The single most important thing to understand about asset management and pricing in the production industry is that there are a few fundamentally different categories of equipment (pronounced Asset). For simplicity’s sake, we’ll look at assets as recoverable or non-recoverable.

Recoverable assets are equipment like microphones, speakers, amps, etc. These are relatively inexpensive pieces of equipment for which you can expect a fairly reasonable ROI (return on investment) over the expected life of the equipment. Non-recoverable assets are items for which there is either no direct ROI, or which the ROI percentage is too low to ever expect to pay for the equipment.

It’s important to understand the difference, as the way the different types of assets are handled has everything to do with the day-to-day operation of a production company.

It’s reasonable to expect that a $100.00 microphone or a $2,000.00 speaker will pay for itself within its useful lifetime. These are finite items with a relatively short life expectancy. Obviously, there are huge variations within this category, based on a number of factors. But, it’s quite reasonable to expect an ROI of 5-10% for a daily rental of this type of equipment.

The equations get a bit more difficult when you begin to consider assets such as large frame consoles, cables, and road cases. These are the types of assets I consider non-recoverable. However, they are only non-recoverable in a direct sense. There are two distinct categories of non-recoverable assets, temporary and permanent. Understanding the nature of these types of investments is critical. The method, timing, and quality of these assets, as they come and go from inventory, is critical to any recovery or potential profit derived from these assets.

Permanent non-recoverable assets are infrastructure pieces such as flight case, cables, power distribution, etc. These are items for which there is NO reasonable way to expect any significant ROI. Clients aren’t willing to pay for them, particularly not 5-10%, but they are critical pieces of the system. That being said, I submit that these assets be considered as supplemental investments into recoverable assets wherever applicable (console + console case = packaged asset). Where it’s not applicable, the only way to increase ROI is to extend the useful life expectancy of the equipment. This can be accomplished by implementing a good maintenance program, but more importantly by purchasing BETTER equipment to start with. For example, if a slightly more expensive cable trunk can be expected to last twice as long as a lesser one, it’s clear that the more expensive trunk is a more viable long-term investment. Key information here is that permanent non-recoverable assets should be of the highest quality possible to defer the initial investment over a longer life expectancy.

Temporary non-recoverable assets are typically big-ticket items such as large frame consoles, expensive DSP units, and the like. These are assets with a reasonably long life expectancy, large initial investment, and a relatively short shelf life at the cutting edge. For this type of asset, it’s rare that there will be enough ROI to pay the equipment off before it slips out of vogue or is surpassed by more current technology. More than with any other type of asset, when and how you acquire a temporary asset is every bit as important as what particular product you acquire. Retained value is paramount.

Equally, when and how you sell off a temporary asset clearly defines what, if any, overall ROI there will be. Understanding the asset, retained value, your market, and your position in that market determine the wisest course of temporary asset management.

It’s obvious that purchasing a $60,000.00 FOH console to drive a $20,000.00 sound system wouldn’t be wise asset management. It’s equally obvious that purchasing a $20,000.00 FOH console to drive a $200,000.00 sound system wouldn’t be a great decision. In actuality, console sets routinely constitute 30-50% of total system price. Determining the correct product is a multi-faceted decision. Feature set, reliability, rider acceptability, quality, “popularity”, and retained value ALL play a significant role. It’s obviously important to buy a console that meets your current needs, as well as those of your foreseeable future. It’s impractical to acquire a console that far exceeds your market position. While it is important to “dress for the job you want”, it’s financial suicide to buy significantly beyond what your market (or cash flow) will support. Having, and understanding, a growth strategy will go a long way to determining the right product for a given situation.