A growing number of retailers are implementing a frozen beverage program, due to extremely high profit margins, small footprint, and little required labor, skill, or training to operate.
However, purchasing equipment outright is not always the best option for all businesses. In some cases, renting or leasing equipment makes more sense, financially.
Here are the factors you’ll want to take into consideration when deciding whether to buy, rent, or lease your commercial frozen beverage equipment.
The Benefits of Buying
If you want to maximize your profit margins, and the equipment will be in daily, long-term use, owning a piece of equipment outright is almost always going to be your best option. This is especially true if you go with a high-quality vendor that provides reliable equipment and responsive service.
Once the equipment is paid for, your ongoing costs are minimal compared to paying a monthly rental or lease rate.
However, when you are budgeting, make sure to consider your complete cost of ownership. Some vendors may entail hidden costs that could make renting or leasing more affordable.
Consider Your Complete Cost of Ownership
When it comes to budgeting, many business owners only consider the initial acquisition cost of new equipment. Unfortunately, lower-cost options tend to have much higher “hidden costs” that quickly erode ROI and profitability.
When considering which Frozen Beverage Partner to choose, look beyond merely the initial acquisition cost, and consider the entire cost of ownership, including:
- Initial Equipment Acquisition Costs
- Training and Labor Costs
- Decreased Customer Satisfaction (Due to Low Drink Quality)
- Cleaning, Maintenance, and Downtime
- Syrup, Cups, Straws, and Lids
- Water and Utility Costs
- Repair and Replacement
If you are going to make the large investment of buying your equipment outright, make sure to account for all of these “hidden costs” when choosing your Frozen Beverage Partner.
You can achieve much higher profitability if you invest a little more up-front with a higher-quality Frozen Beverage Partner that fully stands behind their products.
Consider Your ROI Needs
While you’re calculating the total cost of ownership, make sure to also calculate just how much ROI your Frozen Beverage Partner can actually offer you.
Consider the following questions:
- What kind of frozen beverage sales numbers are you projecting at your location?
- What retail price can you realistically charge for frozen beverages at your location?
- What cup set size do you plan on offering at your location?
- After factoring in the total cost of ownership, what are the actual profit margins your Frozen Beverage Partner can offer you?
- How quickly do you need to see ROI on your investment?
High-quality, efficient equipment with the latest technology can enable you to achieve positive ROI in as little as 2 years, and continue generating high profit margins for many years after that.
You can use our ROI calculator to estimate what profit margins you can expect, and how quickly you can expect to see a return on your investment.
In addition, our article here will help you decide whether you should buy new or used equipment.
The Downsides of Buying
The downsides of ownership are the high, upfront costs and ongoing equipment maintenance costs.
Once you purchase the equipment outright, you are committed to that equipment and responsible for maintaining it until you either sell it or replace it with another piece of equipment.
Some businesses can’t afford the upfront costs or a down payment on a loan, which might make renting or leasing a more viable option.
The Benefits of Renting
You may not be completely sure whether you want to commit to ownership or a long-term lease, and you might only need the equipment for a very short or undetermined amount of time.
Here are a few such situations where an equipment rental might be the best option if you need the maximum amount of flexibility and don’t want the burden of maintaining equipment yourself:
You’ve Just Started Your Business
The first few years in business are crucial and extremely difficult. In the beginning, it’s important to track costs carefully and keep overhead to a minimum.
Frozen beverage dispensers often cost thousands of dollars to purchase outright, and could be out of your budget for a while. When you’re just getting started and have limited cash flow and credit, renting can be a great option to consider.
Rentals for Specific Events or Seasons
Not every business needs a frozen beverage dispenser year-round. You might only need it for a specific event or season. Regardless, it doesn’t make financial sense to invest so much money up-front if you’re only using the machine temporarily.
Testing the Idea of Adding Frozen Beverages
You might be unsure if a frozen beverage dispenser is right for your particular business or circumstance. If you don’t want to make a permanent commitment, and would rather try out a frozen beverage machine for a few months to see if it generates the profits you are looking for, renting might be a good option for you.
If you discover that your frozen beverage machine is successful and you are seeing satisfactory profit margins, you can later make the decision to purchase a machine and make frozen beverages a permanent option at your location.
The Downsides of Renting
The downsides of renting are that you may not be getting the newest equipment, and you are limited only to the equipment available in a renter’s inventory.
In addition, you will most likely pay a higher monthly rate than if you obtained a loan or a long-term lease.
The Benefits of Leasing
Leasing is often a good “middle ground” between renting and outright ownership.
Leasing allows you to continually get the newest equipment with the latest technology, while only paying a flat monthly rate. The monthly rate to lease equipment long-term is usually cheaper than the monthly rate to rent the equipment, but higher than the monthly rate you would pay on a loan.
Unlike equipment rentals with flexible, undefined timeframes, leases have set, specified terms (typically 12 months).
While you are usually responsible for at least some maintenance on leased equipment, you are leasing new equipment that will require less maintenance than owned equipment later in its lifecycle, so you will likely save on long-term maintenance costs.
If you are ready to make a long-term commitment, but are unable to afford the large, up-front cost or make a large down payment on a loan, an equipment lease may be your best option.
The Downsides of Leasing
The downsides of leasing are that you are paying a long-term, monthly rate for your equipment and are usually responsible for at least some maintenance, but at the end of the lease term, you still do not own the equipment.
Once the lease is completed, you must either return the equipment, arrange to purchase the equipment, or lease another piece of equipment and continue paying a monthly rate.
New vs. Used
Now that we've covered the advantages and disadvantages of buying vs. renting vs. leasing, you'll want to familiarize yourself with the pros and cons of both buying new or buying used equipment.
Ready to learn more about starting your own highly-profitable, Frozen Beverage Program?
FBD Frozen is trusted by 80% of the world’s frozen beverage retailers. We have the reliable equipment and responsive support team to help get your Convenience Store’s profitable frozen beverage program started today!
We work hand-in-hand with you to create a Frozen Beverage Program that addresses your specific capacity and footprint needs and meets shifting market demands. Whether dealing with seasonality, new technology, or changing market trends, FBD’s team of experts will help you adapt your frozen beverage program to maximize your margins.
With over 532 unique equipment configurations, we can completely transform the interface of our machines, whether crew-served or self-serve, to align with your marketing needs.
Let’s Get Started Building Your Profitable Frozen Program Today!
Schedule a call to have one of our experts help you:
- Recommend the ideal products for your specific type of location
- Identify the right equipment and customization
- Estimate your ROI
- Provide an operations implementation plan including labor, maintenance savings estimates.