While consumers have many choices when thinking about renting your offerings, you’ll want to make sure that at the end of the day, you end up with cash in your pocket.
Retail math is easy compared to rentals. Retailers often just double the price they pay. In rentals, however, there are a few other factors to consider. In addition to the original cost of the item, you have to account for maintenance, storage, risk, and the lifespan of the item. You could just say, “The customer could buy it for $10 so I’ll rent it for $5.” But that might not include the big picture. We’ll talk about risk, storage, and maintenance some other time. For now, let’s focus on lifespan.
It can be difficult to predict the life of a rental item. Rentals endure a lot of wear and tear from transport and heavy use in a concentrated amount of time. If you’re running your rental business well, hopefully your pieces are continually being checked in and out, not just sitting on your shelves. This constant rotation can impact the length of time you can continue to rent a piece.
Additionally, certain kinds of items are fragile. Dishware, chandeliers, delicate decor items, or electronics all need to be handled with care even if they are being purchased. Sending these items in and out for rentals can limit the amount of times they can be used. Items that are typically built for stationary use, might not lend themselves to the hustle and bustle of rentals.
Obviously, you can lengthen the life of a rental item with proper handling by your team and by utilizing appropriate packaging materials. Even with those precautions and customer education on caring for their rentals however, the fact is that things wear out.
You’ll want to consider the lifespan of your rental inventory when you’re setting your prices. If you buy a widget for $10 and it can be rented 10 times before it is worn out, you’ll need to rent it for at least $1 each time to make back your money. If, however, your brand and clientele demand that your rentals are only ever sent out in absolutely pristine condition, you might want to bank on 4 or 5 rentals instead of 10. In that case, you’ll need to charge at least $2-$2.50 per rental to break even. Additionally, if your widgets usually take a beating during each rental period (your have particularly aggressive clients), you might account for this fact by artificially lowering your lifespan estimate. And, while we’re doing this math, let’s remember we don’t want to just break even. We want to make some money on these rentals!
Predicting the number of uses of your rental inventory can be an important step in setting your pricing. As you can see from above, the projected lifespan of an item can dramatically influence your break-even point. Historical data can help with future predictions. Knowing the average life of a widget before you retire, liquidate or otherwise dispose of it will make your projections better and better over time.
Don’t get caught in the trap of only thinking about the price your customer could purchase your product for. The item’s lifespan is just as important in your pricing process.
