Shortly after graduating from SAE in Melbourne I began working with a couple of guys who made their own speakers and installed them, together with amps, in clubs in Melbourne. They had a simple business plan to charge a weekly rental fee of 1% of the value of the gear (1% yield). This would cover cost of the gear, installation and maintenance.
The theory being that over the space of two years the gear would pay itself off and they’d be making money for old rope soon after, so to speak…
For example $5K worth of gear they’d charge $50 a week as rental. $50 x 104 weeks (two years) = $5,200.
The problem with this business plan is finding a source of capital and with good to no interest rates to finance the gear purchase.
The popular source of capital are loans or leasing with the intention to make over and above the required loan payment to cover rent, wages and ultimately turn a profit.
Using the Present Value of an Annuity method to do the math, a loan of $20,000 @ an interest rate of 8% per annum over 5 years = $405 payment per month or $94 per week.
This means if you rent gear @ 1% yield, on $20,000 your rental income is $200 a week and you clear $104 ($200 less $94).
Sounds lucrative but there’s a catch….
Using the thirds rule of business; 1/3 operating costs, 1/3 labour and 1/3 profit, you’re left with $35 cash profit. Assume you do the heavy lifting that’ll increase to $70 to include the dollars saved on labour.
So over a year on an investment of $20,000 @ 1% yield, you get to pocket $3,640 ($70 x 52 weeks) or $300 per month.
Thankfully the current % yields in the audio/lighting business hover around 3-4% so all is not lost…
Ok so that’s enough ramblings but I thought interesting enough to share….. back to audio hire!!