Examine the industry’s current and future growth, and see how your company stacks up.
There’s a shift in how Americans are spending their money. Mostly spurred by the proliferation of the Millennial generation, they’re now prioritizing experiences rather than material items — saving up their money to go new places and take part in new activities. A large beneficiary of this changing mindset: the recreational rentals industry, whose growth is currently outpacing the average annual growth of other retail and service industries. The industry is made up primarily of businesses renting equipment for people to experience recreational activities, including kayaks, mountain bikes, skis, surfboards, scooters, Segways and even luxury cars.
But coming hand-in-hand with the increasing number of people trying these activities is heightened competition, along with additional administrative tasks. While the industry has long relied on traditional pen and paper to take reservations, track equipment and update calendars, with a growing customer base and booming industry, it’s time for rental business owners to consider how they can improve efficiency, streamline their services and ultimately set their businesses apart utilizing new technologies.
In this post you’ll discover:
- How much the recreational rentals industry has grown, and what experts forecast for its future.
- What that growth looks like on a per firm basis, and whether your business is keeping pace with the industry or falling behind.
- How your firm’s annual revenue and operating expenses compare with industry averages.
- How technology can improve your business processes and give you a competitive edge.
An Industry on the Upswing
By and large, Americans are becoming more interested in travel and trying new things. At the forefront of this movement are Millennials, who are almost twice as likely as non-Millennials to travel for a hobby, according to research by the Boston Consulting Group. This generation also travels “more for personal interest, food and wine, entertainment, outdoor activity and shopping than non-Millennial leisure travelers,” BCG reports. But this push for new experiences spans generations. The average age of the leisure traveler (those not traveling for business) is 47, and mature travelers — those older than 55 — comprise 36% of the leisure travel population, according to the U.S. Travel Association.
For this large swath of the population searching for new activities, the recreational rental business plays a key role in making these experiences come to life. And whether they’re renting kayaks, sailboats or skis, their collective revenues have been growing. The industry surpassed $1 billion in revenue in 2014, with those revenues increasing by 5.7% annually.. That growth has outpaced the 3.3% annual revenue growth of the broader retail services industry, and placed recreational rentals in the top 40% of all retail industries.
The increased popularity of renting combined with the continued interest in experiences bodes well for the industry’s near future. Kentley Insights forecasts that the recreational rental industry revenue will grow by 4.9% per year for the next five years.
Boating and Watersports Take Off
While the industry as a whole has benefited from the uptick in rentals, there’s one segment of the industry that’s exploding in popularity: boating and watersports. In 2013 alone, more than 88 million people — or 37% of the population — participated in some form of recreational boating. That’s near an all-time high.
Additionally, the public now views marinas as recreation destinations, instead of simply places where people store their boats. And marinas have responded in kind — nearly one-third of marinas now offer boat rentals and 18% provide water-toy rentals, according to research conducted by the Association of Marina Industries.
The desire to be on the water has also boosted interest in stand up paddleboards, and opened a new rental market in the process. Stand up paddling was the top fastest growing recreational sport in 2014, according to the Outdoor Foundation’s most recent Outdoor Recreation Participation Report. The sport grew by 38% compared to the previous year, with more than 2.7 million participants — many of whom were likely renting their boards from a local shop. That’s nearly triple the number of people who tried the sport a mere five years ago.
Is Your Business Keeping Pace?
The recreational rental industry is undoubtedly on the uptick. But knowing whether your business is keeping up with current and projected industry growth can help you determine whether the status quo is sufficient for business growth — or if you need to make changes to remain competitive.
The average revenue per recreational rentals firm was $500,000 last year
According to the Kentley research, the average annual revenue per recreational rentals firm was $500,000 last year. The firms surveyed experienced an annual revenue growth rate of 2.9% over the past three years.
But while most businesses were seeing their revenue rise, whether they were actually profitable is a different story. Just 51% of recreational rental firms are in the black, with their average net income representing about 10% of their revenue. The picture may be better for the marinas, according to a survey by the Association of Marina Industries and Dock Age magazine. Of the more than 250 marinas surveyed, 69% reported that they expected to be profitable.
For the rental industry overall, operating expenses have grown by 4.8% per year — notably outpacing revenue. Operating costs per firm averaged about $387,000 annually in 2015.
