The establishment of rental collections under a quasi commercial self funding mechanism is described. This requires the separation of the rental collections' revenue and expenditure accounting mechanisms from total library revenues and expenditures. Having established rental collection revenues and expenditure (including overheads) the success or failure of the rental collections to meet their own costs can be monitored. The mechanism allows the commercial freedom to expand existing rental collections or establish and grow new media rental collections in order to respond to demands
Many New Zealand libraries operate revenue generating rental collections.
New Zealand metropolitan libraries reported over $2,700,000 of revenue from rental collections in 1998/99. The money earned appears in budgets and reports but is not generally related to costs of providing the rental collection service. This can be disadvantageous in two ways.
* while there may be an assumption that revenue from the rental collections is meeting or exceeding the cost of providing rental services, this cannot be demonstrated
* funding of the rental collection is another budgetary item, usually increased or decreased on an annual basis in an incremental fashion. While one may suspect that increased funding will produce more revenue there is no formal mechanism for relating materials funding to revenue, or measuring that relationship
A high demand based rental collection model was conceived in the Tauranga District Libraries following a review of the fiction collections. The model sought to gain more revenue from the collections through increased turnover, increased charges, and reduced loan periods, while enabling the percentage of the overall fiction collection which would be free to borrow, to be increased.
The high demand collection model is considered a consistent and robust mechanism for meeting revenue goals by balancing demand, price and issue period. Generally, items of greater popularity have a shorter loan period and a higher cost per loan. This mechanism maximises user access to the materials they require, increases turnover of stock and generates significant revenue in a manner that is acceptable to the majority of public library stakeholders.
An essential component of the model is the establishment of a self funding business unit within the library that would be free to reinvest a percentage of revenues in new materials to fund growth and development of the collections. Because the high demand collection is self funding it is able to grow, like any business, to meet consumer demand,
In order to convince Tauranga District Council that the operation of the high demand collections would be cost neutral and that any growth would not cause an increase in net library costs, it was necessary to arrive at a ratio between new materials costs and overheads.
The net present value calculation
Public library rental collections are designed to generate revenue and measurement and reporting of rental revenues is standard for libraries operating such collections. What is more difficult to measure is the cost of providing rental collections and comparing this with the revenues in a meaningful way.
A standard accounting method for assessing business propositions is known as a net present value (NPV) calculation. It is a way of comparing costs and revenues over a number of years. For example, a project with a ten year life cycle will have establishment costs in the first few years and variable revenues over eight or nine years. As most investment projects have an element of risk the investor wants to compare the returns from the project against a low risk investment at the going rate. In other words the investment should offer rates of return that are greater than the opportunity costs of capital.
To arrive at a comparison between costs and revenues it will suffice to compare an investment in one notional high demand item against a risk free investment returning 8% per annum. …