"Should I Own or Lease the Equipment My Business Runs On?"

0:00What's up, Tristan? >> Yo, what's up, Alex? How you good? >> Yes, I'm great. How are you? >> Fine. Thanks for having me. I'm excited. So, let me break it down. I'm calling from Europe. We run a done-for-you photo booth business specialized on night clubs only. We are on our way to hit 1 million revenue this year. We want to be at 3 million Done-for-you photo booths. So, >> Photo booths. Got it. >> Yeah, photo booths. And we only put them into night clubs. So, we want to be at 3 million in the next 2 years. Our business model is we own the booths. We put them in the night clubs. We earn per picture that the guest takes and we pay a commission to the club.

0:37>> Right. >> Our LTV on average is 6 years plus. Reality is probably longer, but nature of the business is clubs close. So, that's how we lose them, but in in general, we don't have any churn. >> What's the revenue per month? Yeah, what's the revenue per club per month? I know it depends on the club, obviously, but give me an average. >> Yeah, on average we have per booth we are at 950 gross, which leaves that 450 to 500 a month contribution margin before HQ overhead. We run 80 booths at the moment.

1:09>> them half the margin. You give them half and then you take half to do the rest of the business. >> No, no, we give them like 20 to 25%. >> Okay. >> And yeah, exactly. And that leaves us at about 30% net margin after overhead and debt. While thanks to you, we leveled up in leads. We're doing one thing that really worked for us is doing more of what really works and what already works instead of trying new things all the time. That really helped. Thank you.

1:35That brought us to our real constraint, which is cash flow for new machines. If we want to hit our goal, we need to upgrade our money model. So far, we tried to upsell an upsell offer for the clubs that brings them from 20 to 25% up to 50 with paying one-time fee of 6,500. But the market did not really take it. Only our flagships would take it, but they earned that money in 2 months. So, that's not interesting for us.

2:02Um we have some brand partnership deals um with liquor brands. They do the the sales for us. Um so far um they were also skeptic in paying upfront. So, we hit a resistance um at the moment we are at like 17 months till the booth is paid back, and we need to bring that to one to two. That is my constraint. >> The uh the booth that you have, the the sides of the wall, do you um Interesting. Yeah, part of me was thinking about that from an ad space perspective, too, but no worries. Um With a business like yours, how much are the machines?

2:37>> Uh it's like 7K, roughly. >> Okay. Yeah, yeah, yeah. Um Hm. I wonder if instead of owning them, you could lease them from the manufacturer. >> It's probably also possible. I always have the feeling that it's better to own the stuff long term. Um but of course, we have constantly cash constraint, so it would also be a solution. >> Yeah, I don't I don't hate that because you're still doing the arbitrage. Cuz the thing is is like if you own it, in 6 years it might be outdated and need to get You know what I mean? Like it might it you might need a refresh anyways.

3:12Um and what you really care about is just placing them and having the spread, right? >> Yes. >> Yeah, I I'm curious what the lease payments would be because like if you didn't have to pay 7,000 each and just had to pay like $100 a month or $200 a month or I don't know what what it would have worked out to be. That would basically like you'd be good to go. >> True. Never I actually because I always thought I want to own them, and uh that's a good idea.

3:38>> The thing is is they're not an appreciating asset. It's a depreciating asset, right? Like they like 10 years from now, a photo booth is not like more valuable. >> Yeah, that's true. Yeah, may most of the time we just change like the software and a little bit the the license side, the cage it's like it's been there for I don't know for 30, 40 years. Didn't change too much. Yeah, but I I got you. I I I love the point. I never thought of it that way. I always thought, "Okay, we we buy them."

4:05Um there are definitely providers that do this. Um we will hit this and just do a test run with a few booths and see how the numbers are in the >> So this is a model issue. So in terms of like cuz again it's like you have a you have a very understandable business. Like it's it's very straightforward and it's also very predictable. Um which means that you could just model this entire thing out from a cash flow perspective and say like, "Okay, well, we are going to pay more for the machine. We're going to pay 9,000 per machine instead of seven, but it's going to be over five years."

4:32That will materially improve our business. And whatever. Like we just see this as a cash flow streams and your your net would should go up. Rather, your net free cash should go up. >> Yes. Yes, definitely cash flow will go up, of course. Most of the available cash goes to building new machines at the moment. >> Which I mean, if you're trying to maximize for not you know for not paying taxes, you can basically get your income down to zero because you always just buy more machines.

5:00Uh but right, but then then you're not making any money. Uh so it's a bit of a you know kind of a catch-22. Um I don't know like if if Yeah, where where that business gets interesting in terms of the purchasing versus the leasing is you can do some fancy finance stuff so that you can like it depends how you recognize the revenue versus how you recognize the cost. Like there's some interesting things you can do there. Um but if like the constraint of the business, you basically have two options outside of changing a business that already works. Option one is that like you can get a capital injection meaning like you sell a small part for a big amount of money and then use that cash to then get you from 80 to you know to 200 or 300 whatever cuz like if you had a million bucks, right? That would mean uh you'd get 13 per million. I'm just rough math, right? Uh 13 13 um things per sorry per per 100k.

5:51So you get 130 more with a million dollars, right? And so that would almost triple the business. Not quite, but almost. And so it's like maybe somebody be willing to do that, but I would probably just look at the lease model if that was the constraint of my business cuz if if you can just do that and you can scale limitlessly, that's not too bad. >> Why not? >> Yeah. >> True. Thanks, man. I think actually for this I have a lot questions, but for this I'm totally fine and I will try it.

6:20Sometimes it's so obvious and yeah, we thought many ways, but not the obvious way. So thanks a lot for [laughter] >> I'm glad I could help, but dude, appreciate you. Thanks for saying that. >> thanks, man. Bye. >> You bet. If you like this video and you're a business owner who wants to break through your current revenue ceiling, I distilled every lesson from scaling 10 businesses past 10 million and three businesses past 100 million into a completely free scaling roadmap that I've used to go from zero to one, zero to 10, and zero to 100 plus. And so you can click here and you can check it out. Again, absolutely free. And since you're a business owner, appreciate you and enjoy.