Understanding your return on investment can make a huge difference to your rental business. It can help you streamline inefficient aspects of your business and, more importantly, it can help you pinpoint places where you are hemorrhaging revenue. Rental software costs money, but it also helps you calculate ROI with a degree of accuracy simply not possible otherwise. There is no universal process that rental companies can carry out to calculate their ROI, and this is because no two businesses are exactly the same and no two rental software options are exactly the same. But the principle is simple: if rental software earns or saves you more money than it costs, then it is providing a favorable ROI.
Note: Where possible, we will make this guide relevant to any rental business considering any rental software, but we will also mention the features of Rentrax equipment rental software that help cut business costs and maximize revenue, thus providing plenty of ROI. If you have any follow-up questions or you’d like to arrange a free software demo, please feel free to contact us.
Overall Rental Business ROI at First Glance
Without accounting for any of the complexities that come from managing a rental business over other kinds of business, ROI is simply the amount of revenue you get back that exceeds the amount of money you invest. We know this is obvious, but we want to keep this goal in mind as we explore how best to calculate ROI.
Behind all of the complexity, it is simple: are you making money?
However, when you look at the details, you can work out which outgoings are helping you attain this profit and which, if any, are hindering it. In our view, even the most general, unspecialized rental software will be useful enough to provide some ROI over a pen and paper system, but the potential for software to provide a huge return on investment means that it’s something all business owners should consider carefully.
The Biggest Cost to a Rental Business is Usually Rental Stock
While this varies depending on the cost of individual items (a jet ski costing significantly more than a pair of skis, for example), it’s important to ensure that your stock is always earning out of your initial investment. Put simply: you bought it for X and you need to generate more than X for this item to be worth your while.
Earning out of the initial investment is easy to track if you have rental software that tracks each specific item of stock over time. Beyond highlighting whether it’s in-store or out on rental, helpful software tracks how much money it has generated across its lifespan. This is a function of our rental management software, but the additional potential revenue gain goes far beyond this basic function.
Consider the most popular item in your stock versus the least popular. Or, if your stock comes in different sizes, consider the average-sized bikes, skis, etc., versus the smallest or largest ones that are rented less often. Most rental business owners try to do everything they can to stay organized, juggling the right amount and type of inventory to maximize ROI. But some of this effort is just based on a gut feeling, rather than data and hard facts provided by the right software.
Rentrax monitors all of the revenue generated by every single item of inventory, and our system allows you to reference this against the initial cost of purchasing the item. This allows you to automatically flag stock that has earned out of its initial investment, selling older stock that has earned its keep but is still in good enough condition to fetch a good price.
Factoring resale value into your ROI can be a great way to increase profits; simply set an ROI threshold for each rental item and, when they reach this goal, you can put them up for sale. This also allows you to add new stock to your rental product offering in a way that makes financial sense.
Preemptive Maintenance is Key
The right software will also record and monitor how frequently each item of stock has been rented. Wear and tear is an unavoidable part of the rental industry, but breakdowns or malfunctions aren’t unavoidable if your software prompts regular quality checks on stock that has had regular or heavy use.
Put simply: the most popular items can get a little beat up and it is always much cheaper to maintain equipment before it breaks down than to attempt to fix it once it does break. It’s also worth considering that any equipment breakdowns will likely incur a bad online review from your customers, thus hurting your brand.
This is where rental software comes in. Similar to how software can highlight when an item has earned out of its initial investment and is ready for resale, it can also highlight when certain items are due for maintenance, taking worry and guesswork out of the equation.
Losing money to repairs is one of the hidden costs of running a rental business as it’s impossible to predict exactly when an item will break; allowing your software to monitor this side of the business for you can save a lot of worry and a lot of money.
Paying for Your Time and Your Employees’ Time
Beyond stock, the biggest financial investment you put into your rental business is time and the wages/salaries that go with it. Too many business owners undervalue their own time but, in our experience, the business owner’s expertise and experience is the single most valuable asset they have. So, it stands to reason that any rental software that saves the business owner time is also generating additional value by allowing the business owner to pursue other necessary endeavors, such as marketing, product research, and other important business development functions.
