Forget the hype. Let’s talk real rental profitability.
In this episode of the ReCommerce Podcast, host Karri Hiekkanen talks with Tuomo Laine, CEO and Co-founder of TWICE Commerce, about how to build a profitable equipment rental business from the ground up. Based on Tuomo’s internal memo (link below), they unpack the actual unit economics of rentals and explain why, in many cases, renting beats selling.
This episode covers:
Whether you're just starting out or scaling a large circular operation, this conversation gives you a practical playbook for making rentals work.
Related memo: "The Unit Economics of Rental: When Does It Beat Selling?"
Karri: Hello and welcome to the Recommerce Podcast, the podcast where we talk all things Recommerce and circular businesses. Today I’m joined by Tuomo Laine, the co-founder and CEO of TWICE Commerce, in our new upgraded podcast studio with new microphones. Welcome.
Tuomo: Great to be here with the improved audio.
Karri: Nice to have you here. Today we are focusing on rental businesses and especially equipment rental businesses. We want to focus on the unit economics and try to make sure that whenever you are running a rental business you are actually doing it profitably. The topic is based on this internal memo that you, Tuomo, wrote—and maybe you want to introduce it a little bit. We’ll make sure that we have it also linked in our podcast notes.
Tuomo: Sure. Yeah. So the memos—well, I have a habit of writing these memos—and they range from how to calculate things like the profitability of rentals, to how to run resale operations. Effectively, it’s a learning tool for us as it is for sharing ideas and knowledge. So happy to share all of those, and maybe it’s worthwhile to say that these are based on our own learnings—so there might be mistakes, or there might be insights. We’re more than happy to receive feedback on the memos—whether we’ve made a mistake, or whether you have different experiences than what we’ve seen—and we would love to edit and amend our own learnings based on your feedback.
Karri: Absolutely. And I think we’re going to share them also on LinkedIn, so that could be a pretty good place to comment and give your own insights.
Tuomo: Definitely.
Karri: Today’s memo focuses on this core framework you’ve written down about rental businesses—how to make sure they’re profitable. Let’s first walk through the whole framework or formula, and then break it down into pieces. We can focus on the levers that rental operators actually have some control over.
Tuomo: Yeah. And the interesting part is that over the years we’ve worked with rental companies—especially those entering rentals due to sustainability or servitizing offerings—it’s often hard for them to understand the profitability equation. They ask for help modeling profitability and understanding which levers can be used to improve it. Of course, if you’ve been running a rental shop for 20 years, this is baked in. But let’s look at the formula. I think it’s super simple.
Karri: Go ahead.
Tuomo: When we’re trying to figure out the net profit per unit (NPU), we start with revenue. That’s the revenue accumulated over time—rentals during the product’s life cycle. In the best case, you can resell the item as refurbished or secondhand, or secure revenue from recycling. So revenue is the combination of what you made during the rental period and anything you get at the end of life.
Karri: Got it.
Tuomo: Then we start deducting costs. First, the cost of acquiring that unit—your cost of goods sold. Second, depreciation—the decrease in the asset’s value over time, especially important in rentals where inventory cycles are longer. Third, recurring operational costs: inspection, refurbishment, and fulfillment each time the unit is rented. Finally, recovery losses: damages, write-offs, or stolen items.
Karri: Makes sense.
Tuomo: When you subtract all of these from the total revenue, you arrive at your NPU—net profit per unit. Multiply that across your whole inventory, and that’s your rental business.
Karri: And there might be other fixed costs or service-based income as well, right?
Tuomo: Yeah. Warehousing, for example, or income from services like insurance. There are different ways to model this. Personally, I’d treat all add-on sales as an aggregate and distribute that across the items that sold them. It gives you a clearer picture of overall profitability.
Karri: Okay. Let’s move into the pieces of the formula and talk about what you can actually do to improve things. Let’s start with asset turnover.
Tuomo: Right. Asset turnover—or utilization rate—is about maximizing usage per item. Rather than a big fleet with low usage, we want a smaller fleet with high usage. Proactively, that means understanding demand and sizing your fleet correctly. You can also influence this through your pricing model.
