorokos. "When the rental contract is signed, that unique number on the tag and in the computer has to match up. The tag also tracks when the equipment has been serviced and maintained."

The company also registers its higher-ticket items (backhoes, skid steer loaders and mini excavators) with the National Equipment Register.

Marshall-Vokorokos, who started in the rental business as a bookkeeper, has a strong contractor and industrial customer base. The distributor, who used to work with fasteners and hardware, now concentrates on its rental revenues, and has a little help from its generator sales.

"Drills and screw guns used to be a staple for us, but now we keep just a few on hand," says Marshall-Vokorokos. "Just a few years ago, money was easy to get and interest rates were low, so contractors could afford to build their inventory. And big chains like Home Depot have made that very easy and affordable for them to own their own tools," she adds.

Reading Rentals has learned to cut its own niche, simply by asking its customers what they need, and, equally important, knowing what it can service, maintain and deliver.

"We've moved into renting more sophisticated saws, core drills, and concrete power buggies to transport wet concrete," Marshall-Vokorokos says. "We have to constantly keep an open mind and open eyes. If we know warehouses are being rejuvenated down the road, we know we'll need more drywall lifts and personnel lifts. We may want to build that inventory, but we also might wait for the actual requests to come in. You still need to watch the financials."

While large rental companies have an impressive fleet of equipment, small independents insist they can meet the challenges that the big chains give them.

"I get up in the morning, look in the mirror and know that I am my own competition," Wearing says. "If we don't do it right, we don't keep our customers. We're built on service. Some of these younger kids at the chains are not salespeople who can offer that service. They are price-givers."

Reading Rentals' Marshall-Vokorokos looks to ARA, and its library of educational DVDs, to get an edge up on the competition when it comes to training.

"The number one thing going for us is having well-trained employees," she says. "It's about being neat, having good telephone skills, and showing care and concern with matching the customer up with the right piece of equipment."

Reading Rentals has 500 items in its rental base that employees must be able to show customers how to use safely and correctly.

"From concrete preparation to floor tools, they have to know their stuff," Marshall-Vokorokos says.

"Always remember, don't be afraid of your competition. Know what they are doing, so you can do it better," she adds.

According to ARA's Abbruzzese, there will always be a local rental market that independents can hone in on.

"The large rental houses like United are going after contracts with the 'Bechtels' and are not aggressively pursuing local business," he says.

That repeat business is important to a distributor.

"I actually think our members are thankful to Home Depot for raising the awareness of rental as an option," Abbruzzese says. "Home Depot might rent a tool, but [because of its high turnover] it may lose the customer to a distributor, who can teach him how to use it properly."

Home Depot operates nearly 1,000 tool and small equipment rental centers inside nearly all of its superstores. The idea is to steal market share from national equipment chains such as United Rentals. With 730 branches and 1,300 sales specialists, United is the largest equipment rental company in the world.

"We like all customers, large and small, but we're excited about opportunities with federal and municipal governments," says Mike MacDonald, senior vice president, sales and marketing, for United.

Twice a week, United's sales reps receive the Dodge Report, showing construction opportunities down the road. "These lead generation products help our reps stay ahead of the curve," MacDonald says.

Jim Freeman, owner of RentQuip, credits the popular television show This Old House with also raising awareness of rental, especially in the DIY segment. RentQuip, in Wood-stock, Ontario, is a stocking distributor, manufacturer and a manufacturer's rep for rental equipment manufacturers.

"A lot of people are watching some pretty neat applications of tools here," Freeman says.

A distributor that brings rental into his organization without understanding it could lose a lot of money, says ARA's Abbruzzese.

"I'm a believer in having a dedicated sales team for your rental side of the business," he says.

Separate administrative support to handle billing and follow-up for the rental operation, and maintenance mechanics are also suggested by some distributors.

The ability to provide precise information to the customer is also critical, distributors say. State-of-the-art software changes rental rates, schedules maintenance, and provides accurate data for equipment dispatching, scheduling and billing.

"We used to hand bill, but now we have three people for our rental bookkeeping," says Wearing. "As you grow, life changes, and your technology needs to change, too."