I had a wonderfully interesting conversation with a rental business owner last weekend. He rents equipment, mostly for tourists, but also some locals. He has five items which he can rent each day, either for a half-day or a whole day. Two halves make more than one whole, but one whole day rental makes more than a half. When his equipment is in his shop, he makes nothing, and has all his fixed costs: rent, utilities, insurance, depreciating assets and labor.
He told me that he used to spend a lot of money on tourist magazines, but no longer can track many rentals to them. I agreed with his analysis, as we see a lot of indications that tourists have their whole trip planned before arriving, so there is little chance of catching them once they arrive. Locals don’t read those, so he is basically spending money where there are no available customers.
I asked him a few questions:
- Do you have excess capacity now? Yes, he has many days, where two or three of his units are unrented, especially weekdays.
- Do you have times of the year when your rental capacity far exceeds your demand. Yes, he replied. He is well below full utilization for the year: of all the possible rental days times units, he fills about half of them.
This is a business that should be marketing all year round, with surges about a month before he knows he should be full. This might mean spending more effort and money in October-November to capitalize on the holidays and the high season for Hawaii visitors. May-June would be another good time to capture reservations for July-August–another high season for visitors. Remember, visitors typically make all their plans a month or so in advance of their trip.
He should then focus on filling in the slow months for tourism with local business. Locals are much easier to market to, as they are a fairly well defined group of people in a limited geographic area. Offer locals special rates, some upgrades or multi-rental incentives. While less profitable, they will cover fixed and variable costs–a tough thing to do when the tourists aren’t around.
Here are my rules for when to focus on marketing your business or product:
- If you have no capacity to make more or serve more customers and you don’t expect this to change for six months, you probably don’t need to do much.
- If you are well under capacity, start now and be aggressive with your marketing efforts.
- If your business has cycles–seasonal, high/low season–start getting everything ready three or four months prior. Then launch a month or so prior to those times, especially if you are targeting tourists.
- If your capacity utilization is sporadic, keep at it every month of the year. This might, at times, create too much demand, but your goal should be to increase your overall sales level.You can always raise prices if you foresee exceptionally high demand.
- If you are at a startup phase, make sure you understand what your business is and who your customers will be before going big on marketing. Focus on getting into the game, talking to your customers and refining your product or services before announcing to the world that you exist. It might take a few months to figure this out, and at that time, you’re ready to start announcing to the world you’re in business. Plan, plan, plan, but keep your war chest (your money) for after you’ve been in business for a few months.
In conclusion, if you can’t possibly sell more or serve more people, take your foot off the marketing pedal. If you are way below capacity or a recent startup, then put your foot on the pedal more aggressively. If you have a limited season–Alaskan summer fishing, for example–work hard in the spring to get those slots confirmed. Come summer, it’s probably too late to be effective.