Would you like to close more jobs and make more money? How many times have you walked away from a big-ticket plumbing sale because your customer didn’t have enough cash saved up to pay for it? Do you think you could sell more big-ticket items and make more money if your customers had a financing option? Allow me to answer those questions for you - YES!
I’m not going to waste your time on what financing options you should not offer. Instead, I’m going to talk about the offer on which you need to focus.
Create a selling priceI recommend you offer your customers 60 months financing. Depending on the financing company you use, it will cost you in the range of 16% to 20%. Don’t panic. You will understand why I’m recommending this option after you understand how to sell financing.
Let’s start with this example:
- Selling price = $9,000
Financing cost = 18%
No. of months = 60
Take $9,000 (your selling price)/(1-18% =) .82 = $10,975.61 (selling price with financing cost included). Now take the selling price with financing and divide by 60 months - $182.93 per month.
How to sell financingWhen you are presenting your financing options to the customer, present the monthly payment only. For example:
- Premium model with all the extra stuff = $183 per month for 60
You can present many package content options from regular to premium models, from no extras to a lot of extras - but only present them under a monthly payment option.
Many customers will just say OK and never ask anything else. Others will ask, “How much is the total price?”
When asked about the total price, I recommend you have a second page ready to show the customer:
- Premium model with all the extra stuff = $183 per month for 60 months
Total payments = $10,975.61
Cash discount of 18% with no financing = $9,000
Present it like this: “Mrs. Jones, if you choose the 60-month payment plan option, your total payments will be $10,975.61. The finance company charges us 18% to offer a 60-month payment plan with 0% interest and we have built that cost into our price. However, if you choose not to use the financing option today, we offer a cash discount price for $9,000. That saves you the 18% financing cost or $1,975.61. Which option would you like to go with, Mrs. Jones?”
Why monthly payments?Most of our customers cannot write a check today for $9,000, but they can afford a payment of $183 per month. Do you want to present an option most of your customers can afford?
Set yourself up to win. Be the casino and put the odds in your favor. If most of your customers can afford a $183 per month, then sell them financing.
Let’s think outside our industry for one minute. How many people know how much a new car costs today? Most people don’t have a clue. They know it’s $299 per month, or its $2,500 cash back at closing because the auto industry is selling financing. They’ve mastered it. You can, too.
This strategy also speaks to salespeople who may be saying, “We’re $1,500 higher than everyone out there!” My first reaction to that kind of attitude is that they are bad salespeople, and generally I’m right. A salesperson who complains about the price definitely needs training (or replacing) because clearly, he has never answered these five questions for his customers:
- Is this company right for me?
- Do I trust this salesman?
- Is the timing right?
- Is this solution right?
- Is the price right?
That being said, if your salespeople are presenting payments, they can’t be $1,500 higher because the offer is $183. And remember, when a customer asks about the total cost, be honest. Show him the facts and present the options. When the options are explained correctly, many customers will think out loud and say, “I’m not getting that kind of a return from my bank.” And they decide to write that check for $9,000.
Think about that for a minute…
The customer is now focused on the investment of his cash (for those who have the $9,000). What he is not thinking about is whether he wants the system - he is way past that. He has already bought the system in his mind and is now thinking about the best way to pay for it.
Selling financing pushes customers past the sale into the “What is the best way to carry out this purchase?” mode. I want to emphasize this: Selling financing pushes customers past the sale into the “What is the best way to carry out this purchase?” mode.
It’s all about cash flow, my friends. You have cash-flow concerns and your customers have cash-flow concerns. Yes, it has a lot to do with psychology, but that’s for another day. By the way, a good book to read about the buyer’s psychology is “Predictably Irrational” by behavioral economist Dan Ariely.
Are you asking yourself, “Why am I OK with an 18% cost the finance company is charging me?” If you are, I hope you don’t make me come through this page and bop you upside the head. Think about it. There are two main reasons why I’m OK with it:
1. All costs are passed onto your customer. The first lesson Nexstar founder Frank Blau taught me 22 years ago: The costs don’t come out of your pocket! Pull your head out.
2. The 18% discount for the “cash-paying customers” is a great win for the customer who has the cash RHRN - right here, right now.
Don't fall into this trapWhen I hear from contractors who are presenting 12-month, 0% financing because it only costs them 3% to 4%, I say, “Stop the insanity!” All you are doing is kicking the can down the road. This is not a benefit for you or your customers. At some point customers are going to have to pay the $9,000, either today or 12 months from today. Either way, they won’t have the cash and it doesn’t solve their cash-flow problems. It won’t solve your closing rate issues either.
If you are still presenting a lump sum price out of the gate, stop doing that!
Remember, you want to set yourself up to win. If that’s true, then you must understand that most of your customers don’t have $9,000 to give you today, but most of your customers can make a $183 payment.
Think about how much of a discount you can give customers today for paying cash. Maybe 3%? Is that really going to yank cash out of a customer’s pocket RHRN? I say an 18% discount is much more powerful. And don’t forget, the customer pays for everything or I will send Frank Blau after you. He’s 83, and he could still kick my butt.
If you start selling financing the way I’ve laid it out for you:
- You will close more jobs;
- You will make more money;
- You will grow your business;
- You will not be considered to be $1,500 higher than your
- Your customers will love you.