Hi Steve,
I have a cart that I won’t be able to use during the summer because of my schedule. I have a few people that are interested in renting it for the summer (and maybe all year on the day I am not using it). I am looking for ideas on what I should charge (Daily, Weekly or Monthly), % of sales, fixed amount, etc. Anyone out there have some ideas about costs and how I should draft the agreement?
Thanks,
John O.
***********************
Hey John,
Great question. There are several ways to rent out your cart when you are not using it (as you mentioned in your email), but before we get into that let’s take a look at whether or not you really want to do that.
(If you haven’t gotten started yet and want the best education on how to make great money with a hot dog cart, you can find it by clicking here).
Pros of renting out your hot dog cart.
- Income. I think the main reason to consider renting your cart out is to maximize income generation from your investment. Your cart doesn’t make any money sitting in your garage. Your cart is an asset only when it is producing income. At all other times it is a liability. If you can turn some of those liability hours into asset hours, you effectively increase the value of your investment.
- Branding. This only applies if your cart is branded. By that I mean having your company name and logo on your cart, menus, fliers, biz cards, etc. Just like we discussed about income, you can maximize branding opportunities by having your hot dog cart on the street as much as possible. Renting it out is a great way to do that.
- Growth. Renting out your cart can be a way to grow beyond a one person operation. You can only work so many hours a day which means your income, although it can be sizable, is still limited. You can expand beyond those limitations by renting your cart out, then using that rental income to finance a second cart, then a third, and so on.
Cons of renting out your hot dog cart.
- Increased frequency of repairs. More use means more wear and tear which translates into higher maintenance and repair costs. Renters tend to be harder on the equipment than they would if they owned it themselves. You need to document preexisting damage and have the renter sign off on it before they take the cart out for the day. When they return it, have them do a walk-around with you while you look for any new damage that may have occurred after the cart left your facility.
- Branding. When done right, renting out your branded cart can be a positive thing. However you need to place strict rules of operation on your renters and make sure they represent the brand in a positive way. For example, require them to buy their food from you so that the product offering is consistent. You don’t want them serving a different brand of dog than you serve yourself. The exception to this is if you plan on renting out unbranded carts. In this case the renter can serve whatever they want as it won’t reflect on you.
- Unreliable renters. It may be difficult to find quality people to rent your carts to on a consistent basis. You will find that this kind of deal attracts people who just want to make quick money for a few hours with no obligations. You’ll get a lot of people with substance dependency issues or personality traits which make it difficult for them to be consistent and reliable. I’ve seen this first hand in my own hot dog business. Therefore I would suggest renting to friends or relatives that you know well if at all possible.
How should you charge?
- Flat rate. The most common method is charging a flat rate per day with a discounted rate for those who rent by the week or month. Make it clear that if they rent for the extended term and cancel early, then the renter loses the discount and the daily rate will be applied instead. This is the method I recommend.
- Percentage basis. Charging a percentage of sales is another option, however it is very difficult to track sales in a cash business. Unless you have very effective monitoring systems and loss control strategies in place, I would think long and hard before I rented my cart on a percentage basis.
- Inventory mark up. You can let the renter have use of the cart for free as long as they buy their inventory from you. This method is best for large operations with multiple carts being rented out. You buy your inventory wholesale, mark it up accordingly, then sell it to your renters. You make your money on product sold so you need to be sure they renter does not bring any of his own dogs to sell under the table. Again, effective monitoring systems and loss control strategies are paramount to maintaining profitability with the inventory mark up model.
How much should you charge? If you are renting your cart out at a location that you have held for a while, this question is a lot easier to answer. You will know on average how much sales that location generates, therefore you can set a rental price that allows the renter to make enough money while still making the whole process worth your while.
If you don’t have a location that the renter can use, then you’ll have to determine the rental price by trial and error. One method is to start on the low side and bump it week by week until demand drops off, then back off a bit to find the sweet spot.
There you have it slingers. Renting your carts out can be a great way to generate passive income. We’ve covered the basics but I’m sure there are many other methods for renting your equipment out that I haven’t covered. If you have experience renting out your carts, let us know in the comments!
-Steve
John I was thinking of doing the same thing. One word you need to do Due Diligence on INSURANCE! Liability you need to speak with your insurance company and make sure you are covered in a world of what ifs. Eg. Say your cart blows up there are hot dog chunks for three city blocks 5 people are concussed by flying mustard and ketchup containers and the Mayor for some reason wishes to speak to you in person? I’m kidding of course but to make an essential point. Someone else is to blame maybe but are you covered!!!??? Same goes for the automobile insurance on the cart say the renter snags someone’s fender on a tight turn in heavy traffic does present cart insurance cover you make sure you know for certain so you sleep at night.
Steve great suggestion doing the walk around before handing over the cart. I would also suggest take pictures even email these pics to the renter to establish a timeline and a clear mutual understanding on condition of the cart before hand over.
Finally how much should you charge… it has to be fair to the renter so ask how much they average at this location. The percentage rate sounds best to me, my cart is unusable, strictly because I cannot find a commissary yet. I’m thinking of charging 10% of the day’s gross to begin with and a $30 per day minimum or else the wear and tear etc. It’s really not worth your while at a penny less IMHO. I would think $50 a day would be the sweet spot for my renter as they apparently have a good location. Make sure you know where they are working your cart John, if it is working an event then maybe you should charge considerably more? Consider having any contract formalized by signature of a notary or lawyer, it may sound expensive overhead but I think best if this is a long term contract particularly.
