The Anatomy of the Perfect Rental Business

Karri: Hello and welcome to the Recommerce Podcast, the podcast where we talk all things Recommerce and Circular Businesses. Today we are talking about this optimized or dreamlike rental business and how you can achieve it and we have identified four different segments that we're gonna go through and those are availability, dynamic pricing, automations and utilization. And like always I'm joined by Tuomo Laine, the CEO and co-founder of Twice Commerce. Welcome.

Tuomo: Thank you, Karri.

Karri: All right, let's get into it and let's start with availability.

Tuomo: Yeah, so availability is kind of where everything I think starts from. So if you don't have your items available to be booked then essentially you're closed for business. So customers cannot buy from you. And in the case of bookings one key thing on availability is the question that can your customers see what's available and create bookings 24/7 or is your booking system such that they have to contact you via an email or phone or even walk into the store meaning that your availability for purchase is at the end of the day your opening hours or the response rate that you have on your emails. So that's kind of where everything starts. So talking about availability let's start with the kind of availability of your offering and whether it's 24/7 or whether it's somehow limited by your opening hours.

Karri: Okay, so basically 24/7 availability means that the items have to be online or bookable like outside of the work hours or the opening hours of the actual store and this can be your online store or any other channel.

Tuomo: Yeah, so in practice it means that your catalog so the things that your customers can book from you is available. Usually you have your own online store where those items are or listings are available and at the same time you could have this available on a booking platform or aggregation platform where someone could book or rent those items. Examples of this is for example Bokkun or similar. So any channel which is up and running 24/7 and accessible by end users 24/7.

Karri: Okay and most likely the first step is just to get your like listings online so they are bookable outside of your opening hours and then you can start to actually increase the availability by being listed in more and more channels. So I think Google, AI and these marketplaces and of course your own online store are just few examples of these places where you might want to be available.

Tuomo: Exactly and I think usually the challenge for merchants or rental stores come from the fact that they might be able to set up their catalog to be accessible online but they want to protect their customer experience by making sure that they don't oversell or they don't get double bookings and that's kind of often the challenge why someone hasn't gone to this 24/7 availability because the actual process of taking in a booking has an element where in some cases even a kind of a human has to go through a calendar or an Excel or something to see whether they can actually serve that order or not. Whereas services like twice commerce makes this automated meaning that all of the availability of your items are also in real time managed and kind of when the end customer is browsing your catalog online they are kind of seeing the real-time availability of your catalog so there's no risk of getting double bookings. So this is kind of an important element on kind of as a next step that first get online and then when you get online you probably want to use solutions that make sure that your catalog when it is online it is connected to your inventory and thus kind of the actual availability of your stock items.

Karri: Absolutely and I think twice is a really good example of this that it comes out with this built-in white label online store it's using the same inventory same availabilities but then you are able to create listings on third-party marketplaces and then actually there's API available which can actually check like hey these dates or this time that the customer is looking for some type of rental or maybe reservation experience on some platform it can actually go and check the exact same items are they available there and so make sure that they no double bookings but making sure that you get maximum amount of orders from different sales channels and of course the same logic happens if somebody just walks into your store and you have the admin open you can check the same availability same inventory.

Tuomo: Exactly so this is kind of the key things that we started from the fact that let's get your catalog online for people to be able to browse all of your offering and to make orders without you having to be there to facilitate that order creation and the requirements for that essentially is a digitalized catalog which pricing is a big part of that we're gonna talk about in a bit and then the other fact is this real-time availability management that your online catalog and the listings there are connected to your real inventory and the real availability of your inventory that takes into account not only other orders but internal maintenance and so on.

Karri: Okay and that's actually really good segue to the second of the levers or the segments that we want to focus on today and that's pricing and with pricing when you have your products available the next thing is that you want to make sure that you are charging the right price based on let's say season or weekdays or holidays or anything like that.

