One of the questions I am asked most by people starting their own rental business is “How do I set my pricing?” The answer is a complicated one.
With a million places to start, I suggest we begin with bananas. My local grocery store sells bananas individually for 19 cents each. At the store around the corner, bananas are sold for $0.69 per pound. Sometimes, I grab a banana at Starbucks in my morning rush; they charge $1.25. That’s a lot of different numbers for the same piece of fruit.
I have been known to purchase bananas at each of these price points. The bananas by the pound are definitely the cheapest. But, if I’m not at that particular store, or I only want one banana, I don’t think twice about spending 19 cents each. While the $1.25 banana at Starbucks doesn’t taste any better, isn’t larger, and doesn’t come with a waffle, I gladly fork over my buck and a quarter. At Starbucks, I’m not just buying a banana. I’m buying convenience and a way to feel healthy while simultaneously consuming a 300+ calorie drink.
As you think about setting prices for your rentals, you’ll want to check out your customers’ other options. Find out competitors’ pricing and think about alternatives your product will replace. Are you primarily competing with your customers buying the object rather than renting? Renting a similar product from someone else? Or are you offering something unique?
Even if your product is the same as something your customers can get somewhere else, you don’t have to set your pricing at the same point. Your pricing should take into account your brand, convenience you’re offering, and the experience you create for your customer.
Before you start picking numbers out of the air, however, you’ll want to do some math. The first numbers you’ll want to calculate are your expenses. Figure out how much you’ll need to spend to open your doors and keep them open. Once you know your break-even point, you’ll be able to start setting some revenue goals. If for instance, you need $50,000 to break-even and want to take home $50,000, you need $100,000 of revenue.
If you set your prices at $1 per rental of your widget, you’ll need to rent 100,000 units per year. If you have 5,000 widgets, you’ll need to rent them 20 times each. Is that doable? What’s realistic? If you rent the widget for $2 each, you’ll only have to rent them 10 times each. Would it be easier to rent them for $0.50 each? If so, is it possible to rent them 40 times?
Start playing with the numbers. When you land somewhere, you’ll want to see where you line up with your competition. Positioning yourself above, below, or at the market average is your own prerogative. Don’t be afraid to aim high or low. As a rental business owner, you get to pick your prices. Don’t sell yourself short. Low-balling your pricing can be a costly mistake.