So what do rental companies spend their money on? Depreciation and amortization charges for equipment tops the list, followed closely by employee payroll. Combined, those two cost centers account for 70% of total average expenses. Property costs accounts for 6.2% of expenses and IT accounts for just 1.1%.
For most rental companies, great employees can make or break the business — which is often reflected in their pay. In 2014, the average employee earned nearly $30,000 annually, with an annual increase of 3.8% over the past three years. That wage puts the recreational rentals in the top 20% of service industries when it comes to employee earnings.
One thing that may explain why only about half the firms are profitable: their focus on growth. Companies are putting their revenue toward providing new services or opening new locations. For instance, in 2014 the number of firms grew by 2.8%. Forecasts for the next five years reveal that growth, on average, should remain just under 3% annually. Additionally, the number of rental establishments — which includes multiple locations owned by the same company — also grew by 3%. This figure should continue to increase by 2.3% annually over the next five years.
Technology Offers a Competitive Edge
Today, rental businesses faces ever-increasing competition as existing firms expand and new ones enter the market. And with only half these firms earning profits and operating expenses continuing to rise, many business owners are likely asking how they can get to cash-flow positive faster. Investing in online booking technology may be part of the answer.
Online booking has taken the travel and tourism industry by storm over the past few years. For example, global traveling booking has grown at 4.3% annually since 2011, while online bookings have increased by an average of 10% each year, according to research by Phocuswright. And though bookings via desktop still dominate, mobile bookings are quickly gaining ground, accounting for 11% of all U.S. online travel bookings last year.
So if you’re not yet offering online booking, you’re likely missing out on a significant number of quality customers who prefer using the Internet to arrange their equipment rentals. Indeed, many rental business operators report that online booking software not only helps their business grow, but also streamlines their operations.
The benefits of moving your booking online include:
- The ability to maximize your reservations. When you rely on staff to make reservations over the phone, you’re limited to bookings only when your employees are available to answer the call or handle a walk-in customer. Online reservation systems allow customers to make reservations around the clock. Additionally, if one of them cancels, another customer can immediately fill that spot — ensuring that your equipment isn’t sitting unused because of a no-show.
- An opportunity to maintain or reduce payroll expenses. For most firms, one of the biggest cost centers is payroll. An online reservation management system can help you maintain or reduce the staff you have working reservations, even as you grow, by allowing your customers to reserve online instead of over the phone.
- Improved inventory management. For many merchants, keeping track of what’s rented and what is available is a challenge. Online management tools allow you to track all your inventory in one place so there is a single source resource for that information.
- Faster payments. With online booking software, customers typically prepay for their rentals. You don’t have to wait for payment, and you have greater insight into your business’ pending revenue. That way you can activate deals to fill gaps or reduce staff to cut expenses.
- Easier up-sells. Give your revenue an effortless boost by offering up-sells and add-ons to your rentals — such as dry sacks and wetsuits for a kayaking trip or meal packages for long excursions — as your customers are making their reservations online. Customers will get a fuller picture of your offerings and be able to take advantage of any current deals or packages. And the power of so-called ancillary revenue to boost business in rentals and other related travel is impressive: In the airline and cruise industries, for instance, it can account for 30% or more of a company’s revenue.
- Improved time management. Online reservations allow you to check your business’ booking and availability in real-time, from any device or location. It enables rental businesses to better allocate their staff, and devote employee time to improving the customer experience instead of manning phones and penciling in reservations.
- Actionable data. Last, but certainly not least, online booking software systems allow you to analyze your business and determine where you’re making the most money and where you’re losing revenue. With this valuable information, you can eliminate hidden costs — such as maintaining equipment that’s rarely rented — and focus on the areas of your business that are most likely to drive growth.
Not all online booking technology is created equal, though. Peek Pro not only provides an award-winning software platform, training and 24/7 customer support, but our tools also help you increase revenue in myriad ways. Peek Pro is the most robust online booking system available for rental firms, with many features specifically built for Rentals. This includes an easy-to-use calendar and dashboard for viewing and managing bookings, equipment availability and more.
The rental industry is undoubtedly poised for growth. By staying aware of the trends, and taking advantage of online booking systems and new technology, you can ensure that your rental business follows suit.