Tuomo: Exactly and at the same time you probably want to make sure that your pricing is optimizing maximum value what I mean by that is that you have logic in place where if someone books for example seven days compared to one day if your one day price is 100 bucks your seven days probably shouldn't be 700 bucks you probably want to give a somewhat of an automated discount on additional days or weeks to encourage customers to book a longer period because then as a rule of thumb every time your stock is out with the customers it's out there earning and every time it's in in your stock it's it's not earning. You kind of want to encourage customers to maybe book one day extra just in case if and then and you can facilitate that with pricing and there are essentially I think two ways on how you can start to price your bookings and they these can coexist they don't it doesn't have to be either or at least in twice 2.0 so the simpler to understand is fixed package pricing meaning that you create a duration like three days and then you give that a price. Then the end customer when browsing through your offering I can see that as a price option and then can see whether that price option is available to be selected on any given start date. These packages could also be a bit more conceptual meaning that the three days could have been defined as a package called Weekender so it's a duration of three days but it's only purchasable on Fridays so thus it's kind of practically a weekend booking for which you might want to give a discount or which might be more pricey depending on your on your business. The other way on how you might go about things is then rate based pricing. Rate based pricing is something where you define a rate for a duration so you kind of say that a day costs $50 and then you might say any additional day costs $40 so this way you allow your customers instead of selecting a pre-made package and and selecting when are they looking to kind of start that package you allow your customers to say when do I want to start my booking and when do I want to end my booking and then your discount rate based pricing automatically calculates the price for that duration and in a simple case you have maybe one duration like a day and then you've given it a rate and then inside you can also rate different weekdays higher or lower you can go quite complex there if you want but on a simple case you usually have kind of a base rate and then the rate for additional days and where I think things gets interesting is then that you can create different rates simultaneously so you might say that a week costs $200 and the additional week costs $150 and at the same time you've said that a day costs $50 and additional day $40 so this allows then customers have an experience where they see that if they book a week it's that $200 if they book week and a one day so one week and an additional day that ends up being $240 if they were to take two weeks that would have been $350 so it kind of always calculates what base to use first and then price to fit the biggest duration that it can and uses its additional price in the when calculating the price the big point here is that this allows you to have this kind of sensible discounts for longer period of bookings and encourage your customers to kind of optimize for length which usually means that your stock is out there working and earning a cash for you

Karri: Absolutely and there's a lot of different options how you can work inside weekdays and durations like how long the actual rental period is and then there is also the seasonality so let's say for example a ski resort like during ski holidays Christmas holidays there is probably just more demand and you maybe want to have like a completely separate pricing for that period where everything is a little bit more more expensive or or vice versa during low season you might want to have like all the prices a little bit lower

Tuomo: Yeah exactly and there's seasonal like let's say like date time period of a year level approach to it but you also might have pricing for loyal customers or pricing for the locals so you might want to cater the local community with that with a special price point because you know that they are at the end of the day that customer base that keeps your business alive when it's low season and and so on so there are very different like aspects to the pricing time is one this kind of customer status what might be one and there's you can attach quite many different rules to your price tables and when do they apply and inside those price tables you you might want to use rules like rate-based and then define some pre-built packages also and all of this can still live under the umbrella at least in twice where you can say that for this listing I still have a minimum and maximum length that a customer can book so your pricing logic doesn't have to kind of be limited by some other limitations that you have like the minimum duration you can set that separately for every listing and just create a pricing rule that generally applies to any listing that you you applied to and all of the lengths and then you can separately control the availability of that listing

Karri: Okay and to my understanding twice especially the new version is actually built to support all of these different use cases so there is the rate-based pricing fixed packages that you can limit to be only available on certain weekdays and then you have possibility to create completely separate prices for some seasons

Tuomo: Yep 100% yeah and specifically and precisely said that twice 2.0 is built for that some of these features that we listed weren't available in the previous version of twice 1.0 and thus these are big improvements on the release that we've introducing

Karri: Sounds good and maybe one more thing in related to pricing is also the possibility to have different prices for different variants so if you have a let's say listing that is enabling you to book maybe different sizes or different tiers so there might be like pro version or beginner version of this and these variants can also have a different pricing

Tuomo: Yeah 100% I think mentioning variants I think it's always sensible to say that when does something become a variant and when is it just a separate listing that's actually in many cases it's a preference by the merchant and it's a preference like how do you believe that your customers end up finding the end solution the best way so sizes often I think the standard tends to be that as it doesn't necessarily have a price implication to it you might use that as a variant instead of creating separate listings for all of the size of bikes you have things like like an additional sales or like a pro model versus standard model those start to be maybe things that it can be either or and and both can be actually true at the same time so I might have separate listings or then inside a listing I might want to make it a selection for the user and then in that case you probably want to have that price increase for the pro model compared to the standard model so in twice 2.0 you can have variant specific pricing but it's good to kind of always remember that it is at the end of the day when we talk about variants we're talking about what kind of a purchase experience do you want to provide someone so how do they kind of drill down to your catalogue is it sensible that they're looking at bar kind of these different variants on a listing level and comparing listing to listing or is it more sensible that they're looking at one listing and then inside they're making decisions and and seeing the effects of those decisions

