How can the rental business keep its cooler in the face of cheaper units? Embrace it, of course, says Robert Laughton, MD of the The Water Delivery Company.
The water cooler business in the UK is definitely showing signs of maturity. Customers have options between bottle-less and bottled water coolers, drinking water fountains are growing in popularity and companies are increasingly having to deal with customers who are significantly more educated regarding pricing and service options by comparing water cooler companies online.
UK water cooler companies that simply look to protect their rental income streams will struggle and ultimately fail in the future. The industry needs to adapt to a changing environment and look to build long-term service relationships with purchase and rental customers that ensure long-term, protected revenue streams.
Customers don’t purchase water coolers simply because they’re cheaper to buy. Many choose to use capital budgets for equipment such as water coolers, and therefore rental options are simply not applicable. This is especially true of the customers who use our specialist website.
Drinking water fountains are often installed in buildings during a kit-out and therefore fall into capital budgets. So, whichever way you look at it, rental water cooler businesses need to provide purchase options for customers, and given the way there are increasing options online for purchasing, these rental companies need to provide competitive pricing.
When I first came into the industry seven years ago, rental companies would often only be offering limited purchase options and these were priced at extreme mark-ups, and I can almost guarantee that these were offered to persuade people that rental was the cheaper option. With transparency of pricing online, this simply doesn’t stack up. The water cooler industry must adapt itself to normal retail margins, as there will be significant amount of ‘box shops’ that will compete at these levels. More importantly, they will also survive as businesses with these margins.
If water cooler companies look to building long-term service relationships with rental and purchase customers, they’re also able to build a business with long-term revenue streams. As long as margins are right, we can build businesses with trained engineers and well-paid staff that can support the customers’ water cooler experience. So, adapt to the perceived ‘threat’ of water coolers for sale and then structure the pricing and service options within your business carefully.
For these reasons and many, many more, the water cooler industry needs to nurture innovation and weave the ability to adapt into the very fabric of its being. There are water cooler companies in the UK that have already embraced this.
In the face of increased price competition in the purchase market, rental may look like the harder option. Yet, it’s worth fighting for, says Ron Hounsell, MD of Cameron Water.
Once a cooler has been paid for, every month thereafter that it’s out in the field it’s making a small profit, which, when multiplied over the customer base, can add up to a very tidy sum. The great thing is that next month the money notes grow on the same tree, and you get to pick them all over again – and the tree grows the same leaves every month. I have some customers who have been with me over 10 years.
Being able to charge good rental fees requires the sales price of your cooler to be kept high. Why rent a cooler for £120 a year when it can be bought for £50? But if it costs £495 and can be rented for £120, then it looks like a great deal.
Customers will stay with a company if they have no real reason to leave. To reduce your ‘quits’, you must be doing everything else right. Concentrating on sales alone doesn’t work. I see too many companies digging holes in the sand – the more sand (sales) they remove, the more the sand (quits) falls back in. Some company churn rates are enormous, and once in that cycle it’s very difficult to break free.
Within the water cooler industry, it’s very easy not to see the bottles for the coolers. Our customers, however, rarely think on their way to work ‘I wonder if I’m getting a good deal with my water cooler company?’ or ‘I wonder if it’s natural mineral water or from a reverse osmosis process?’.
I understand that this may come as a bit of a shock to a few people in the industry, but in the normal workplace no one gives a secondhand plastic cup about a water cooler unless something goes wrong.
What can go wrong? Here’s an example: a customer can run out of water. They call the supplier and are met with an automated telephone system. When they finally get through, they’re told they may have to wait two weeks until their next scheduled delivery date. It’s more common than you think.
I could fill a whole page with customers’ reasons to leave. If a customer doesn’t have a reason to leave, they don’t have any need to entertain the salesperson who comes on the phone to offer them a free cooler for life, a box of chocolates and £50 worth of Marks & Spencer vouchers; they don’t need the hassle. When you have great service, friendly and motivated drivers, and a back office that actually answers the phone, rentals can be achieved (and good ones at that).
Some larger accounts will stipulate they will not pay a rental. At that point, an informed decision needs to be made as to whether the profit from the water will make it all worthwhile. Far too many companies make a big mistake here and don’t get the calculations right. They see the cooler numbers, and if they’re making a £1 a bottle profit, fail to see for every £100 of cooler they need to sell a hundred bottles before they even start to make a profit!
If the account is large, it’s a lot of cash to swallow up just to get turnover (not profit). Laying out large sums on coolers will seriously affect your cash flow, and having bad cash flow is like your business having a heart attack: it’s a quick death with sometimes very little warning.
If you sell a cooler, then sell the maintenance package and offer them great service to keep the consumable part of their business. If something goes wrong with their cooler, they will 99 times out of a 100 come to you for the replacement if they don’t have a reason to leave.
Rentals or sales – either way there’s money to be made. The key for me is to make sure that whichever you do, charge as much as your service and the machine is worth. Give your customers no reason to leave and the chances are, they won’t.
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