Rental businesses can be very lucrative. With the right business model, the right products and services, as well as a returning group of customers, renting high ticket items can produce a steady stream of income and a scalable business.
When looking for ways of how to increase the profitability of a business, the first thing that might come to mind is to cut or reduce costs. However, it's not that simple - or necessary even. With proper business processes and strategic decisions, you can make even a small operation lucrative.
What defines a rental business' success is of course, income and expenditure, process efficiency, and, most vital of all, your inventory. So before you cut costs, let’s look at some of the best ways to optimize your rental business and improve profitability, even at times of economic uncertainty.
Automate your operations
There’s no reason why operating a rental business need require a large workforce. There is now a range of productivity tools to help you manage your rental business more effectively. Such products can automate large swathes of the business, resulting in you needing to employ fewer workers to manage manual processes.
Some of the systems you can automate include:
Accepting bookings online
For any rental business, accepting bookings online is one of the most crucial things you can do - especially for small businesses. Having an online presence and offering the option to book online broadens your reach, as well as provides your potential, new customers, and your existing customers with the convenience the modern consumers expect and want. Worst case scenario - you might potentially even lose customers if they don't find your business to be convenient enough.
Moving on from accepting bookings primarily via the phone or emails, means that you can start receiving bookings all day long, not depending on your store's opening hours and your availability to answer the calls or messages.
Just like with bookings, accepting payments online in advance is a huge convenience for both you and the customer. After paying, they can just come by, pick up their products and be on their merry way. Having both of these processes automated helps avoid needing to hire extra staff to take care of walk-in customers, which in return will help you save money.
In addition to being a great way to boost conversions and increase sales revenue, it's also a great safety precaution. By implementing online payments, you can also take deposits into use - which are a vital thing to have when running a rental operation. Deposits help you avoid any monetary losses that might come from damaged, or even stolen goods - having them in place will ensure that your most important assets are fully covered.
Real-time inventory management
In 2021, you should not be using written ledgers, when there are systems that will monitor which items are out on rental, which remain in the warehouse, and which are out of commission due to repairs. Let these dedicated systems pick up the slack and keep on top of all your logistics, stock levels, and customer payments.
These systems and automated processes will not only make your and your staff's life easier, but it will also help avoid any unwanted events like double bookings. By being able to avoid them, you can get the most out of your inventory and be able to provide your old and new customers with a smooth and easy renting experience.
Start off small & do more with less
The beauty of running a rental business is that you don't necessarily need much in order to succeed. A large inventory is not a requirement when it comes to improving a company's profitability. In fact, it's even more profitable to start off small, with a few, safe choices of products and services that you know will perform well. This way you'll be able to avoid any unnecessary direct costs in the beginning while trying to grow your business and save money for other smart investments, like tools and other product-related costs.
Because renting involves having the products in a circular rotation, you may have some associated costs and overheads with regards to each item, in which case you need to check that your profit margin on each one remains viable. Ancillary costs might include:
· Cleaning costs
· Repair and maintenance costs
· Associated consumables (vehicle fuel and oil, for instance)
· Storage costs
When it comes to ancillary costs, they all depend on you choosing the most profitable products for your business. This in return will make sure you're not spending too much on things like maintenance work, spare parts, and getting your money's worth.
It’s also worth factoring in the cost of replacement when an item becomes obsolete, as well as predicted depreciation, should you plan to sell or trade any inventory in the future.
You may be able to sell or trade unpopular items, to free up cash to reinvest in more popular rental products. That said, you do need to maintain inventory levels with enough flexibility to allow for seasonal surges.
Once you have a full and accurate picture of the costs of each item on your inventory, you need to look at revenue levels, both potential and actual. Remember to look at your competitors’ offerings too. Are you charging competitively or undercharging?
Track the right inventory metrics
Which items on your books are rented most frequently? Perhaps you could increase your stock of some items, and reduce others? Are you offering a good choice of products? Have you researched which items are most popular with the consumer base you want to reach?
The items in your inventory are the most important part of any rental business. Metrics can help you get a better understanding of how healthy your inventory is, which translates directly to how profitable your business really is.
Analyzing which items are most rented, and which remain on the shelves most frequently, allows you to alter your inventory to ensure you only hold those items which are actually of interest to your customers. By leveraging data and analytic tools and looking back at your recent rental history, you can pull together trends that will point the way towards more effective inventory management. It’s worth making this process a regular part of your managerial task list so that you can adapt according to demand fluctuations too.
Advertise on Social Media
If you’re not advertising on social media, a whole swathe of potential consumers won’t even know your business exists. Facebook, Instagram, Twitter, and even TikTok, are all key outlets to directly reach potential customers, whether you are renting washing machines, forklift trucks, or drones.
Adding, what may seem as unnecessary costs may not be your first instinct when you're thinking about increasing profit. However, all these advertising outlets will allow you to zero in on the demographic categories which match your ideal customers. Want to advertise your business to young mothers in the Pacific Northwest with an interest in fashion?
You can do exactly that with well-targeted social media campaigns. Many of these social media campaigns can run A/B testing, meaning that you can try out two different versions of your campaign to see which produces a better result. Drive customers to your website or ecommerce portal and see a rise in bookings, potentially overnight!
Expand your offering
Perhaps you rent camera equipment packages? Do you also do lights? Sound equipment? Flight cases? Dollies and track? There is often the opportunity to significantly increase your product offering, in response to direct consumer needs.
The best way to find out what your customers would like to hire from you is, of course, to ask them. Have a virtual suggestions box on your website and survey your mailing list to find out what they would most like to see you renting. You don’t need to respond to every request (some will be outlandish or unworkable). However, where trends are spotted, they may well indicate an opportunity to increase your inventory to boost profit.
Think about services too. Could you rent out personnel to operate machinery for your customers? Perhaps a valeting service might complement your vehicle hire business? You might be able to partner with another business to cross-sell one another’s services.
This is a major component of the rental business. Partly, it is simply reminding your clients of everything they need to make their rental effective. For instance, have your RV rental clients chosen a vehicle with a bike rack or sufficient storage?
You can also develop package deals, where you rent pre-chosen kits for less than the total cost of the individual items. This can appeal to clients who are working to a budget but want to know they have thought of everything. If you are renting touring bicycles have you included lights, helmets, panniers, pumps, puncture repair kits, and other items? Each of these might add a little more revenue to each hire while reassuring your customers that nothing has been forgotten.
Of course, you can always sweet-talk your customers into accepting an upgrade on their hire, a common strategy in prestige rental businesses, including automobiles. Investing in sales training to make your staff more proficient upsellers could well boost your revenue in the medium to long term.
Most of the ways in which rental businesses can increase revenue hinge on their inventory. Managing this inventory is so much easier when you use a software tool that covers everything from booking and payments to business analytics and customer management. If you do just one thing to cost-effectively improve your business’s profitability it may be this: get smart with integrated software for rental business optimization.