This may seem like a secret, but it’s not. HVAC dealers, improvement contractors, and generator dealers have been using financing to grow their businesses for years. The smart ones have turned it into an art form, but for the rest of the industry, it’s been gaining ground. First, let’s debunk some general myths about financing:
- It’s expensive to offer consumer financing
- It’s complicated
- my customers don’t want it
Debunking the Myths. Offering used to be expensive for the dealer. Fees range between 2.5% to 12% with the average about 7%. Synchrony, Greensky and others charge fees, but POWERpay does not charge fees so it’s no longer expensive to offer financing. Second, the complication is gone. New technology has made it easy to sign up and start offering financing. With easy online enrollment, POWERpay can have you offering loans in 24 hours with a one-page loan close out. The final myth is that your customer don’t want it. That’s just not true. Over 50% of all home improvements over $5,000 are financed. That’s a national statistic. Customers that use financing are much safer than other customers because the bank is paying you and not the customer. So as long as they are approved, you are guaranteed to to get paid.
The Math. Ok, so how do you make money by offering financing? Let’s take an average HVAC dealer / Contractor who does $1 million in annual revenues. Under this scenario by adding financing you could grow your business by nearly 50%. So a $1 million business could grow to $1.5 million without any additional monetary risk. Please note that some companies will do less and some more but at worst case, you can grow your business easily with little effort.
Credit Card Fee Savings: $17,500
Additional Finance Revenue: $400,000
Additional Profit: $60,000
Net Profit Increase: $477,500
Reduce or Eliminate Credit Card Fees: by offering credit card payments you are giving away 3.5% on every $1 of each transaction. For a dealer that gives generates $1 million in credit card sales, it’s $35,000 out the door. With financing you keep 100% of every dollar without having to worry about collections, deposits, etc and you are paid on the install date.
Grow Your Business by 40%. Research tells us that the average dealer/contractor that offers financing will have a mix of 60/40 (cash/credit vs. financing). That means if you are new to financing, that you have the potential to add 40%, or more, to your current revenue stream. Why? Because when you offer financing you are able to reach customers that are not your typical buyers. Many buyers only use financing when making large purchases and won’t even consider your company if you don’t offer it. Secondly, How many times have gone on an appointment, provided a quote and not closed the deal? Imagine if one or two of the lost deals per day or per week said yes because you offered financing.
This is what smart dealers do but it takes a little practice, a little training, and good systems to make it happen. Just because a customer requires financing doesn’t make them a bad customer. Why? Because the bank pays the bill, not the customer and the bank has plenty of money and is glad to give it to you! So now it becomes a math question. If a business does $1 million dollars a year in sales, you can grow your business by offering financing. On average you should expect to grow your business up to 40% more, over some time, by offering a consumer finance program. So $1 million can grow to $1.4 million with some time and minimal effort.
Finance Customers Spend More. Most dealers don’t know this, but customers that use financing use it because they know what they can afford in monthly payments. With long-term unsecured loans, the monthly payments can be very attractive and buyers tend to spend more, 15% more, on average, which means you can sell them the right product rather than the cheapest. This is great for you and the customer because you are selling them the right product and it’s affordable.