Karri: For example?
Tuomo: Well, you can decide whether to rent by the hour, day, week, or month. But that depends on how much time you spend between rentals refurbishing the item. If you spend 2 hours turning the item around, and you’re only earning 10 bucks from a 1-hour rental, that’s not viable. You have to factor in refurbishment needs.
Karri: So proactive optimization includes pricing models and fleet sizing. What about reactive levers?
Tuomo: Optimization between rentals—like speeding up refurbishment. Could be systems improvements, or asking customers to return items cleaned. Software like TWICE helps here—by automatically adding maintenance buffers between rentals and tracking how long refurb actually takes. That data helps you fine-tune your logic over time.
Karri: It sounds complex—and seasonal.
Tuomo: Definitely. But you don’t need to react constantly. As long as data is stored, you can analyze and apply learnings in quieter periods. If you’re hiring new staff for the season, add a buffer. Start with a small fleet if you’re new, and scale as you learn.
Karri: Makes sense. Let’s move into depreciation.
Tuomo: Sure. Depreciation is affected by what you purchase. Durable, easy-to-repair, high-resale-value items will depreciate slower. So your sourcing decisions matter. That’s proactive.
Karri: And reactively?
Tuomo: Repair things quickly. If you delay, damage can compound. Also, use software to model tradeoffs: should I put this in maintenance now, or keep renting it out? What revenue might I lose? A good system helps you make that call.
Karri: That’s helpful. And for new entrepreneurs, inspections and maintenance early on help reduce replacement costs, right?
Tuomo: Absolutely. And if you collect data from day one, your next season will be smarter. You’ll know which models held up well and which didn’t.
Karri: Next up: operational costs.
Tuomo: These vary a lot depending on the rental category. But there are clear wins from batching tasks—washing 10 bikes in one go is more efficient than one-by-one. Just like in manufacturing, batching drives efficiency.
Karri: Any practical ways to do that?
Tuomo: Yes. Many stores schedule pickups from 9–11 AM and returns later in the day. That way, they can staff accordingly. Or they might use a cold return station. The point is to create blocks of focused maintenance time.
Karri: Could software help here, too?
Tuomo: Absolutely. It can set up predictable availability, buffer times, and communicate policies to customers.
Karri: Like IKEA’s “you assemble it” model?
Tuomo: Exactly. You can shift work to the customer—require them to return items clean or full of fuel, like car rentals do. And frame it positively: give instructions ahead of time, explain how it works, and make the experience feel empowering.
Karri: That’s great. Pricing is our final major lever.
Tuomo: Pricing is incredibly powerful. Many newcomers price based on the item’s purchase price—but overlook the value of convenience. That $25 adapter rented for $10 might seem expensive—but customers don’t want to own it. That adapter made $500 over time.
Karri: So pricing based on usage and experience value, not cost.
Tuomo: Exactly. You can also bundle add-ons—insurance, accessories, support. All of these raise average revenue per rental.
Karri: What about late fees or penalties?
Tuomo: These are common, and they can be powerful. Blockbuster made a huge portion of its revenue from late fees. But they can harm customer experience—so it’s a balance.
Karri: Dynamic pricing?
Tuomo: Also super useful. Charge more on weekends, during peak seasons, or give discounts for online bookings. Systems like TWICE make this easy.
Karri: Any advice for pricing complexity?
Tuomo: Start simple. Don’t pre-optimize. Complexity kills conversion. Clear, transparent pricing wins—$25/day is more memorable and shareable than some 5-dimensional matrix.
Karri: That makes a lot of sense.
Tuomo: Yeah, and simple pricing can even be a marketing asset. Some brands use it in their campaigns: “Just $XX/day.”
Karri: So we’ve now covered asset turnover, depreciation, operational costs, and pricing. Final thoughts?
Tuomo: Rentals are more complex than linear sales—but also more profitable. You have more levers, more control. For anyone starting:
Karri: Perfectly said. Thanks so much, Tuomo.
Tuomo: Thank you for having me—and for the new mics! Let’s hope the sound quality is better.