One more thing: Rental inventory opens up a new avenue for sales. For example, someone may want to buy a new Fender Stratocaster but only have a limited amount of cash on hand. At L&M, this customer can buy the guitar on credit or the salesperson can direct the consumer to a “demo” Strat from the rental inventory that can be purchased at a discount.
When I asked Jeff about how they price rentals, he said that it depends on a number of factors. It usually starts with an 8-month payback to cover costs based on the monthly rate. This will be adjusted for anticipated wear and tear as well as obsolescence.
As for losses due to theft, L&M equates this to about the same cost as a credit card fee. The company simply factors this into the big picture. If you have the patience, rentals can be very profitable as most products will have a multi-year lifespan which, once the initial investment is paid for, when rented will generate pure profit.
In The Details
With concert touring rentals, the game changes considerably. Because artists now derive the majority of their income from touring (as opposed to recording sales), accountants play a major role in deciding which rental company gets hired.
Once a rider is created, it goes out to tender. A major U.S. rental firm who requested anonymity told me that his company quotes at roughly 45 percent above its cost. After overhead, the firm will see a net profit between 5 and 8 percent – so it behooves the company to work hard at getting costs down and keeping them under control.
The most attractive tours are the ones that are out for long periods. Think of the setup time in a workshop – set up once, then bang off 1,000 widgets. The same applies with touring; it takes a lot of work to iron out the details to get the show to run smoothly and then you enjoy (mostly) clear sailing as you cross the ocean or continent.
If at all possible, this rental company tries to stay away from difficult rentals such as one-night stands, festivals, and inconsistent artists that are known to constantly change their schedules. The preference is to rent full production with PA and crew as opposed to a “dry rental” (equipment only). The reason is simple: if a problem develops in some far-reaching city, the company knows its people and their capabilities. So, the company can address problems in a more efficient manner.
I also spoke to Robert Nevalainen at Gearforce in Canada. He splits rentals at 50 percent dry hire and 50 percent full production. He still believes strongly in the relationship side of the business, as evidenced with his long-standing relationship with Bryan Adams and Diana Krall. For artists doing A-clubs or soft-seat theaters, Robert suggests that it’s often more cost effective to simply rent a console, mic and monitor package and use the house PA.
He adds that his crew is the magic that sets his company apart from the competition. A well-trained crew delivers a well-oiled experience for the artist. And because they’re very tech savvy, they’re comfortable with bringing the latest technology out on the road.
As for profitability, companies will have to come to terms with smaller and more efficient systems as transportation costs will inevitably play a greater role in cost management. Running a business is, at the end of the day, about making a profit.
When I asked Jeff Long about profitability, he had no qualms with saying: “The rental department is the most profitable part of our business.”