The impact that saving time and energy has on your business’s ROI is very hard to accurately measure. The business owner or managing director simply does too many different things to properly calculate their value. But the assumed ROI is obviously significant.
Employee time and contribution, however, is much easier to calculate as there are more defined roles with concrete wage/salary numbers to weigh up.
Consider the following: the day-to-day running of your rental business requires three members of staff working in-store. There is a range of daily tasks that take up 100% of your staff members’ time. If rental software speeds up these daily tasks significantly, then you can either employ fewer staff members, or get even more value out of your employees.
Any good rental software will help your staff process orders quicker, carry out stock checks quicker, answer potential customers’ queries quicker, and much more. More efficient systems and processes will give your staff more time to go the extra mile for customers, helping your brand gain more business by maintaining a friendly, personal service.
Rental Software and Staff Retention
A slightly trickier return to measure is in the retention of good staff members. Anyone who has carried out even one round of job vacancy advertisements, interviews, contract write-ups, etc, knows how expensive recruiting good employees can be. It costs money and it costs a lot of time.
People get into the tours and activities industry because they love it, but few people love getting bogged down in paperwork and administrative tasks. This is where Rentrax rental software comes in, as it makes the most fiddly or boring tasks easier, allowing your staff members to spend more time on the fun part of working with customers and with your stock. Having software that improves your staff members’ quality of life will allow you to keep the best people in your company for longer.
Software Adding Revenue to Your Rental Business
Everything else in this guide has addressed the savings you can enjoy with rental software, but we’d like to discuss is the revenue rental software can actually add to your business. This additional revenue can come from increased sales and upselling.
Rentrax’s rental software isn’t just an inventory management system, it’s also an online booking system. This means that your business can rent out its equipment or sell tours at any time — even when all of your staff have gone home for the day. Just as a good website pays for itself by making it easy (and appealing) for potential customers to buy from you, rental software that doubles up as booking software can help you find many more customers beyond your standard opening times.
The same applies to upselling. A good website and booking system should make it easy for users to find and add additional or upgraded items to their order. Upselling is obviously more relevant to some rental niches than others. For example, you can upsell someone going on a bike tour to an e-bike tour, increasing the value of the rented property and the overall profit margin.
You can get a separate booking system if you like, but it’s easier and cheaper to have just one specialist piece of software. And this leads us to our final point…
Does Your Rental Software Minimize the Cost of Using Other Software?
There is one last thing to look out for when calculating your rental software’s ROI. Consider the other kinds of software you need to buy or subscribe to. Does your business also sell items alongside rentals or bookings? If so, you’ll need some kind of sales system to manage this. Not only will this system cost money, it will also have limited integration with your rental system, which adds lots of additional time spent organizing and integrating the rental side of your business with the sales side of your business.
The same goes for booking software, as all of this costs money. This is why Rentrax developed our rental software to also offer sales and booking functions, as well as offering some marketing functionality, too. All of the different software costs money and they often don’t work well together.
We began as a bike rental company struggling to find the right software for us. This is exactly why we made our own: to meet all of our needs as a rental company. We then realized how appealing our software would be to other rental companies struggling with the same problems. To help other business owners like ourselves, we‘ve spent a lot of time and resources creating the most specialized software possible for the rental industry.
Quick Summary of How to Calculate the ROI of Rental Software
Contrast the cost of the rental software against the following gains:
- Save employees’ time (the cost of additional wages) and foster staff retention
- Save money on repairs by practicing preventative maintenance
- Sell inventory at the right time, when it has earned past its initial investment but before it is too old and damaged to be worth much
- Save money on separate booking software and sales software by choosing an integrated software like Rentrax
- Generate additional money from online sales and upselling features
There’s much more to talk about on this topic, but we hope we’ve answered a few of your questions. You can read more about our rental software’s different features, but we also invite you to get in touch if you’d like to discuss the topic further with one of our expert rental software advisors.