The Business of Sound: Making Sense of Investment & Profit

Industry Watch | April 25, 2017 | Guest Article

Warren D'Souza SOUND.com

By Warren D'Souza #SoundGuyForLife

This is an amazing business! Yes, we love the idea of providing sound systems for the best musicians in the world, political leaders, ceremonies & high profile corporate events.

Travelling to various exotic locations also adds to the fun and excitement. Honestly, what’s not to like in the field of sound rental business, i.e., if it’s your passion and profession. However, the reality is that to make money it is extremely hard. And the one thing we never plan for is profits.

The Investment Angle

Loudspeaker systems, consoles, amplifiers, signal processing and wireless systems are all prone to dramatic shifts in technology, creating pressure for rental company owners to make new equipment investments to “keep up”.

Investing in sound equipment is not cheap and it’s directly proportion to your vision and growth. ‘Where do you want go’ and ‘What you need to do to take you there’ are the most important questions you need to ask yourself.

As a sound rental company owner, I spent a fair amount of time thinking about how to price our products and services. Sometimes, I have worked with event companies and sometimes directly with clients as well. What I have consistently seen, regardless of who I’m working with, were real problems with pricing. Most companies simply don’t understand it. Instead, they rely on the market to set the price and they take a given job (or choose to let it pass) based on an emotional rather than a fiscal response.

Pricing Challenge

How a sound rental company arrives at prices for its goods and services is very interesting. As most of you are aware, the industry prevents you from setting any price due to heavy competition and no unity amongst the rental owners’ community. Most of us sound company owners and managers lack the financial skills and experience to understand pricing strategies, and usually resort to an “as-it–goes-accounting” method of managing their business: that is to say, they add up all of the expenses and revenue at the end of each reporting period and feel good about the profit, or bad about the lack of it.

While we can’t all get into a room together and set pricing, there are some components of setting pricing structure that are critical to profitably running a successful business over the long haul.

Now purchasing audio equipment costs millions of dollars and continuous commitment to investment is the key to a sustainable business in the long term. Simply put, the day you stop investing is the day you stop growing. I have rarely seen any organization who has stagnated their investments growth. This is one rule one should never forget.

I have also noticed that many companies who do decide to invest in gear and aspire to do big ticket shows always fall short on inventory required, because they do not realize that this calls for a far greater investment in equipment other than what's highly visible and obvious. Great gear, we all know is expensive, but what we don’t see is the infrastructure like power, cabling and cases that can run into more that 25% of your investment to support your top tier equipment.

So how does the average rental company decide which products are the right ones to add to inventory? Hard decisions, indeed. Make the right choices, and you possess the gear, the clients will invariably want to rent at a price that will be profitable for the rental business in the long run. But make the wrong choices, and end up with equipment that is difficult to rent. More energy will be required to get someone to use this gear, and at a lower price (and therefore margin).

Choosing the Right Path

You might even be forced to “sweeten the deal” to the point that any hint of profitability goes right out the door. Thus making the right long-term equipment investments is key—perhaps the biggest key—to solid, long-term profitability.

A vital factor in play is the alliances that are built with manufacturers as a sound company grows and matures. We all know that having the right equipment is one thing, but making sure that the company who made it is around for the long haul is equally important.

So many rental companies get excited about price, not value, when investing in new equipment. Remember that the decision you make today will affect your business for the next five years or more. Take your time; try not to get caught up in the moment.

Often, at the end of the year or a quarter, a manufacturer will be working hard to close equipment sales. Make sure this is a correct investment for you before acting on the temptation to jump on the discount. After all, what does it say about a manufacturer who is desperate to close a deal a few days early?

In the final analysis, making big investments in equipment represents a fork in the road for any rental company. Make the right choice and you get on the right path for long-term success. Make the wrong choice and you’re storing elephants in your warehouse while hampered by cash-flow issues.

Take your time and make sure that you buy the right products from companies that act as partners you can trust. It’s the best way to win in the “Invest & Rent” game!

Warren D'Souza is the Director of SOUND.com. Follow him on Twitter.

 

Warren D'Souza of SOUND.com talks about how when running a business in sound equipment rentals, your fundamentals need to be, well,...sound!

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