Lease or Buy?
No, faithful readers, this blog isn’t about cars. It’s about customers.
You see, our company makes a piece of analysis equipment that is quite unique as far as its market goes. We’re the only one who makes something that does what it does. It’s very complex. And thus, it’s very expensive. Like $90k expensive.
Now, this isn’t something your average consumer buys. But it is something that your average diesel engine manufacturer would buy as even though it costs them close to $100k, it will easily pay for itself within a few months from the manpower and test hours it saves. It literally takes what used to require 250 hours and turns it into requiring about 20 minutes. That’s a huge cost savings for most people.
But you see, big old companies don’t just buy this stuff because big old companies are made up of small groups and those groups have budgets. And most groups cannot afford to just buy a $100k piece of equipment outright since budgets are always tight. So, because of this, we offer a lease option.
I don’t know the specifics on the lease option, but I do know that an 18 month lease is roughly the equivalent of purchasing the product new. We also offer 1 month leases at somewhere around $5-6k. Thus, if they only plan on using the analyzer for a short period of time the lease option is perfect for them.
Note that at the end of the lease, we get the analyzer back. Also note that some places are much more keen on leasing than purchasing due to the tax implications that leasing is somewhat better than buying on the books. It doesn’t make any logical sense, but if the shareholders see higher numbers then so be it.
Why do I tell you this? Because we have a particular customer who has been leasing one of our machines now for well over 3 years. They write us a new order all the time. Sometimes it’s for one month of coverage. Sometimes it’s for 3 months (at a slightly discounted rate). But they continue doing it.
All in all, I would estimate they’ve spent about $200k leasing this piece of equipment over 3 years…and they don’t even own it! Whenever they want to stop, we get the equipment back.
It seems so wrong, but it’s their choice I suppose. I just hope some bean counter doesn’t figure it out someday.