Does Keep rate matter? How does it affect your bottom line? How can you improve your keep rate? For any Rent to Own, especially mature locations or stores  experiencing zero growth, improving keep rate can be the fastest, most effective way of improving your bottom line.

What is keep rate?
There are more than 8,000 rent to own locations in the US today. There are also 8000 different calculations for keep rate. In its simplest form, keep rate is...

The percentage of agreements in which the customer maintains possession of the merchandise continuously, making all renewal payments, until ownership is acquired.

Industry pundits report an average keep rate of about 40%. Some dealers claim a keep rate of 80%. Others as low as 20%. While there are many ways to run a rent to own, it is doubtful that keep-rates vary this much. The confusion most likely comes from the variables included in the calculation.

What not to count
When calculating keep rate, do not count the following...

• 90 day same as cash

• Agreements that have been re-written (expired, and re-written to "save the agreement")

• Agreements that have a reduced term from a lifetime reinstatement or other similar option

• Agreements on used merchandise with a term less than 6 months (this can skew the keep rate)

How does keep rate affect the bottom line?
In a word...HUGE! Keep rate may very well be the single most important factor in your profitability. To get a clearer understanding of the real effects, consider two identical BOR purchased at the same time with identical 'first out' dates.

	Item 1	Item 2
Time to dispose	14 months	15 months
Months Idle	0	2
Deliveries	1	3
Pickups	0	2
Re-furbish	0	2
Dollars collected	1600	1362

The first item is rented for $100 per month, on an 18 month rent to own agreement. The customer renews for 14 months then exercises the 50% early buyout option. Total collected $1600

The second item is rented for 4 months at $100 per month and returned. Idle for 30 days then, rented again for 4 months and returned. Idle for 30 days then discounted to $75 per month and rented a third time for a term of 10 months. The customer renews for 5 months and exercises the early buyout option. Total collected $1362

In the second example, you have collected 14% less money, your delivery/pickup expense is 5 times higher, you have re-furbished twice, and it took 30 days longer to dispose of the inventory. Add up all the costs involved, and your margin can easily be cut in half.

The good news
Just as a poor keep-rate can lower margins, focusing on keep-rate improvement can raise margins dramatically. In a broad sense, there are 3 factors that control keep-rate. Percent of new merchandise on the floor, rental rates and collection practices.

New Merchandise
Keep rates tend to be higher for new merchandise. After all, the primary reason people rent is to get quality merchandise with no long term commitment. New merchandise has more appeal and therefore is more likely to be held by the customer. Traditional Rent to Owns carry less than 30% new merchandise. More progressive stores carry as much as 80%. This requires a shift in nearly every facet of your operation, from buying to pricing. The added volume carries added costs, but these are easily outweighed by the higher margins associated with the inevitably higher keep-rate.

Rental Rates
Higher rates = lower keep rate. Rent to Own customers shop. In an industry with no credit check, same day delivery, and no long term obligation, customer loyalty is non-existent. If a customer finds the same or better merchandise at a lower rate...they are gone. It requires a leap of faith to lower your rates across the board. Look at it this way, if lowering your rates by 10% raises your keep rate by 30%, the reduction in expense associated with delivery, pickup, re-furbish, and idle time will more than make up the margin.

Collection Practices
Collection practices play a large part in keep rate, but not in the way you might think. Logically, the tighter your collections, the lower your keep rate. This is not the case. Assuming the merchandise you carry is of the proper quality, your rates are lower than the competition, and your account reps are professional, running tight collections can actually increase BOR. The key is making your expectations of the customer crystal clear from the very beginning of the agreement. It is standard practice to cover every section of a rental agreement. In most states it is required by law. Equal time should be given to expectations. Be very specific with the customer before they sign the agreement. If your policy is "Not paid by Wednesday, picked up on Thursday" it is only fair to inform the customer. They will appreciate the candor, and there will be fewer difficulties should the agreement expire.

Bottom Line
An item rented twice can be written off as a cost of being in this business. If the percentage of your inventory being rented 3 times or more is over 10%, you have a serious 'business model issue' that requires immediate attention. Focusing on keep rate will improve your margins, make your customers happier, and make your employees life easier.