Karri: Absolutely and that's that's maybe something that comes to my mind is like the productization or the flow how you are actually sending the customer to your let's say twice online store so if you have some product page that you are actually driving traffic you might want to show a lot of a lot of options there but then on the other hand you might direct them to your let's say home page of your online store where they can see the whole inventory or some collection category page but if it's if you want to send like some special new product that is that is there and maybe you want to already like showcase all the different variants on that so that's probably something that the merchant can kind of test out and as you mentioned in twice both can actually be true so the really nice thing about the twice 2.0 is the complete separation of listings and inventory and you can have multiple listings pointing to the same inventory articles and kind of test out if you want to have one listing with a lot of different variants or separate listings and and still utilize the same inventory

Tuomo: Exactly and and and it might be obvious but not all of your listings that you've created you can define that they're not visible in the let's say standard catalog that someone gets access when they browse your online store and and looks through it so some listings can be only accessible with a direct link for example and not be visible in your in your online store and this is super helpful if you want to do those kind of campaign things or at least thing that is promoted as part of an email promotion by I don't know a partner or a hotel that you partnered with where you want to provide these kind of variants specific selections and maybe keep some things more simple and maybe a little bit separated from the overall user experience that you have in your online store so this kind of ability to create listings for single purposes and like you said not listings being separated from the inventory in the sense that they can all link to the same stock items via rules rather than having this kind of own inventory for every listing that's really at the key when you're you want to optimize your rental business and and kind of do these experiments and partnerships where you really really really want to make sure that you can very flexibly productize and create campaign listings and so on without it like making your overall catalog super messy

Karri: It sounds like there is a lot of things that the merchant can optimize and test out and kind of figure out what actually works best for them and and having a operating system rather than vertical software probably enables you a lot more flexibility and possibilities of testing and those are some awesome new features in a twice 2.0 but next let's focus more on the operations and running your rental business as efficient as possible and kind of make sure that kind of kind of related to the previous as well so for example good automations kind of make sure that the availability is always there and and there is no time wasted so operations and automations

Tuomo: Yeah maybe a way of thinking about it from again like a business use case business perspective we've mentioned a few times now in this podcast that every time your inventory is not out with the customer so it's kind of sitting idly in your in your inventory it's not earning so you really want to minimize that idle time and there's different kinds of idle time there's of course idle time like the fact that there's no bookings coming in but there's also idle time like something is waiting for maintenance and it's kind of removed from the availability in the way that it's been reserved internally for maintenance and these time you kind of want to make sure that these events that take an item out of your inventory are as short as possible of course and that demands x amount of automation because if the whole process is based on pure human perception and kind of being aware that hey did we have a few bikes there that we could we should work on and so on it can become quite a messy operation so you probably want to automate a lot of things so if we start from a few basic examples you might want to automate a first of all the idea that after every 50 rentals the item needs to go to inspection and possibly maintenance for example so that might be super hard for someone to just remember on the spot to do so it's a process that you probably want to automate in twice these are the things that our workflows enable you to do so you can create these rules that point to items that after x amount of something create an internal reservation for example or create a task in the task management for someone to inspect and then possibly market into maintenance the other aspect that is then in place that well when something is for example marked into maintenance you really want your staff to work through that and not forget them into the maintenance mode so it's super important that you have visibility into what's in maintenance that's something that it's relatively easy to see in twice in the status of the item but also again task lists that can be targeted to teams or individuals are very helpful tool here where you can see that easily that if there's any tasks undone so automating not only changes in the items but also automating the creation of things like tasks can streamline your operation a lot and make things more understandable for everyone in your team

Karri: Absolutely and we're maybe all already kind of going little bit on onto the next segment which is kind of data and how you can use that to utilize but I think this is something that works really well with when you actually get those insights get those get that data so for example with the maintenance like after you've been running your let's say bike rental shop for a while you start to see that hey on average things start to break down after X amount of rentals so this is something that you want to probably automate that hey I know that it usually takes like 25 rentals and then some parts are becoming too loose or something like that and you want to kind of create a task like after 20 rentals let's already do the maintenance to make sure that there is not gonna be these long maintenance times or similar maybe not the best example I think with bikes it's really important to always check that things are not not loose but I think you get the idea that when you have the data you can start to utilize that and then create the automation the rules the workflows based on that data and kind of make sure once again that the items are as available as possible

