Charging a Rental Minimum | Lane' J. Richards

Charging a Rental Minimum

September 3, 2019

I’ve been asked a couple of times from vintage and specialty rental companies if they should be charging a rental minimum so I thought I’d pop into the blog-o-sphere and answer the question.

When you’re first getting started you likely will take on any and all clients that inquire about your rentals. You’re also likely still ironing out what your client experience process looks like for both rental inquiries and after someone becomes a client. And, I’m willing to bet you may not even have workflows documented, let alone a client relationship manager (CRM). What I’m trying to say, is that you may not have worked with enough clients to fully understand their life-cycle and how much time you spend with each client.

When you don’t have data, it’s easy to not know if you should be charging a rental minimum or not. So I’m going to share with you two key things you need to know before making your decision.

1. How Much Time Do You Spend With Each Client?

I highly recommend using a program such as Toggl or a Google Doc spreadsheet (see a copy of mine below) and track every minute of your time, especially as it deals with your client interactions. This will be especially important when you decide to hire your first employee or outsource a component of your work. If that feels like too much time tracking, then start by focusing on just the amount of time you spend with your clients.

Keep track from the minute they inquire with you all the way through the very last action you take, which may be a few weeks to a year after their wedding (or event) date, depending on what your client experience looks like. In my previous rental company, the time didn’t end until nearly a year later as we mailed a 1-year anniversary card to each client.

Obviously, your number is going to vary from client to client, but it usually always evens out in the end. And you don’t have to wait an entire year to do the math. It’s going to take you the same amount to send a pre-loaded email (such as an end of wedding survey) or mail an anniversary card. It may still take you one full wedding season (if not a little longer), but it provides you with valuable data.

If you don’t know what the average time is per client, your guess is likely going to come in a lot lower than what you may realize. Which is why this step is important. We underestimate ourselves frequently and only when we sit down to do the math are we surprised at our findings!

2. Calculate Your Full-Burden Labor Rate

The next step in determining whether or not you should be charging a rental minimum is to calculate your employee’s full-burden labor rate who is responsible for all of your client interactions.

A full-burden labor rate is a total of all your indirect labor costs beyond their gross compensation. This includes all company paid taxes, insurance, workers comp, retirement contributions, paid time off, uniforms, training, and any sales bonuses.

Determine Your Employee’s Hourly Wage

If you don’t have an employee and are doing the work yourself, figure out how much you would pay someone in that position (usually a sales position). The hourly rate can vary significantly depending on what city and state you’re located in, but on average, a sales associate makes $15 – $22 per hour. In the rest of this example, we’ll assume the hourly wage of the sales position is $20/hour.

Determine Your Employee’s Hours Worked

This position is full-time which is 2,080 hours per year (40-hours/week X 52 weeks). But their total hours worked is less as you need to take into consideration any sick days, vacation or holidays, all of which should be deducted. We’ll say this employee takes 10 days off a year (paid days) so deduct 80 hours (10 days x 8 hours/day) from the 2,080 to equal 2,000 hours worked per year.

Calculate the Yearly Payroll Labor Cost

Next, you’ll want to calculate the indirect labor costs above and beyond their compensation. We’ll say the combined labor burden rate equals $10,000 per year (insurance, bonuses, workers comp, etc.) and the employee’s yearly compensation is $41,600 ($20/hour x 2,080 hours a year). Your full burden labor rate would be $51,600 per year ($41,600 per year in wages + $10,000).

Calculate the Full-Burden Rate

To get the hourly full-burden labor rate, divide your result by the number of actual hours of work per year to calculate the fully-burdened labor cost for the employee. Continuing with the example, divide $51,600 by 2,000 to get a fully-burdened labor cost of $25.80 per hour. This means the total cost to employ your worker is $25.80 per hour of actual work.

The Final Calculation

When I went through this activity, I determined it was taking us, on average, 5 hours per client. So if our employee’s full-burden rate is $25.80 you’ll multiply that by the hours per client to determine what your rental minimum should be. So in this case, 5 hours/client x $25.80 full-burden rate = $129.

Our calculation told us that if we don’t have a rental minimum of at least $150 (I rounded up), we’d lose money. Basically, anything below that and we’re paying our clients to work with us. Yikes!

Peak and Off-Peak Rental Minimums

Another way to look at your calculation is to consider the time of year. You don’t have the time or people-power to handle the onsey-twosey orders in the middle of your busy season. If you do, your client experience is likely going to take a hit which could eventually mean a negative review.

You may opt for a higher rental minimum during your peak season which could be upwards of 3-5 times your final calculation and either no minimum during the slower months or a much lower minimum. Again, knowing your numbers and how your minimums are affecting your cash flow and sales is going to be important (so make sure you’re always tracking!).

Average Sales Per Client

Another point to consider is what your yearly sales goals are. If you set a sales goal for $300,000, and you have a rental minimum of $200, that’s potentially 1,500 clients a year you’ll need to work with. That equals roughly 125 clients a month or 30+ clients a week. I don’t know about you, but that’s way too many clients to handle without compromising the quality of service.

You might set your average sale per client at $1,000 so your rental minimum will need to be more closely aligned with this value so you’re working with fewer clients (less work) at a higher average per client.

Parting Words

I know this is a lot of information to dissect on determining whether or not you should be charging a rental minimum, but it will be worth it in the end! You need to operate a profitable wedding rental business, not an expensive hobby. Take the time to go through the motions with your calculations and you’ll be well on your way to not only meeting your sales goals but doing less and making more.

Need Help Determining Your Rental Minimum?

I work with specialty and vintage rental businesses large and small, helping you build and scale your business and be more productive. Owning an award-winning rental business for over 7 years, I know what works and what doesn’t.

If you need help creating your own rental policies, schedule a coaching call with me, or contact me via email or call 619.577.3117 to inquire about customized services for you.

Grab Your Free Time Log

If you decide against using a time tracking program such as Toggl, you can easily use a Google Spreadsheet instead. I’ve made one available to you so you can not only track how much time you spend with each client but how much time you’re spending on your business overall.

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