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Pricing Rental Products, Part 2: Perception of Your Business

In Part One of our series on setting a price for rental products we looked at how to find the minimum price that you should charge in order to at least break even between what you spent to buy the product and the income you receive from renting it out.

Now that you have determined your minimum price point, think about how your prices will affect the perception of your company by customers and also how it determines the type of customers you interact with.

Common wisdom says to price your products lower that your competition to attract more customers. This might be the best idea in some situations, but not in all.

How Do We Compare to the Others?

Soon after we started Picnic Table Rental a couple of competitors showed up offering the exact same products as our company. We quickly realized that our prices, and the services that were included in the price, were going to be very important in setting our company about from the others.

How did we do this?

First we figured out what the direct competitors were using for rental prices on similar items and positioned ourselves against them.

Determine Competitor’s Pricing

Dig around online and see if you can find prices for direct competitors. If you cannot find prices online (which is likely, because most companies prefer to get you on the phone to discuss your needs) try calling them up and asking them about their costs as any potential customer would. It will be helpful to know the highest price, lowest price, and average price of competitors in your area.

Local Comparisons Are Best

You may have to look outside of your area for comparable companies in order to determine typical prices. Keep in mind that there can be dramatic variation in prices depending upon your location and the demand for the product.

As an example, if you would like to rent a stand up paddle board for a day on the lake you will only pay $9 per hour in some parts of the country, but others area have a typical charge of $45 per hour for the same product. This is why the best price comparison is with similar companies in your region.

When we started Picnic Table Rental, before we had competition, we were able to compare prices to a company that had operated in our region in the years previous. We also looked at similar companies in other cities within a couple hours of our market and kept our prices within the same ballpark range as theirs.

When direct competition showed up in our market we had to decide how to price our products in relation to theirs.We found that the number and type of customers that we interacted with was related to how our products were priced compared to the competition.

Perception of Your Company

Low Prices and Company Perception

Let’s say that you price at 30 percent lower than the lowest-priced competitor. Does this indicate that your service is a great deal, or does it indicate that you provide lower-quality service with cheap products and fewer perks? You may be perceived as a great value, or you may be perceived as the low-end, low-service company in the market.

Low-end companies are not able to offer as many extra services as the high priced companies (maybe high-end companies can offer free setup and delivery, but you cannot, for example) and you will have to serve more customers to make up the lost profit that higher prices would bring.

If you go with the low-price strategy it is important to brand your company as the “best value” company for what you are offering. Your cost of doing business must be low, but the value of the service that you offer your customer needs to be more than what is expected for the price. Customers should be pleasantly surprised by their overall experience with you or you will have a reputation as the cheap and crappy company that offers the lowest prices.

Think about your everyday decision making. Do you typically book the cheapest hotel room in a city, or the cheapest airline? Most people go with at least the second-cheapest option to avoid a dirty hotel or a barely-safe plane unless the cheapest option also has a reputation for great service. The perception of quality is a battle you will fight if you price your products on the low end.

Low Prices and Customers

Another consideration is the customers that you will interact with. Experience both from running a rental business and a retail business has shown me that customers who want the cheapest price are usually the most difficult to deal with. You might expect that a customer paying $150 for running shoes would be much more picky than a customer who comes in to the store with a budget of $50, but it is exactly the opposite.

The customer who is willing to pay more is generally one who understands the value of what you are offering, and they are willing to pay for that value. The customer who comes in with a very low budget may not understand that value, and they just want a product for the lowest price.

Lowest-price customers can also be more difficult to work with because may not trust your advice, seeing you as a salesperson trying to make an extra buck, even if you are simply trying to find the right solution for their needs. You are trying to get them into a shoe with the right type of support, and they simply want a shoe that is half-off, even if it is not the right shoe for their feet.

In many ways it can be more desirable to find and work with one high-paying customer than with two or three low-paying customers.Pricing low is not always a bad idea, but you should be aware that it does come with its difficulties.

High Prices

Pricing higher than your competition may give the impression that you offer high-quality service and products. When faced with a variety of options most customers will assume that the most expensive is the highest quality.

By pricing your products on the high end, and providing great service to match the price, you can establish the perception of your company as the expert or leader in the market. When a customer looks at the options they will ask which services the other companies are not offering to get their prices lower than yours. This is a great thing, because the customer is using your company as the standard by which to measure the competitors.

