{"id":143,"date":"2009-03-31T07:52:14","date_gmt":"2009-03-31T06:52:14","guid":{"rendered":"http:\/\/www.telekta.com\/blog\/?p=143"},"modified":"2012-07-25T13:17:57","modified_gmt":"2012-07-25T12:17:57","slug":"renting-is-the-new-selling","status":"publish","type":"post","link":"https:\/\/www.telekta.com\/blog\/2009\/03\/renting-is-the-new-selling\/","title":{"rendered":"Renting is the New Selling"},"content":{"rendered":"

\"forWhen”Cash is King”,\u00a0 be a Kingmaker for your customers<\/strong><\/p>\n

In several other blogs, I have talked about the ethics of needing to bring value to your customer and discussed various components of what this value might be.\u00a0 I have also discussed negotiation theory where we try to find out what value is most valuable to the customer.<\/p>\n

In today’s financial crisis (Q1-2009), I can be reasonably certain that your customer values cash management.\u00a0 You also are likely faced with the same financial reality and also value cash management; consequently, this is either a conflict\/deal breaker or an opportunity to investigate how not all cash is equal.\u00a0 If cash is not the same to everyone, then we have the perfect opportunity for great negotiations.<\/p>\n

If I go back to negotiation theory, “what costs me less but costs my customer more?” or specifically what ‘cash’ costs me less than my customer?\u00a0\u00a0\u00a0 The answer is cash on something with a very high profit margin for my company.\u00a0 If I sell a product that is 100K but half of this is margin, then I only need 50K of cash to provide what would normally cost my customer 100K of cash.\u00a0 Will my customer pay for me improving his cash management?\u00a0 Perhaps, but first let’s see how it might work in practice and where it will not work.<\/p>\n

Using the same 100K product, I could offer to delay payments and thereby help my customers cash position so much that I can charge a small premium or resist a concession on something else.\u00a0 Better yet, I could go a step further and introduce a rental business model.\u00a0 The reasons are two fold: one, I get paid cash regularly, so my cash flow is less bad yet the customer ‘gets what they need’ with his cash neutrality (his costs and income are balanced). \u00a0 On average, I only need 25K of consumed cash during the life of such a lease. \u00a0 Second, I can add other services to this rental model in order to make the perceived value far greater than the financing alone.\u00a0 I can add support contracts, upgrades, consumables, performance related payments, etc- all of which have high margins.<\/p>\n

While you can put some limits on minimal rental duration, you will likely need to take some risk here.\u00a0 If the value interval (duration when customer gets value from the product) will be longer than the customer’s “worry horizon”, then he is usually happy to pay a high premium over a longer term.\u00a0 If you know your product well and how customers get value from it, then you should be in a position to make this bet.\u00a0 An example is renting musical instruments to students– parents are not sure exactly how many years they might study–many parents will gladly pay some premium not to have to worry about instrument disposal should their child stop.\u00a0 You could also see this as an insurance policy against the child’s possible loss of interest in the instrument.<\/p>\n

If the customer is only likely to get value over a limited time horizon, then it is probably time to “come clean” and show the added value of a clean exit for the customer where their spending ends.\u00a0 If communicated correctly, you customer should recognize you as an honest partner who clearly looks out for his interests–\u00a0 these moments cement long term relationships.\u00a0 If you have physical products, this means an opportunity for re-renting refurbished equipment that is returned.\u00a0 If you are a software or licensing company, that means you have a defined time to find the next product your customer should license next.\u00a0 Knowing that license rental costs will soon come to an end, customers are remarkably open and receptive at looking at new products when they know exactly where they will find the money.\u00a0 An example of this type of rental might be diagnostic tool to comply with new legislation.\u00a0 For the first years after the laws are enacted, the tool will get well used.\u00a0 Later, however, most people will understand how to comply with the law and the tool will likely have less and less value.\u00a0 A follow-on product can address another new legal compliance issue or move to business efficiencies in the same business area.<\/p>\n

In both of these examples, imagine a competing company trying to sell against you with their similar product using a simple up-front or even a financed one-time-sale business model.\u00a0 By presenting a rental model, you can demonstrate a better understanding of the customer’s problem and therefore a perceived more credible knowledge of the solution space of your product.\u00a0 By renting you likely have better margins since you are focusing on the customer’s largest pains.\u00a0 Finally, renting is helping you build a long term relationships which are always the key to mutual value and business success.<\/p>\n

Challenge yourself to see cash as a precious resource that should be spent wisely.\u00a0 Far too many companies are going on “cash diets” and have convinced themselves that all new cash spending is unacceptable.\u00a0 Free yourself to imagine how spending very small amounts of this precious resource might return huge results- you are likely to realize that some ‘must have’, legacy uses of cash are no longer a must.\u00a0 In doing so, imagine renting and see if the benefits don’t outweight the costs in cash– even in this credit crisis environment.<\/p>\n","protected":false},"excerpt":{"rendered":"

When everyone is trying to conserve cash, many would do well by looking at the economics of renting to our customers. At first it looks like a cash capitulation to your customer, but look closer.<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[6,8,3,11],"class_list":["post-143","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-current-environment","tag-negotiating","tag-selling","tag-strategy"],"_links":{"self":[{"href":"https:\/\/www.telekta.com\/blog\/wp-json\/wp\/v2\/posts\/143","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.telekta.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.telekta.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.telekta.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.telekta.com\/blog\/wp-json\/wp\/v2\/comments?post=143"}],"version-history":[{"count":9,"href":"https:\/\/www.telekta.com\/blog\/wp-json\/wp\/v2\/posts\/143\/revisions"}],"predecessor-version":[{"id":274,"href":"https:\/\/www.telekta.com\/blog\/wp-json\/wp\/v2\/posts\/143\/revisions\/274"}],"wp:attachment":[{"href":"https:\/\/www.telekta.com\/blog\/wp-json\/wp\/v2\/media?parent=143"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.telekta.com\/blog\/wp-json\/wp\/v2\/categories?post=143"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.telekta.com\/blog\/wp-json\/wp\/v2\/tags?post=143"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}