Rentals, Recurring Billing and Long Term Value of Rental Equipment
Renting equipment is a cost-effective way for businesses and individuals to access expensive equipment without incurring the high upfront cost of purchasing it. However, equipment rentals can be a risky business for equipment rental companies. One of the major challenges is ensuring that rental payments are made on time and in full. Recurring billing can help solve this problem.
Recurring billing is the process of automatically charging a customer's credit card or bank account on a regular basis, such as weekly, monthly, or annually. This is commonly used in subscription-based businesses, such as software as a service (SaaS) companies, but it is also useful for equipment rental companies.
Renting equipment is a cost-effective solution for businesses and individuals who require expensive equipment for short-term use. Equipment rental companies, on the other hand, face challenges in ensuring timely and full payments for equipment rentals, which can negatively impact their cash flow. Recurring billing can solve this problem while also increasing the long-term value (LTV) of equipment rentals.
A leading equipment rental company conducted a case study comparing recurring billing to one-time transactional rentals. The study analyzed two groups of customers: those who rented equipment on a recurring billing plan and those who rented equipment on a one-time basis.
The results of the study showed that customers on recurring billing plans had a significantly higher LTV than those who rented equipment on a one-time basis. The LTV is a measure of the total revenue a customer generates over their entire lifetime as a customer of a business. In the case of equipment rental companies, the LTV is calculated by multiplying the average rental period by the average rental price.
LTV of a piece of equipment can be calulated as the monthly rental price X 12 months X percentage of time rented X service life of equipment. For example: $1000 piece of equipment -- $80 monthly rental X 12 X 95% rental rate X 10 years = $9,120 LTV. A proven model for pricing is paying off the equipment in 15 months.
Customers on recurring billing plans rented equipment for longer periods, on average, than those who rented equipment on a one-time basis. This resulted in a higher LTV for recurring billing customers, as they generated more rental revenue over time.
Furthermore, customers on recurring billing plans were more likely to rent additional equipment over time. This suggests that recurring billing can help build stronger customer relationships and increase customer loyalty, resulting in higher LTV.
In terms of payment, customers on recurring billing plans had a much lower rate of unpaid rentals compared to those who rented equipment on a one-time basis. This resulted in improved cash flow for the rental company and reduced the risk of unpaid rentals.
The case study's results highlight the importance of recurring billing for equipment rental companies, especially those that rent equipment for longer periods, such as construction equipment or heavy machinery.
Recurring billing can help mitigate the risk of unpaid rentals while also increasing the LTV of customers. By providing a convenient and hassle-free rental experience, rental companies can differentiate themselves from their competitors and increase customer satisfaction.
In contrast, one-time transactional rentals have a lower LTV and higher risk of unpaid rentals, as the rental period is typically shorter, and there is no guarantee that the customer will return the equipment on time or pay the full rental amount.
Furthermore, one-time transactional rentals can result in a higher cost for the rental company, as they require more time and resources to process each rental transaction.
According to industry statistics, the demand for equipment rentals is expected to grow significantly over the next few years, as more businesses and individuals seek cost-effective solutions for accessing expensive equipment.
The case study's results show that recurring billing is an essential tool for equipment rental companies, as it can increase the LTV of customers and reduce the risk of unpaid rentals, resulting in improved cash flow. By providing a convenient and hassle-free rental experience, rental companies can differentiate themselves from their competitors and increase customer satisfaction, leading to long-term success.