The difficulty with higher-priced products is finding customers who are willing and able to pay the price. You must be able to educate the market on the need for and benefit of your high-priced product. You will have to explain to customers the benefit of paying the higher price to work with you, and the customer needs to be able to trust you or she will not be able to justify paying a premium to do business with you.

On the bright side, higher prices with a stronger profit margin mean that you will not need to serve as many customers as the lower-priced companies to earn an equivalent profit.

How We Managed Perception

At Picnic Table Rental we actually priced our main product, picnic tables, on the low end of the price range compared to similar companies. We differentiated our company by offering many related products that our competition did not have, such as tents, banquet tables, and chairs, and this helped to make up the difference in lower picnic table prices.

We also utilized some pricing strategies that increased our average sale and made our customers happier.

In Part 3 of this series we will take a look at various pricing strategies you can employ to enhance both your sales and the customer’s perception of your company. 

Do you have any interesting experiences dealing with companies that offer very high-end or low-end services? Share them in the comments below!

Pricing Rental Products, Part 1: What Is the Minimum Price?

When my father and I started our rental business, Picnic Table Rental (PTR), we were a small operation with no competitors in the area. However, that same summer another picnic table rental company started up in town. And the next summer another one opened. Suddenly customers had the option of choosing between three companies offering the exact same product, and we had to find a way to stand out. The way that we did so was with our pricing strategy.

Pricing is a huge and important piece of the puzzle in a rental business, and  it can be tricky. There are a number of considerations. In this three-part series about pricing we will look at lessons that were learned from PTR to show you how to determine your minimum rental price for a product, how to position your company in the market with your prices, and how to use pricing strategies to your advantage.

Typical Rental Rates

If you search around online some sites will tell you that a typical rental rate for a small product, for one day of use, is three to five percent of the product’s cost. Rates for a week-long and month-long rental are 10% and 20% of the product’s cost, respectively.

These are nothing more than loose guidelines, in my eyes. The actual price that you set for your products will depend upon several factors, and it may vary quite a bit from these recommendations. It may even change over time.

To begin determining prices you have to start by taking a look at costs.

Money Out the Door

The first item on your to-do list as you determine the rental price for your product is to figure out where you are spending money. This goes beyond the tangible, up-front cost of the product itself and requires some planning for the future. Remember to consider the following costs that you will need to cover:

  • Buying the product
  • Maintenance costs for wear and tear of the product
  • The cost of replacing the product at the end of its life
  • Website and phones
  • Storage costs (if you need to rent storage space for your product when it is not in use)
  • The cost of delivery (if you offer delivery):

o   Buying or renting a truck

o   Fuel

o   A trailer for larger products

  • Advertising
  • Hired help, if you need extra hands to help with delivery/setup
  • Taxes
  • Attorney and accountant fees
  • Replacing the product at the end of its life

A great way to start the process of setting your rates is to determine the minimum rental rate for each product. This is the rate that will just cover the cost of purchasing the product, as well as other business expenses, over the life of the product. It is the price that will at least allow you to break even between income and expenses by the end of the product’s life.

Breaking Even: Minimum Rental Price

To determine the minimum rental rate for a product, consider three numbers:

1. The initial cost of the product
2. The estimated resale value at the end of the rental life, and
3. The number of times that the product is expected to be rented out over its lifetime.

Using this information you can determine a rough minimum rental price by subtracting the resale value from the initial cost of the product, and dividing by the number of rentals over the product’s lifetime.

This is a simplified way of determining the minimum price for each rental period. There are more sophisticated calculations that can be done, but this is a good starting point.

What Will Be Included In Your Price?

The fine print on what is and what is not included in your rental prices can set you apart from the rest of your market. This is part of the strategy that we used for Picnic Table Rental.

Other party rental companies would pull up to your house, pile your tables at the end of the driveway, collect payment, and drive off. We, however, performed delivery and setup for no extra cost, even if we had to carry the tables around the house, down a hill, and over a stream to the party location.

The price of our tables may have been similar to other companies but we provided the customer with a service that greatly reduced the hassle on their end. It only cost us an extra minute or two of time and effort for most of our deliveries, but it earned us business referrals and loyal return customers.