Tuomo: Yeah exactly it's a good highlight that there's this kind of planned automation that you consciously plan and automate this kind of workflow things that you know almost like configuring how you want to run your operation and those are based usually in the let's say system automation where you've accumulated data automatically and many of the things that you mentioned there like for example twice automatically tracks the usage of every item the income and expenses of every item your insights into your operational automation that you define as workflows is probably based on these system automations and if you weren't if you wouldn't be using something like twice commerce you'd maybe run it on Excel this data wouldn't necessarily automatically accumulate you might have to kind of write it in yourself so it would be hard to then do triggers based on this automated data collection so creating a workflow like hey after 1000 hours of usage let's do this because we've seen it in the data before or then it's an it's an industrial insight that you have but anyhow yeah there's two kind of automation there's the planned automation that you do and then there's the kind of system automation that the system constantly just automates and collects a lot of data and makes it visible for you to get those insights that you need in order to hone your operation

Karri: Absolutely and those built-in data points kind of allow you to do very flexible rules like you mentioned like after 1000 hours of rental do something and one thing that comes to my mind that also maybe jumps to other other segments here is actually you are able to utilize these to get more revenue and kind of keep the inventory flowing so one one idea could be that after 1000 rentals make this item available also for purchase so that's something that a lot of rental businesses are looking that at some point they see that hey now it's a good time to actually sell the old fleet it's still in a good shape it's usable I know that there are a lot of people who appreciate this high quality equipment and that also of course gives you money to maybe purchase new new inventory articles and that's once again something that you can utilize the data to actually know what is really good item that doesn't doesn't break down and generates a lot of lot of revenue for you so these type of automations and rules are really good for the daily operations but they can also help you actually do more revenue

Tuomo: Precisely it's it's I think at the end of the day the running a rental operation or actually any commerce operation it's it's a game of first of all getting some data in so getting some sales in and so on looking at that data looking at some key metrics that we've talked about previously in the podcast and then asking yourself the question that can I improve these metrics somehow and then it's it's entrepreneurs game it's an innovation game it's it's your industrial knowledge game it's understanding how can I repair something faster or how can I buy supply cheaper or how can I buy better supply and in most of the cases it's always a combination of looking into the data that and your history calls and how have how has your operation and business performed in the in the past understanding the market which entrepreneurs usually that or and managers can understand what's the local or global market here what's the trends there how do I want to kind of cater to those and then you always need that that final spice of innovation and ingenuity where you come up with innovative solutions or insights and that's where the competition is still going and risk-taking and all of these things but yeah as you said it's a game of looking at numbers and figuring out where can I improve the key metrics regarding these and then whether you can automate it with a workflow because every time someone usually if your staff kind of has to touch products there's always a little bit of a cost connected to it especially you probably want to make sure that your staff is doing like high-value jobs which they're trained to and not necessarily you know just writing information on a piece of a paper for the sake of local keeping

Karri: Absolutely and I think you highlighted a really really nice point of like that innovation part that entrepreneurship and as a expounder myself that's that's usually the place where you actually enjoy being as as an entrepreneur and when you have tools in place that are actually gathering all that data that you can kind of sit down and look into that and kind of optimize and try different things based on some nice insights like how to get the inventory to be more available and is it good idea to maybe prepare the orders like previous night for the whole day or only for the mornings and like how much there is actually walking traffic and all of all of this stuff that is super super nice as as an entrepreneur to kind of play this game and and see how how you're able to optimize and make your business better and as a one step we already kind of went into this world but the data and insights and how they can help you and we actually have some dedicated videos not part of the podcast but you can find them on our YouTube channel where we're going through a lot of these inventory insights and how you can actually ask questions and so optimize your business but maybe it's good to go over the most important metrics for a rental business to look for.

