Online rental businesses are on the rise. The recent trend of renting instead of buying is changing the face of recommerce industry. In this era of economic recession, people prefer renting as it is a more cost-effective and practical way to use resources. Apparel and transportation are among the popular online rental businesses.
However, there are niche-based online rental marketplaces for home appliances, travel gears, dresses, equipment and others as well.
Showcasing your business online can put it on the route to success. Online rental business models have many things to consider. This kind of business model may seem simple and easy to run on the surface but it can be really challenging if you are not careful enough.
Things to consider for your online rental business model
1. Are your logistics easy?
There can be a number of ways to make mistakes while running a rental business. Knowing the right quantity of items requires a good analysis. Your products or items may need a certain kind of warehousing and storage.
You need to think about things like what if the goods might get damaged in transit, or they are too heavy or large and require additional shipping charges. This discourages your customers – both existing and potential.
Moreover, do not forget to keep in mind the type of processing or cleaning required when your rented item is returned. It will require the usual servicing to be rented out again.
In a scenario where you have just started your business and haven’t had the chance to know your customers’ behavior like how long they are going to rent out an item. In such a case you will need to know how to best keep enough stock of goods. Make sure you avoid idle inventory as it consumes both money and space that you can utilize to grow your business.
Do not overspend in the beginning! Buy minimum inventory on the basis of your market research. It is easier and cheaper to buy more inventory later compared to getting rid of excess unused inventory.
Once you start off with your business, you can buy more of the items that are most lucrative and popular. That’s one part of an efficient rental business model.
2. Are your risks balanced?
When you rent out your product, there are few risks you need to know other than knowing your product getting stolen. There will be times when your product might get damaged on the trip back or they might never return.
A company like Netflix focusing on the older DVD rental business can actually replace any one of its items for a fairly small amount. And what about designer dresses? Well, they don’t come cheap. You should definitely consider your replacement costs.
In the future, the sale value of your product is going to decline, and so will be your investment. You need to balance out such risks and be extremely confident in the product as well as its market.
Check out the general trends in the economy because people are more open to product rentals when the economy declines. Therefore, look for better business and usage models. Yes, like an online rental business model.
And then, make sure you and your customers remain on the same page when it comes to damaged or lost product. Clearly communicate the answers to questions like what are the penalties for loss, theft, late returns, or damage? How should your rental product be treated? What is acceptable wear and tear?
A good way of doing this is by getting your terms signed by the customer online or in-store. This will help you avoid any confusion or conflict later.
3. The capital required and how it serves you?
Over time, you may be able to satisfy people by buying goods when they need them. It’s like the supply and demand concept. However, in case of rentals you need to have a considerable amount of products at hand within a short amount of time, especially when your business becomes popular.
The more expensive your products are, the more money you require up front. Choose your products based on YOUR economics.
Think about a situation where a product costs you $100 to buy, $10 to administer and $10 to ship which makes a total of $120. Your customer lands on your rental website or app because he wants to save out-of-pocket money.
So suppose you rent the product for $20 per month along with a two-month deposit and at the end of the year the product belongs to the customer. This equals $280. If this amount is competitive to buying the product, then you are on the right track. Even if you break even at 6 months, you have your cost price in your pocket.
4. Do you offer a complicated or a hassle-free rental experience?
Do not overwhelm your customers with never-ending paperwork and procedures. That’s not an effective business model for a rental company. You need to focus on making the process hassle-free for them.
Allow them to communicate with you with a 24-hour chat service. If your customers want to book a product online, they can do so even in the middle of the night. It is a no more a ‘We are only open from Monday to Friday’ thing.
Remember the best rental business model requires you to operate online even on Sundays. Though, it is not necessary. It varies from business to business.
Remember people can rent the same items from other rental websites. If you want to stand out, simplify the product listing process and keep your item listing as minimal as possible. This allows customers to find the required product easily on your website.
Moreover, a rental business should not only let customers choose from the available products but allow them to request an item that is not listed on the website.
Finally, do not wring out every last cent out of your customers. Don’t you think it is better to have returning customers? Put offers and send them special discount vouchers.
5. What are the replacement costs?
Before starting your online rental business, think about possible worst-case scenarios. There are going to be times when customers won’t return your products back or will return them in damaged condition. While these are rare occurrences, you still need to prepare for them.
If you’re dealing with easily replaceable items that are readily available, then replacements costs aren’t something you need to worry about. However, if you’re renting out lucrative or high-ticket items, such as designer costumes or professional DSLRs, then the replacement costs are going to be huge.
In such cases, you need to make sure that you have enough capital at hand to deal with such problems, and that you add a clause for damage or lost item fee in the rental agreement. This way, you won’t have to pay entirely for the replacement of the item and the customer might take better care of the rental as well.
6. Can your business model operate smoothly during a pandemic?
With the Corona Virus forcing us to live in the “new normal”, several companies have found that they cannot continue their day-to-day operations anymore. Their business just isn’t equipped to run online even if they have an online store available. It takes more than a webstore to prepare your business to run smoothly even in a pandemic situation.
Here’s everything that you need to know so you can keep operating from home in case of a lockdown. Take your rental agreement online so customers can electronically sign it without having to meet in person and risk exposure. Try moving towards complete digitization so there isn’t the need to handle physical reports anymore and pass them from one employee to another. This further limits any need to go to the office, since everything you need is on the cloud.
If you want employees to go through training, don’t meet in-person to conduct one. Instead, you can employ AR and VR to conduct trainings while also being socially responsible. Another workaround for these trainings is online courses. You can find a suitable course online and ask all employees to complete it.
Learn about EZRentOut – the perfect fit for your business model
Without a doubt, a retail and rental business comes with challenges and unique needs. Every rental business requires its own kind of business model. A rental booking software that addresses those requirements is not just useful – it’s essential for your business model.
EZRentOut a cloud based rental system that offers businesses seamless rental management. It also comes with a host of other features like asset tracking, maintenance management, a customized webstore, and much more. Try us out today!