When you set the price for your products consider what will be included in the price of your rental product, and what will be extra. Take a look at the list of price factors below. You do not have to offer all of these (or even any of these) for free, but how you incorporate each component into your pricing will affect your business.

  • Delivery and setup
  • Instruction or tutorials about how to use the product
  • Insurance on the product
  • Fuel costs (when renting cars/equipment that use fuel)
  • Regular maintenance (watering rented plants, fixing rented photocopier, etc)

Get Started

If you are thinking about starting a rental business this would be a good time to perform some basic calculations for the minimum rental price of your products. Look through the list of costs and the list of services above and start to formulate a baseline price for your offerings.

Part 2 of this series talks about your prices and the perception of your company. Click Here for Part 2.

Do you have any tips to add on finding rental rates for your products?

How to Name Your Business

Name Your Business

So, you are ready to start your rental business. The first step, although it may not seem like a big deal, is pivotal: choosing the right name. There are several considerations when you choose a name for your business, and if you ignore any one of them it could have a significant, negative impact on your business.

1. The Domain Name MUST be Available

When somebody needs your services the first step they take these days is to look you up online. Whether they hear about your business from a friend and look it up or simply search for your industry in Google, they need to find your website if you want to get their business.

The Domain Name Should Be The Same as Your Business Name

The domain name is the address of your website, such as amazon.com or weather.com. The domain name of a site is something that you choose,purchase, and control as long as it is not already owned by somebody else.

A potential customer might hear about your business from a friend. If they go to look up your business online and the domain name is different from your business name they may pass you by and not even realize it. For example, you would be surprised if a friend told you to look up a store online called Amazon and their domain name was not Amazon.com. The same goes with your business. If the domain which matches your business name is not available it is best to choose a different business name.

The Domain Should Be A “.com”

There is a wide variety of URL endings now: “.net,” “.org,” “.biz,” “.us,” but Google (the search engine that will send you the enormous majority of your traffic online) still gives the most credence to the “.com” domain names.

When you search for a domain name, the registrar (such as GoDaddy) will offer you similar domains with endings such as “.biz” or “.us” for a lower price. Think about the last time you were on a website with one of those endings. If you are like most people, you probably do not visit a website like that regularly.

All of the websites that I have bookmarked on my personal computer and visit on a regular basis are “.com” domains. This is due to a couple of reasons. First, Google prefers to send back “.com” results as the top results for a search. Second, If somebody else already owns the “.com” name that I want they are going to have an easier time getting their business to show up naturally in Google searches, and my customers are more likely to find their site instead of mine (either through a search or by just typing in the name and assuming the “.com” ending).

If the “.com” domain name you are looking for is taken, it probably is not wise to settle for the “.net” or “.org” domain even though these are fairly common and well-known domains. It is unlikely that a customer would take the time to type in the business name with a “.net” or a “.org” extension to see if it leads them to your company after the “.com” takes them to a different company. They will simply move on.

Where to Buy A Domain Name

This next paragraph is going to get a little bit technical, but it is good information to know if you are managing your own business website.

There are many websites that serve as registrars for domain names. The most well-known (due to their extensive advertising) is GoDaddy.com. I personally tend to use my hosting provider (Bluehost) to register domains because it simplifies the process, but I occasionally check GoDaddy as well to see if they have a better deal at the time. The biggest advantage in buying domains from my hosting service is that I avoid the extra hassle and wait time that is necessary when transferring control the domain from a registrar like GoDaddy to the hosting service.

These are the only two sites that I have used to register a domain, and I have had good service from both.

2. It Helps if the Name is Search Engine Friendly

A consideration to keep in mind when selecting the name of your business is the likeliness of the name to show up when a customer does a search online for your service.

Take my family’s former company – Picnic Table Rental. Do you think we benefited in the search engines like Google for having that name? You bet we did.

It is easy to picture a parent planning their son’s high school graduation party and realizing that they need more tables and chairs than what they have. They open up Google and type in “table rental” or “chair rental” or maybe even “picnic table rental” if their party is outdoors. Picnic Table Rental shows up toward the top of the search, and the name of the site looks relevant so the parent clicks on that link first.

