I had the opportunity to meet with a number of other business owners in the past few weeks and I was surprised at how many businesses are starting up renting a service or a product to a customer. One company, I forget the name unfortunately, has started to rent big ticket dresses to ladies wanting a very expensive dress for a special occasion. Apparently women don’t wear these purchases often (like us men going and buying something manly like some new alloy wheels and then not actually fitting them to the car) and so there is a great business model in renting say a £1,000 dress for £75 for the day.
I know we have become a credit society but this isn’t actually being in debt, more renting something for the experience rather than feeling like we have to own it. I mean why pay £30,000 for a car when you could pay £400 per month and keep the cash in the bank. It is unlikely you aren’t going to change it in a few years time and why not view that £400 as your cost for travel, as people do when buying season tickets on the train. It is an idea that revolutionised GM and made them more like a bank that makes cars. Obviously there are the exceptions and I appreciate that but leasing or renting a product is not new, it just seems that now it is becoming more prevalent, and available with more products and services than ever before.
For example in my company, Fluidata, we lease the majority of our hardware now to our customers, as they don’t put much value on it once they finish with our service. So renting is easier than owning. Then we have a music system in the office (the superb Sonos system) which has a Spotify account so we have access to nearly all the music we would want for a flat monthly fee – which stops the arguments. We even pay for the plants monthly – our provider come and water them and even replace them if they die.
While this all sounds great there is of course a downside in that when the income stops you end up with very little… But it does look like, for the moment at least, the opex model is becoming more popular.
The other massive factor is how the different expenditures are treated for taxation purposes.
Generally speaking capital allowances are terrible these days so there can be a major benefit to leasing rather than purchasing.
I think Robin has made the point that I was just about to 🙂 . Anyway renting is IMO a broadly good thing, except when it comes to certain parts of certain sectors (e.g. housing) where the wide-disparity between how properties are valued can lead to some absurd expectations and thus high rates that make mortgages look so much cheaper.
I’ve seen some beautiful flats with sea views going out for about £300+ per month and then I’ve seen plenty of ugly, poorly positioned and terrible view flats that go for twice that. You’d think the market demand would correct itself but often Landlords don’t seem terribly realistic about their evaluations. As with all service industries, there are success stories and failures.
On the other hand, while renting has many merits, I personally prefer to own what I use and often view rent as another facet of debt management that gives me additional administration to handle. I prefer to have no debt’s to anybody 🙂 .
You are making a very good point here Piers. However in the case of renting hardware the real advantage I see is not just to lease it but to leave the burden of it’s administration to someone else. This allows me to save time and resources that can be focused on core activities.