Rental Its Not Just What You Buy But When

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The formula for the rental industry is pretty simple: buy a piece of equipment and generate rental revenue that exceeds the cost of ownership during its lifetime. Rental companies increase their economic value when they make good decisions on what to buy and when and will quickly lose value when their inventory can no longer generate profit. In between there are decisions that every industry faces - market timing, financing, and which technology to embrace - but without inventory, you are not in the rental business. InfoComm surveys have shown that mature AV rental companies put an average of 8-12 percent of revenue towards new equipment less if business is poor, more if it is growing. There is not much data on startups, but entrepreneurs will tell you that new companies invest as much as 50-75 percent of the first three years projected income. For many AV rental and staging businesses, planning for capital expenditures is an end of the year exercise that involves reviewing sub-rentals, pricing new equipment, and sifting the market for clues on what their clients want to see. Manufacturers play an even more sophisticated guessing game to know which segments will be growing and by how much. It is not enough to have a great product - someone has to buy it. Everyone could use some additional data and insight to support their planning process.

So how do rental managers and owners currently plan their purchasing needs? They consider among other things timing, mix, and return. Although return is what business is about, timing and mix directly affect income. For instance most companies would want to buy new equipment just before the busy season. But in the world of live events with its complicated integrated packages, it has become almost impossible to be a last minute purchaser. It takes time to evaluate current products and once you are done, the next generation has probably already been introduced. Product competition is fiercer, there are more choices, and once a decision has been made there are racks to build, systems to kit, and technicians to train. No wonder manufacturers have trouble understanding rental and staging buying habits the rental companies have trouble with it themselves.

Once timing has been determined, the products need to have the right mix or synergy. The rental of one product should drive the need for another: screens and projectors for instance, or wireless microphones and audio mixers. This is the reason computer rental companies have expanded into larger LCD and plasma displays, video projection, and now meeting accessories. It is also why Lighting shops are purchasing video equipment. (It used to be that everyone knew two jobs theirs and audio. Now, even audio companies are getting into video.)

Any one product can have an excellent return over time, but some have more impact in the short run, which makes them especially attractive to some businesses. Maximizing return on investment is about managing risk inherent in choosing what to put into inventory. Rental companies hedge their investments by stocking multiple products within a category and maintaining numerous categories. Carrying more than one brand within the same segment can also minimize risk. Additionally, big returns do not come from low-risk items. Tabletop LCD projectors are relatively low-risk products everyone can use them and demand is consistent. LED walls on the other hand are high-risk. Companies who are well-positioned in the right markets can generate a lot of revenue and a good return on LED, but the market demand is very volatile and competition is fierce. Not everyone will be successful.

Next month rental companies and manufacturers will have a new tool to help plan inventory purchases the 2007 AV Rental & Staging Purchasing Forecast.

North American rental and staging companies will report their projected capital and supply expenditures for the coming year. The results will be broken down by quarter in over 100 product segments from twelve technology categories. The primary purpose of this research is to provide manufacturers critical timing data along with insight into the buying trends of the AV rental industry, but rental and staging companies can use the analysis to evaluate their purchasing and marketing strategies against similar companies. Rental businesses that participate in the survey will receive the results free of charge and in advance of those who choose to purchase it. The survey preparation worksheet is itself a valuable tool for developing budgets and identifying need, and will serve as your roadmap for the coming year and a starting point for next year. All results will be compiled and the respondents identities will be kept anonymous. Managers can use the Forecast results to reevaluate their plan and benchmark their allocations against the industry.

The complete book of knowledge of inventory purchasing best practices wont be compiled any time soon. There are too many variations and the formulas are still somewhat proprietary. And trying to educate manufacturers on what motivates rental & staging companies to buy one product over another is an ongoing task. What we can gain from the 2007 AV Rental & Staging Purchasing Forecast is insight into what segments other companies are investing in, when, and how much. It is not too late to join the survey and receive the results for free. The submittal deadline is Dec 1 request an application at surveys@trstimson.com. The results will be sent to participants on Dec 15th just in time for some end of the year analysis. For more information visit www.trstimson.com/surveys.

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