Google, which is far and away the most popular search engine, brings back results to the searcher based on relevance. Part of that relevance is the name of the site. Even though Picnic Table Rental only served a small area in southeastern Minnesota we would get calls from all around the United States asking either for our services or for recommendations of services in other areas. We were perceived as an authority on the rental industry in the whole country because our website showed up at the top of many relevant Google searches.

3. Memorable Names Have Many Benefits

A business name needs to be memorable. When you really think about the number of businesses that you hear about each day in radio commercials, TV commercials, billboards, newspaper ads, and otherwise, it is staggering. A catchy name can help your business to stand out and resonate with the customer.

There are two types of memorable names. I think of them as the “sticky” names and the “clever” names.

Sticky Names

These are business names that are more or less made up and do not necessarily explain the purpose of the business, but they stand out and stick in our minds for some reason. A great example of this is Squidoo, a site which curates information pages. Squidoo was created in part my marketing guru Seth Godin, who wanted to give it a unique and memorable name that was easy to spell.

A sticky business name like Squidoo does not stand for anything – it is not derived from some deeper meaning. There is no history to it. But that is part of the advantage.

Sticky names have no history, so you get to write the history and control what is associated with it. You also control what comes up in the search engines. If you have a unique, made up name the odds are that you will not be competing with many others for the Google ranking for that name. This is important because potential customers are more likely to type your company name into Google to find you than they are to search for your company name with the “dot com” at the end.

The obvious disadvantage to these names is that they do not immediately convey the purpose of the business to new customers. My family picked up a lot of business from driving around town while towing a trailer that said “Picnic Table Rental” on each side. If our name had been made up, a passing driver would not have time to comprehend the purpose of our business and determine whether they needed our services in just the couple of seconds that they were in sight of our trailer.

Clever Names

When I was young my father had a business that helped people out when their car broke down. If your tire went flat or your battery died you would not have to find a way to get to the nearest repair shop. You would call my dad and he would drive over with his big truck full of supplies, including all sizes of tires, and he would get you back up and running. The business was called “Tires on Wheels.”

When I think back, this is one of my favorite business names ever. It is catchy, memorable, clever, and it tells you what the business does. A name like this stands out and really sets you apart from the competition. This is the advantage of a memorable name.

4. The Name Must be Easy to Spell

Using a business name that is easy to pronounce and spell is important in a time when most customers are going to go type your business name into Google to find you. With that in mind, consider the following tips:

Avoid Words With Multiple Spellings

While only one spelling of “there,” “their,” or “they’re” would likely be gramatically correct in your business name, do not expect that your customers will know which spelling is which. If it can be confused, it will be. This makes your business more difficult to find when potential customers are searching for you online.

Avoid Using Letters or Numbers in Place of Words

Replacing “four” with “4” and “you” with “U” might look clever or help you to get an exact-match domain name, but your customers will get confused and you will have to specify “the number 2” every time you give out your website name verbally. Simply avoid using these.

Avoid Difficult-to-Spell Words

You may live in a city that has a difficult spelling or you might be thinking about including a word that is often misspelled in your business name. Remember our rule from above: if it can be confused, it will be.

5. Choose a Name That is Not Easy to Confuse With Other Businesses

While my family ran a party rental business there were a few similar businesses that popped up in the area, some with very similar names. Sometimes we would get calls from customers confused about which company they were talking to. There were even occasions on which a customer would call us to change an order only to realize that they had made the original order with one of the other companies. Oops.

You can not control what other companies are going to do, but you can make an effort to come up with a memorable business name that stands out from the rest. Using a name that is unique, easy to remember, and easy to spell will make your company the first that people think about when they need your services.

6. Make Sure the Name is Not Already Trademarked

You want to be careful that the name of your business does not infringe upon any trademarked names. The best way to check this is through the US Trademark Office’s Electronic Search.

Also, be wary of using phrases that can be associated with other brands. A name such as “Rentals R Us” or “McRentals” is likely to get you a cease and desist letter from a larger company trying to protect their brand.

The Perfect Business Name

At the end of the day, the ideal business name is one which is memorable and easy to find online. This makes it easy for your customers to find you (why would you want to put any obstacles in the way of that?!) and it will add leverage to your marketing efforts.

What is the most clever business name you have come across?