What is a good profit margin for a party rental business?

Most published guides say 10 to 15 percent. Ideally, we’d expect to see net margins in excess of 20%, and some of the best performing companies we advise land around a 30% net. A 10 percent margin signals a cause for concern. Costs can only be cut so much. The bigger opportunity is usually in the business’s sales motion.

Gross margin and net margin are different numbers

Gross margin is rental revenue minus the direct cost of each job. For a party rental company that means delivery labor, setup and teardown, fuel, cleaning and repairs tied to the order.

Net margin is what is left after everything else. Insurance. Storage. Software. Truck payments. Equipment wear. Your own pay.

Rental gross margins look high because the bounce house or tent is already paid for. The cost of that item does not go away. It shows up later, when it wears out and you buy another one.

Four costs that shrink margin after the season ends

1. Equipment wear and replacement. Vinyl, tent tops, tables and chairs all wear out. If depreciation is not on the books, profit looks high in years you buy nothing and drops hard the year you replace the fleet.

2. Insurance audits. Many general liability policies are priced on estimated revenue. After the policy year, the carrier audits your real revenue and bills the difference. A good year can mean a bill you did not plan for.

3. Delivery, setup and teardown labor. A $200 order 40 miles out with a two-person crew can lose money. You only see it if labor and fuel are tracked by job, not lumped into one payroll line.

4. The owner’s own hours. If you run every Saturday delivery yourself and pay yourself nothing for it, your margin is overstated. Price your own hours at what you would pay a crew lead, then look at the number again.

The best year that wasn’t

Austin Reckard grew up in a family inflatable rental business. One year was the best revenue year the company had. Then two bills landed: a $14,239.53 tax bill and a $4,107.86 insurance audit true-up. Neither was planned for. Most of that year’s profit was gone.

The business was not broken. The books just did not show what was coming. Clean monthly books would have shown the profit early enough for a CPA to plan the tax side, and a monthly set-aside would have covered the audit.

How to find your real profit margin

1. Pull your last 12 months of Profit and Loss, not just the busy season.
2. Check that equipment depreciation is booked. If it is not, the margin is too high.
3. Move refundable customer deposits for future events out of revenue. A deposit is money you owe until the event happens.
4. Add an estimate for any insurance audit true-up for the year.
5. Add fair pay for the hours you work in the business.
6. Divide net profit by total revenue. That is your real margin.

Margin is different for inflatables, tents and tables and chairs

One blended margin hides where the money comes from. Inflatables carry cleaning time, wear & tear, and weather cancellations. Tents carry heavy install labor and permits. Tables and chairs carry low prices per piece and a lot of handling. Track each line on its own, with classes or categories in your accounting software, so you can see which one pays the bills.

More on each: bookkeeping for inflatable rental companies, tent rental bookkeeping, tables and chairs rental bookkeeping.

What to do if your margin is thin

• Break out delivery by distance ranges, and calculate costs for the delivery. Labor & vehicle wear and tear are the biggest hidden drivers of costs here. This should help you see if delivery is part of the problem. Charge delivery by distance and set an order minimum.
• Check rental’s full costs over each turn. Costs should include the total cost to: store it all year, pull it from inventory, set it up, tear it down, bring it back home, clean it, repair it and put it away. Once you’ve done that, you can compare each item against what you have it priced for. Price setup and teardown as their own line, not baked into the rental.
• Find inventory that rarely goes out and sell it.
• Set aside additional cash during peak seasons, and smaller amounts each month for yearly bills like insurance audits.
• Close the books every month so you see a problem in May, not in January.
• Common accounting advice here would say to ‘cut costs’ where possible. While good advice, and an effective measure where possible, costs can only be cut so much. We’ve found it’s far more effective from a business perspective to look into the businesses’ sales motion. Oftentimes, there are one or two additional processes in the sales procedure that can create opportunities for upsells, of which are often entirely profit.

Frequently asked questions

Is 10 percent a good profit margin for a party rental business?

Ideally, we’d expect to see margins in excess of 20%. Some of the best performing companies we advise land around a 30% net. More is always better of course. That means depreciation, insurance true-ups, delivery labor and your own pay are already counted. A 10 percent margin that also leaves those out signals a cause for concern.

Why does my party rental business show a profit but I have no cash?

Three common reasons:

• You bought equipment, which uses cash but does not hit profit all at once.
• You are paying down loan principal, which is not an expense.
• Or deposits for future events were spent before the events happened.

Should damage deposits count as revenue?

No. A refundable damage deposit is money you owe the customer until you keep it. Only the part you keep for real damage becomes income. It should be noted that if it’s non-refundable, then it should be counted as revenue, ideally as a separate line item on the P&L.

Want to know your real number? 10.4 Financial works only with party and event rental companies across the U.S. Book a Rental Profit Review and we will walk your last 12 months line by line. Find more profit without adding new customers.

Related: Bookkeeping for party and event rental companies · How to price party rentals so you actually make a profit · Which KPIs to track in an event rental business