Finally be fair to yourself John if you need to use your cart all of a sudden leave a clause in the contract that should such an occasion arise, your renter’s contract is immediately null and void should you decide to work the cart for yourself. Now all this sounds rather serious and it is but here is the secret yes there will be the urge to compete get the most from your cart but I speak from personal experience keep it amicable! This gal I am thinking of renting too we are already networking ideas together like sharing employees and helping each other out in a pinch. The motto is strive to befriend your competitor for you never know when you may have to rely on that person to help you out of a jam one day! 🙂
Good luck John yes renting can be a blow to the ego and a bit of a headache to be honest but done right it can get you in good with another vendor, that can really help your business down the road perhaps when you need it most.
Cheers, Rich.
Great point regarding insurance. Make sure you have the right kind of coverage before you let a renter take the cart out. Thanks Rich!
Actually edit here John O. I guess I am really leaning to a flat rate based on an estimated percentage. I won’t tell the renter this because I don’t want to have to monitor the renter all the time to much hassle. Also I don’t want to scare the renter off altogether with too high a flat rate fee so I think you need to strike a common ground first. Then if it is simply not worth it up the rate or use that clause to bail you out if your renter turns out to be less than desirable. Above all though strive to make it a WORKING relationship. Experience shared, help offered down the road can easily work out to be worth far more than payment. Best of luck John 😉
You may give up a bit of income with the flat rate but the hands off aspect could definitely make it the best choice. I’m all about simplicity.
Get the rent up front. Your renter is then invested in the business.
Absolutely Richard. This makes flat rate mandatory.
I would not rent your cart out, it will be a hassel and most people will not take care of the cart…Sell it….When you want to crank it up again,,,,buy one,,or get some of Steve’s prints and build one…Been there done that, people will not take care of your equimpment.
What kind of “wear and tear” did you experience Will. Can you give a dollar figure as well? Thanks I’m in the same situation as John and about to take the renter’s plunge.
I think keeping the cart sparkling clean would be a low priority issue for a renter.
Ok quik question what would be a fair flat rate to charge by the week. my cart is just sitting in my garage. So at this time its not generating any cash flow. I have a guy that wants to rent it. my cart does have a Brand it has my name and i have a couple different menus depending were im going to work it. I’m not interested in percent sales as people in general will buy their own dogs and sell under the table. So if they pay up front it woulb be better for me, I don’t have time to babysit. Thank You. I was thinking like $100.00-$150.00 week
That would be more than fair. If you have a good location you should be able to double that rent.
Willie Dog wrote >I would not rent your cart out, it will be a hassle and most people will not take care of the cart…Sell it…. When you want to crank it up again,,,,buy one,,or get some of Steve’s prints and build one…Been there done that, people will not take care of your equipment. <
I am in 100% violent agreement with Willie… My best friends son (a very reliable young man) just graduated from college and asked me to use my cart. I just simply said " you will not take care of it, the same way I do, so I can't let you use it". My friend has millions in the bank, and still will not buy his son a cart??? How would I let him use mine then?
What if, the renter forgets to plug in the tail lights and gets rear-ended? What if, someone sees the brand on the cart and sues you for food poisoning? What if, the renter doesn't really have "serve safe" certification or insurance? What if they just build one of Steve's carts themselves, and you save yourself a lot of risk, stress, and heartache?
Let's see, renter pays $150 a week, or they can use Steve's plans to build a new one for $500-$800 … hmmm… I think your not going to get $150 for long, and it's a huge risk. So it comes down to another BMW analysis… [B]est case (you get a little money), [W]orst case (you get your pants sued off), [M]ost likely case (Steve has another happy customer, and everyone wins)
Don’t hold back T bone – tell us how you really feel! 😉
Thanks for your violent agreement (quote of the day, by the way). You’re awesome.
Wow ! Really, don’t hold back, let it out. I feel for you though TBone. I suggest a differant angle, If you can bring up the subject again, suggest to your “reliable young man” that you will help him aquire a hot dog cart, and do that. Let him see that despite his dad’s millions, it takes hard work to search, negotiate, transport, etc a hot dog cart, not just “borrow” yours. It takes alot of work to get into this biz and that is good training for anyone. As for me, did I buy my kids their first car? NO, they respect how hard they had to work to buy their first piece of junk…just like I did, that car has more value to this day. In this scenario everyone wins! Good Luck.
Right on Uncle Frank. I worked at Burger King in high school saving up money to buy my first used car. It was a rusted out 1973 Mustang Mach 1 that I bought in 1982 for $750. That ride meant more to me than any other car I’ve owned since.
Deposit….Deposit….. Deposit… Everything steve said is correct……. But it can turn into a nightmare as well. And with friends renting it,I can hurt the friendship if anyting goes wrong, I have already build 3 and sold them for an amazing profit… Thats aother way to go and you can still brand the care just rivet a engraved metal plate to it with your business name # ECT…… But thats just me for some it ca work out great look at auto zone sure they barrow tools but you pay full price to barrow it
Hey Dave,
Unfortunately there is no “one size fits all” answer. It depends on so many variables. If you are the only one offering to rent out your cart you can charge more than if there are 10 other businesses in your town doing the same thing. If you have a great location you can charge more than if the renter has to find his own location. The only answer that applies across the board is that you will maximize your cart rental income only by testing different price points to see what the market will bear.
Hi Here other idea if you rent the cart out.
Take a photo of the renter. Make sure you have a lawyer friend write up the contract ,which will cover all the liabilities. Some states do not require serve safe but you should require it even if your state does not require serf safe certificate.
Great ideas David!
I am hoping someone has a contract example to look at???
If they are working on a flat % of sales, how does that work with taxes? Do they report the entire amount they sold, minus what they give you? or do they give you a w-2 or something similar?
They would be responsible for their own taxes, both sales tax and income tax.