Tuomo: I'd say for the rental business there's the top ones that come to mind is is your kind of the profitability on an item level so just looking at how much you every item in your inventory has earned in terms of revenue so being out there with customers and what has been that items share of those earnings and at the same time in order to understand the profitability you need to understand the expenses per item and the expenses usually come from the purchase price and then potential repair costs that you kind of connected to it and if you want you can also try to calculate like a shelf value or or deprecation cost for the item and then log that also as a cost and then just try to follow the profitability of your items because that then helps you understand which part of your inventory are the revenue drivers then looking at things like looking into your inventory on like who are the revenue leaders and who are the expense leaders might help you out a little bit so understanding that alright these items are driving a lot of revenue so they are good top-line performers are there something in their operation that I can improve in terms of them occurring less costs which would mean that the profitability in general improves and then also looking at your cost leaders might be a good way of understanding where is maturity of your time and effort being spent and that is this something that you can solve via better purchasing or sourcing of your supply or maybe an operational improvement or just like better guidance to your customers in how to treat your products while they're out there profitability is one key thing and then I would look into just like the average length of your bookings and and other insights into your kind of offering and commercialization layer in that what does your customers actually buy they rarely actually buy a booking for a specific stock item you've always packaged it into some kind of a listing so is there something that connects all of your well-performing listings whether it's the pricing that they use whether it's the descriptions or the images that you use on that listing or the way of buying so are there variant light variant heavy in that way so all of these things are extremely good insights and finally kind of analyzing your customer base also probably makes sense looking at your top performing by customers and maybe lowest performing customers are there anything that connects these individuals and how much you be able to replicate the success and maybe avoid the losses that you've had so these are maybe top of mind things that I would look into and all of this is data that wise commerce automatically gather so it's a great example of the automation that we discussed earlier that this is something that the system automatically kind of gathers for you so that you can focus on the actions based on those insights rather than having to log all of this information manually after every booking or or so

Karri: Absolutely I think those are really the key metrics to look into your business and how it's performing and where you have room to improve and maybe just to mention a couple others that some of these we went through in a detail but for example utilization rate from chosen period it can be a day week month year how often has these items actually been been in use been out of there and can understand like how much time they are sitting in your inventory not generating any any revenue and when how much they are out out there and actually generating revenue for you and then also related to this is maybe time in maintenance which is which is interesting to see us as like a data point that a some of these items are actually they have a lot of reservations but most of them are actually maintenance and and those are of course more cost-driving than revenue-driving couple other metrics that I know that twice is allowing you to quickly view is like are there any ghost items so items that are actually just sitting in your inventory and might be kind of invisible so they are not part of any any listings that are sold or booked quite often and related to that is also this kind of last scene what is the last time that something happened to this item so that can be any type of reservation ideally booking but it can be maintenance inspection anything like that and when you are quickly able to just check like hey my inventory what are the inventory articles that have not being used in a long time you can kind of maybe start to understand and optimize once again like should I create better listings or is this whole product category something that is just not fitting to my whole business and and so actually start improving your business once again

Tuomo: Exactly it's and many of those last things that you mentioned I think on a simple level it's kind of again what you mentioned earlier it's kind of identifying do I have idle stock or dead stock kind of just understanding the turnover or the speed in which your items are flowing is a great signal on where things are happening and where things are not happening and like said usually the items where things are happening are a signal of business being made and if you have a lot of items that are idle and the you know last seen or last used metric is six 12 months ago it's probably a good time to start thinking is this really something that I want to tie my capital to into or should I be looking to resale this item for someone else in order to free that capital for those items that have a lot of things going on and that are earning earning actively for me

Karri: I guess now we have gone through the four key levers that we identified how to create the most profitable rental business and maybe as a final word from the CEO of twice commerce is that should you do this in Excel and notes or is actually twice commerce kind of built around these concepts and ready to help you get the best rental business operation that you possibly have

Tuomo: You kind of see teed me off quite well there so yeah the answer is you should do it in twice commerce that's that's that's the way to go about it so you really do want many of these things to be as automated as possible you really want a OS approach kind of an operating system approach where you have these key data assets automatically updating and that you can kind of reference dynamically with each other you have all of the benefits that we discussed that being said if you're now running your business on Excel and notes and whether it's on real paper or digital paper it's never too late to switch also we've tried to make it as easy as possible for you to kind of migrate your data in so you can have the snapshot of what's what's out there right now import it into twice commerce and then continue accumulating the data you don't have to kind of start from zero you can actually take the existing data in and keep accumulating on top of that that's that's a maybe good thing to say that all hope is not lost even though you would not yet be on top of something like twice commerce

Karri: Sounds good but hey thank you Tuomo for sharing your knowledge on rental businesses and of course what the twice commerce 2.0 is able to do for you as a rental operator

Tuomo: Thanks Karri