October 12, 2020

The 3 most important KPIs to track in a rental business

Keeping track of all important KPIs in a rental business can be difficult. In this month's highlight story, we elaborate on the most important metrics rental business owners should keep track of.

Why is it so difficult but yet crucial to track KPIs in a rental business?

From conventional E-commerce, we know how easy it is to keep track of our revenue, our products, and our stock level. Our success is measured on these very important but simply to define numbers. When a product is sold, it earns us a certain revenue and (hopefully) does not come back. Easy to track. And it is those measures that give us insights into how well our business is performing and which products are the ones with the highest profit margins and sales revenue. 

But in a rental business, processes are more complex. There are multiple revenue streams associated with one single product. As if that’s not enough of a hassle, there are repair or refurbishing costs involved in the ROI calculation. So how to keep track of how often that one specific bike of the many bikes under that SKU has been rented out already? 

The reason for this complexity is that most data is decentralized in different tools, although this is not the worst case. Most of the time, the data is spread across a whole library of spreadsheets. That makes important analysis tasks very difficult to perform. Not only because it requires certain stamina to deal with this for hours, but also because the way data is collected and linked can be very confusing sometimes. 

Without an overview of key metrics, but a setup like this, scaling can rather take the form of collateral damage rather than explosive growth. But what are the most important KPIs rental business owners should track? 

 

1. Return on Invest (ROI) per unique product 

Measuring the success of a rental product is not as simple as comparing purchasing and selling prices and calculating a margin. In a rental business, multiple revenue streams and cost sources come together on one unique product. 

That means products have to be carefully monitored on a unique ID basis. This includes the revenue made with that particular product and its repair and refurbishment costs over time.

It is very unpleasant, to rent out one product for the 5th time, while another one rests in stock with a diminishing value over time. Therefore, understanding the life cycle of a product and its total number of potential rental cycles is critical. That analytics can only be done by exactly tracking all product movement on a serial number basis. 

 

2. Cohort analysis 

The good thing about rental is the long relationship you have with your customers - which is at least over the time of the rental duration.

But do you know how long your customers stay with you on average? Knowing this can give you the following rental business superpowers: 

Making prognoses on future rental revenues 

If you know how long your customers keep a product on average, you can predict future stock and rental revenues. 

Determining your customer lifetime value 

The customer lifetime value is the revenue you generate with an individual customer over time. This KPI specifies the amount you can invest in the acquisition of a customer to build a profitable business in the long run. 

Analyzing changes in your rental process 

Following the relationship with every single customer of yours in cohort analysis, you can gain valuable insights on changes you made to e.g. the product, process, or customer service. If the customers that started their subscription in January or February this year all return their products after around 6 months, this can be an indicator for several reasons. By paying attention to these friction points during the rental period you gain insights into the customer journey. With this information, you can derive assumptions on what customers might need the product for. By doing so, you open yourself a door toward flexibility in your offer. More concrete: You can adjust rental periods and offer diverse solutions like short-term rentals to cover specific market demands. 

 

3. Stock to rental ratio 

From basic business class, we know that stock is a non-working capital that needs to be avoided. Especially in a rental business, the goal should be to keep the stock to rental ratio as low as possible and use the available stock to maximum efficiency. Knowing how many products of one SKU are out there for rental and how many are still in stock or in refurbishing, builds the basis for an efficient and effective stock management. This can also be used for availability planning.

 

Some of these KPIs might sound impossible to track at first sight as rental businesses follow a very complex logic that traditional E-commerce shops do not cover. But it doesn’t have to be. If you wonder how that’s possible, you can reach out to us for a free consultation call.


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