How to Decide on Purchasing and Pricing New Rental Inventory for Your Small Business

When expanding your rental inventory, one crucial decision is whether to purchase an item specifically for a single job and how to appropriately charge the client. This decision can significantly impact your profitability and inventory management. Here, we discuss various strategies you can use to make these decisions effectively.

Typical Rental Items Event Companies

First, let’s take a look at typical rental items for event companies:

:

• Backdrops
• Floral Walls
• Chiara Walls
• Tents, Tables, Chairs
• Draping
• Photo Booths
• Marquees

Strategic Decision-Making in Rental Inventory

1. Assessing the Demand and Frequency of Use

The first step is to evaluate whether the new inventory item will be in high demand. If you anticipate frequent rentals, it's more cost-effective to charge a rental fee rather than passing the full cost to the first client. For instance, if you purchase a floral backdrop for $850 and foresee its use at numerous events, charging each client $320 can quickly recoup your costs and generate profit.

2. Pricing Based on Cost Recovery Time

Determine your cost recovery timeline. If an item like a bubble tent costs $1,600, you might charge $650 per rental. Setting a target for recovering your initial investment - such as covering costs within the first one to two events - can guide your pricing strategy. This approach balances risk and return, especially for expensive items.

3. Considerations for Custom or Rarely Used Items

For custom pieces or items unlikely to be rented again, a different strategy might be needed. Charging full price to cover costs can mitigate the risk of a one-time use item. Adding a markup, such as 30%, compensates for the time and resources spent on custom items, ensuring that your business remains profitable even if the item isn’t rented again.

4. Wholesale and Retail Price Considerations

If you acquire an item at wholesale pricing, consider basing the rental rate on the retail price. This not only offers clients a competitive rate but also maximizes your margin. For example, if a backdrop typically retails for $1,050 and you obtain it for $550, renting it out at a rate closer to the retail price can quickly turn the item profitable.

5. Dynamic Pricing Based on Market Trends

Stay responsive to market trends. If the price of an inventory item increases over time, such as a popular metal floral stand, adjust your rental fees accordingly to reflect the current market value. This ensures that your pricing remains competitive and aligns with cost replacements.

6. Package Pricing for Frequent Rentals

For items you expect to rent out frequently, such as standard backdrops or decorative frames, consider offering them at a reduced rate after recovering your initial costs. You could also create package deals that combine these items with other services, like balloon decorations, enhancing value for clients and encouraging repeat business.

Leveraging New Inventory for Business Growth

Ultimately, introducing new items can be a strategic move to attract more clients. The key here is that if there’s something unique that you believe will differentiate your offerings, it might be worth the investment, even if the immediate return isn’t apparent. Offering these new and exciting items can set your business apart in a competitive market.

But remember—to make well-informed decisions about expanding your rental inventory, you must conduct a thorough analysis of market demand, pricing strategies, and overall market conditions. By carefully evaluating these factors, small business owners can strategically enhance their service offerings, increase profitability, and drive sustainable business growth. Here's to equipping your business with the necessary tools to succeed in a competitive industry.