How Does a Rental Business Model Work?

Rental businesses are thriving across many industries, with new opportunities emerging every day. However, anyone looking into starting a rental business needs to understand the importance of having an effective rental business model in place.

What Is a Rental Model?

A rental business model is different in many ways from other types of businesses. The conventional business model will be based around the sale of either goods or services. A retail store might purchase goods from a supplier and then sell them physically in-store to customers. 

This can also be applied online or in other ways, but the fundamental core of the business model is buying goods and selling them at a higher price.

Services, whether from an electrician, a doctor, a painter, a lawyer, or anything in between, use a different model. Service businesses perform specific tasks, relying on the time of skilled professionals to generate revenue. While there are material costs as well, that’s the basics of service business models.

Rental business models are different. These businesses purchase equipment, from construction equipment to watercraft, depending on their niche, and rent that equipment out to customers. These customers pay a certain price per hour, day, or week, and that’s where the rental business gets its revenue.

The rental business needs to ensure that its business model will generate higher revenues than the cost of purchasing and maintaining equipment. There are other factors like utilities, rent, and so on, but the most important point is whether a purchased piece of equipment will generate more in rental revenue than its cost for purchase and maintenance.

Are There Different Types of Rental Models?

The core of every rental business model is based on generating revenue from rentals, but there is a wide variety of ways that businesses can achieve that. These are just some of the various rental business models that you could choose.

Brick-and-Mortar Rentals

Many rental businesses are based in physical locations and derive most of their revenue from walk-in customers. This has been the conventional rental agreement model for a long time before technology allowed for other possibilities.

These types of businesses have to either own or rent a physical location to serve as their storefront and a place to keep all of their equipment. Since most rental businesses need space to keep inventory anyway, having a physical storefront makes sense.

Bricks-and-Clicks Rentals

This type of rental business model refers to a hybrid online and physical business. This can mean a few different things in practice. Depending on the type of rental equipment, customers could order online and have it shipped. It could also mean that the business uses an online reservation system to facilitate business with its customers.

Given that rental businesses in almost any industry need an online presence to succeed, it only makes sense to add some real functionality and derive value from online resources in your rental agreement model.

Peer-to-Peer Rentals

In many ways, peer-to-peer rental business models are more about developing a platform than renting equipment. These businesses allow individuals to rent items to other individuals, using the business as a kind of marketplace. 

This kind of revenue-sharing rental model can work in many industries but comes with challenges as well.

A revenue-sharing rental model is a big departure from classic rental business models and might not be right for individuals unfamiliar with more complex business practices.

What Is the Best Rental Model for My Business?

There isn’t any clear-cut answer as to which rental business model is best. They all have their own benefits and drawbacks, with many being suited towards renting certain types of equipment. However, there are some key points you can keep in mind when making your decision.

The first is the nature of the specific items you’re renting out. If your equipment is restricted to distribution in the local area, then having a physical presence where customers can pick up and drop off equipment would be sensible.

Rental business owners should make sure not to discount the value that a hybrid model can bring to their business, no matter what industry they’re in. Construction equipment, wedding rentals, vehicle rentals, and more can all be presented to your customers more effectively with rental business management software.

Having your stock accessible online will have more customers finding what they need and reserving a rental with your company. Many consumers out there prefer online booking versus calling a business, so giving them that option makes you that much more likely to make the sale.

How to Price Your Rentals?

Pricing is a critical factor for any rental business model. It can be a challenging task to determine your rental product pricing  because there are many factors at play. 

The prices that rental businesses can set are dictated by market forces. These are complicated but basically come down to the fact that customers won’t rent from you if they can rent elsewhere cheaper.

This sets an effective maximum for rental prices on any specific piece of equipment. The other factor to consider is the minimum. 

You need to determine what rental price will allow you to not only recoup the purchase cost of the equipment but to turn a profit as well. Your rentals will also have to supply revenue to offset utilities, rent, wages, and more.

If the minimum rate that you determine for pricing certain equipment is higher than the maximum rate dictated by the market, then that specific piece of equipment isn’t viable. Instead, your business will have to find other options that have viable price points to keep your business running.

What Is the Best Rental Business Management Software?

Managing a hybrid rental business model can be a significant challenge. This is particularly true if you’re trying to manually balance online and in-person reservations. Instead, you can streamline the process with rental business management software.

Quipli provides versatile rental business software that makes inventory management and reservations incredibly easy. You can reach out to Quipli today to find out more about what our solution has to offer.

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About the Author
Kyle Clements
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Kyle Clements is the Founder & CEO of Quipli, a provider of full rental e-commerce experiences for independent rental companies. Kyle has a decade of software startup experience and has been part of several successful ventures that have become publicly traded or been privately acquired, such as Uber and Clutch Technologies. In the past few years, Kyle has completed hundreds of customer interviews understanding needs and trends in the growing rental market. Kyle brings a unique perspective to the rental industry and is passionate about partnering with rental companies, from upstart rental companies to 8-figure rental businesses, to run their operations more effectively and assist them in creating an impactful experience for their customers.

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Quipli is a U.S.-based maker of advanced software that lets independent rental companies accept customer orders and receive payments online, as well as gain unprecedented control over rental inventories, scheduling, and much more.

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