The August 2, 2010 article discussed pricing Service Contracts. Commercial leases are priced differently. The primary objective, to make a profit, is the same, but the considerations a bit different.
As in all competitive businesses, your competitors are going to influence how you can price your services, including your commercial leases. The Standard Commercial Lease has a feature that is foreign to typical equipment leasing deals, there is no buy out. There is no subscriber option to acquire title to the equipment. The only way the equipment would be deemed sold to the subscriber is in a subscriber default situation, at which point the "agreed installed value" of the equipment will set the selling price. But that is better left for another discussion.
When you price the lease you need to take into consideration the cost of material and equipment, labor to install, labor and material to service the system over the life of the lease [mine is 10 years initial term], and monitoring charges you will be paying to the central station [or your monitoring cost if you are the central station as well as the installer].
Start with the installation. Hopefully you can price the installation in the same amount you would have priced an outright sale of the system with installation. Sure you'll need a great sale's pitch, that you should get the same price for a lease or sale because you will be keeping the equipment operational for the entire term and that cost should equate with the price you would have sold the system for with a 100% markup. Those of you who are in depressed areas or afraid to price your deals with a real profit, save your breath. This is text book advice and I know it. But there must be a few of you out there who are still making a great buck in this business.
So now that you've priced the sale and installation, you need to consider the monthly charge. Before getting to the service and monitoring consideration, I want to consider those jobs where you can't get your labor and material plus 100% for the installation. Well figure out that number, deduct the sales price you actually are charging, and then recoup the difference over the life of the lease. You can even add 8% or more to that number to account for the 10 year payout instead of the immediate present value of a paid sales and installation price you'd be getting on an outright sale.
Now for service and monitoring. Since you will be providing those services you will need to consider your cost and a reasonable profit. You add that number so you can recover what you would have charged for the sales price.
When done, you should realize over the initial lease term all of the profit you would have received in an outright sale that you installed, serviced and monitored over a 10 year period. And, you will still own that equipment at the end of the 10 years so the subscriber will have to renew or permit removal of the system.
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