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Damon W. Holditch

A Pricing Model for the Rental Industry that Works for Everyone

Every industry is challenged to develop a fair pricing model for its clients. Pricing event rental equipment based on what a competitor is charging is not a long-term winning model. Pricing must be based on a business model, including operating cost, long-term goals and profit goals.

Rental industry profiles suggest the bottom line for a 100-percent tenting operation should be 15 percent. For a 100-percent event operation (tables, chairs, linen, dance floor, staging .... ) the bottom line should be a minimum 20 percent.

Damon Holditch

Setting the bottom line profit percentage is the start of a business model. Start with a desired bottom line profit goal, then add projected sales and projected expenses. The result is an operating budget.

Start with a budget including fixed costs and then evaluate the rental revenue required to cover these costs, pay your bills, and generate the desired profit. It will take several iterations to generate a workable budget.

After successfully completing the above, a problem all event rental companies face is the universal request from every event person for a discount from published prices. If a discount is offered, it must be included in the business model.

There are various ways to reward your faithful industry professionals without giving away your profit.

1) Provide quality products at a fair price. Charge published prices to all customers. This model trains clients to be partners, not adversaries.

2) An alternative method is to provide quality products at a fair price allowing a discount to industry professionals. A fixed percentage of the rental items only--not labor, delivery, setup, decor, tenting, sales items, sub-rented items, items purchased for the event, customer go-backs and any other items designated as non-discountable. This discount will only be allowed if the client is current and all items have been returned. The industry professional can add back the discount and bill their client for the full published rental rate.

Build a pricing model that is a winner for the client, the industry professional and the rental company.

3) A variation of this discount model is when the rental store writes a rebate check to the industry professional after the event.

4) The check rebate model is difficult because of recordkeeping and cash flow. It is an accounting problem to keep up with how much is owed to whom.

Educate your client, (the planner, caterer, venue, industry professional) on a fair pricing model where everyone can make a profit.

5) Other forms of rental industry rebates can be based on volume or redeemed in rentals for future events. All of these accrual models and the rebate check models require extensive accounting and lead to misinterpretation of what was offered and what is owed.

6) Regardless of the model used to reward the industry professionals or to attract new business, the pricing must be consistent for all clients. Cash clients pay the published rates and industry professionals pay a different rate. But all clients in each classification must be charged the same rate or problems will develop, leading to unfair treatment.

Be careful of any rewards system that requires extensive record keeping.

7) A simple system is to show the discount on each invoice. There is no negotiation at the counter, over the phone or even after the event to determine the actual amount due.

8) All rental rates are published on the website and are subject to change without notice. Cash customers and individuals pay the published rate.

9) Industry professionals pay industry pricing, and the rental company reserves the right to designate who is an industry professional. An industry professional must be actively engaged in the event industry as their primary profession, be a member of a professional organization and be a loyal client. The discount is shown on the invoice along with the amount due. The industry professional is not waiting for a statement or check in the mail. Each invoice is stated correctly and stands alone. The industry professional can add the discount to the client’s invoice.

A designated industry professional will receive a discount on all discountable items.

10) It is a little-recognized fact in the event rental industry that the cost to rent an individual item increases with quantity, not decreases. Example: 100 folding chairs can be rented at $1.25 per day and be profitable. Ten thousand folding chairs cannot be rented at $1.25 per day and be profitable. The price must increase to cover additional warehouse space, additional inventory cost, and increased delivery and pickup costs. Costs do not decrease with increased volume. The bigger the event, the more it costs to provide the individual items for that event. This is an often-overlooked cost in the event equipment rental business.

Increased cost with increased volume is overlooked in the event equipment rental business.

11) If a client is not designated an industry professional, then they pay the published rate. If they are designated an industry professional, their pricing is shown on each invoice. Each invoice stands alone and is correct in its pricing.

12) The result is less confusion in the pricing model. Clients cannot come in and say, “I need a discount.” If they fit the model, we are pleased to extend industry pricing to an industry professionals. Keep the pricing model simple.

Avoid complicated models that require extensive accounting.

A simple pricing model yields an easy-to-understand invoice. There is no waiting for the final invoice pricing. The industry professional can see the actual cost for their event on each invoice. The final invoice for the client can be generated with accuracy.

It is difficult to keep track of multiple deals with multiple clients. The results can be a lost client due to communication. This is not good for either party.

Keep your pricing simple, fair and honest.

Take the time to review your pricing model. Make it simple and fair to all concerned.

Build an industry pricing model that is an asset to all the event industry professionals. In the long run everyone will make a profit.

Damon W. Holditch, CSEP, CERP, graduated from Texas A&M University with a BS and MS in electrical engineering. He purchased a United Rent-All Store in March of 1985, which has evolved into Austin, Texas-based Marquee Event Group, included on the Special Events "30 Top Rental Companies."

He is the past president of ILEA Austin and the Texas Rental Association. Damon earned his CSEP and his CERP and is a Registered Professional Engineer in Texas. Marquee has won three Special Events Gala Awards, three ISES Esprit Awards and numerous event industry awards. He says he is an example of not letting your education hold you back.


TAGS: Rental
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