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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?

5 Reasons You Can Start a Rental Business on the Side *TODAY*

Many of us are looking to start a business to either replace our current job or to bring in a little extra money on the side. Starting a rental business is a great way to do this. Here are five reasons why you should consider starting a rental business.

1. The Startup Cost Can be Small (Or Nothing at All)

It is totally possible to launch a rental company with very little inventory. When my dad and I began our party rental business, Picnic Table Rental, we bought two or three fold-away picnic tables and drove them around in the back of our old pickup truck to deliver them to customers. After renting them out a few times we had paid off the cost of the tables and were quickly able to save up to buy more.

There is a perception that starting a business requires a lot of money up front. I have not found this to be necessary. Start small and build over time. You might even be able to rent out equipment that you already own, so there would be no start up cost. Say you own a lawn aerator. You are only going to use it a few times a year at most, so rent it out to others nearby who would rather pay a small fee to use yours once a year than pay the full price to buy their own and have store it for the rest of the year.

2. You Can Start It Today

Don’t worry about getting a storefront and putting on a grand opening. You will probably just need a business license to get started (the technicalities vary depending on your location). You can buy an ad in the local newspaper or spend a few dollars advertising on Google or Facebook to let others in your area know what you have available to rent. If you have a product that others are looking for available at a good price, you could be receiving calls for it within a couple of hours.

You may wish to have a physical storefront from which to rent out your product, but it is not necessary right away. If you don’t want others coming to your house to pick up a rental product simply deliver it to them. The goal when you are just starting out is to get some traction – get some experience in the rental industry and build a base of customers that can refer you to others. The beautiful thing is that the internet allows you to do this, and to start making money, today.

3. It Does Not Need to Take Much Time

A good way to make some extra money is to build a deck for somebody over the weekend. A better way to make some extra money is to rent out your tools to somebody who wants to build their own deck over the weekend. Or maybe you rent out your tools to somebody who is spending the weekend building somebody else’s deck for extra money.

Anyway, the point is that you simply have to arrange times for delivery and pickup of the tools, and you can spend the rest of the weekend sitting at your cabin by the lake if you so choose. You are making money for the time that your tools are being used, but you do not have to physically be present the whole time to get paid.

4. No Specialized Skills Are Required

Rental business does not require a special degree or technical skills. You need not spend the time at the local university to learn the ropes because nobody is checking for your degrees before they rent something from you. Provide value to others with an item that they would like to rent, and you are in business.

5. You Can Grow It Quickly

Depending on the type of item that you are renting it should not take long to cover the cost of buying the item by renting it out. If you buy some picnic tables to rent out it is reasonable to think that you can make up the original cost within the first couple of months. Any money coming in after that can be used to increase your inventory if you so choose.

I originally started out renting portable, fold-away plastic picnic tables. They sell for around $200 each. In the early days we would deliver the tables on a Friday night for a Saturday party and then pick them up early Sunday morning and move them to another customer who was having a Sunday party. Locally these tables currently rent for $35 each per day. Three weekends of rental like the one above would pay off the cost of the tables. If there are corporate events during the week that need tables, or large events like a county fair,the cost will be made up even faster.

Have you started a rental business, or are you thinking about doing so? What do you find most intriguing about this business model?