I don’t remember when I was first exposed to this concept, but it still affects me to this day, and I strive to better understand all its nuances: I have internal customers as well as external ones.

My external customers have always been easily identifiable, but when I understood that my co-workers, employees, managers and even my boss were also my customers, it was truly a paradigm shift. Now I also see my vendors, my accountant and my lawyer — even Auto Rental News — as my customers.

If you haven’t been treating your internal customers with the same level of customer service as your external ones, it’s time to do so. This is relevant to all aspects of customer service, especially in regards to damage recovery.

A Small Group

Let’s start with some statistics. Less than 1% of the average rental location’s transactions end up with some sort of damage. When you consider how many of those incidents have a true responsible third party on the hook, then the impact on your actual customers is revealed. Indeed, it is a small group of people.

That being said, if you are a larger operation, chances are that you currently have a vehicle on rent to someone who has already wrecked one of your cars. (In one audit of a larger customer, we were astounded to find that the company had 25 vehicles on rent to individuals that had already been involved in two separate damage incidents.)

Therefore the vast majority of your external customers — your renters, who provide your operating revenue — have never and will never experience a damage incident in one of your vehicles.

My bold statement is that collecting the actual loss from the person responsible is the best way to provide excellent customer service, to both your internal and external customers.

Other Costs

Of course, it’s more than just collecting for the physical damage; it’s also about collecting loss of use, administrative fees and diminution of value.

A recent audit of 10 million body shop repairs showed that per day, a car was worked on an average of 2.37 hours. With an estimate of 10 hours of labor, body shops averaged almost four and a half days to finish the job. This is loss of use and it’s intrinsic to every physical damage claim. And it costs you money.

In regards to admin costs, you either handle the task yourself or have a person or team to handle damage claims. Those costs are significant. Are you recouping admin fees to offset the amount spent on processing those claims?

Repaired damage lowers the value of your vehicle. This “diminution of value” is real and significant. If it could be mitigated, how more competitive could you be?

The point is, if you’re not recovering loss of use, admin fees and diminution of value, is it fair to ask all of your customers (internal and external) to contribute? Is that providing excellent customer service?

Who Bears the Cost?

Let’s look at other areas of business operations. A big box retail store near my office is consistently in disarray, and I am smart enough to know that their wasteful practices, or “shrinkage,” will be ultimately borne by me, the customer.

Conversely, who gets the benefit of a well-run organization? Who gets the benefit of efficiency? If your locations are running well, can you offer a more competitive rate to your renters? Can you offer better wages and benefits to your employees? On a personal level, as I manage my business to be as productive as it can be, everyone associated with my company benefits — there are no losers.

It is the customers — both internal and external — who either feel the sting of waste or the benefit of excellence.

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Follow the Formula

Long ago I came up with a formula to help convey the significance of discounted or unrecovered damage: Damage amount ÷ your DDA ÷ X%

“Damage Amount” is the unrecovered (or discounted/negotiated) damage amount. “DDA” is the daily dollar average for your fleet, or it can be for that specific car. “X%” is the percent number pulled from your last operating profit and loss statement. For most of the industry, that number is below 10%.

For instance: $2,500 (damage amount) ÷ $38 (DDA) ÷ 10% (bottom-line profit percentage) = 658.

That means you must rent one car for 658 straight days at $38 a day to earn back the money you just gave away. This formula forecasts that you’ll pay for the unrecovered damage with future earnings.

Someone Else Pays

It can be argued that one reason we have single-digit profit margins is because of the industry’s lack of being made whole for damage to our cars. Not recovering what we’re owed in damages doesn’t mean the damage goes away; it just means someone else pays for it.

We should not collect a nickel more from the 99% who never wreck our cars to offset the 1% that do. We should not wipe away the bill for damage when the issue is that the renter simply did not have the right coverage.

We should not ask our employees to take a pay cut to subsidize those renters. We should not shortchange our shareholders their due earnings by asking them to offset our damage collection efforts.

We have a long way to go to educate the public, but we should be leading the way when it comes to accurately stating the damages that really occur when someone returns our car damaged. We should be proudly stating that we believe the party responsible for the damage should be paying for it — not our other customers, vendors, employees or shareholders.

Now that will be excellent customer service indeed.

About the Author

David Purinton is owner and president of PurCo Fleet Services Inc., a risk management company specializing in car rental loss prevention.

He will present a seminar at the 2014 Auto Rental Summit titled "How to Maintain Customer Service in the Damage Recovery Process."