How to use financing to boost sales and customer loyalty
Would you rather get the standard model for $285 a month or the premium version for just $20 more a month? It’s a question faced by just about every car buyer on the planet. Why? Because it works. Have you considered offering a financing option for your customers? Here’s why it might be something to consider this year…
Whether it’s specialty retail, home renovation, sneakers, or anything in between – offering customer financing has become a lucrative tool for businesses of every kind. At its core, customer financing gives your business the power to offer a payment plan while you receive full payment up front. Typically the merchant is charged a small fee for the transaction and the consumer is charged interest on the purchase (unless you’re taking part in some kind of promotional event).
But this isn’t just about customers that can’t pay up front. In a day and age where businesses and consumers are focused on keeping a strong cash reserve, consumer financing is a win/win that gives your customer a payment option and your business a powerful new way to attract them and keep them loyal.
The benefits of offering consumer financing
Whether someone is shopping for a car, bicycle, or a home renovation – financing the purchase makes payment more palatable and – in many cases – more profitable for your business.
1. Close the sale faster and with less friction
Whether it’s a retail sale or a home renovation – offering financing payment makes closing the sale easier. For many customers, a simple monthly payment can be a much more attractive option than a single lump sum – especially when more and more customers are fighting to keep their cash reserves on hand.
2. Sell more and better products
Many customers became familiar with this through the furniture industry, where it’s rare that you’ll see the full price of the furniture listed. Instead, you’ll often see the monthly pricing instead. Sometimes, depending on a variety of factors – there might even be a promotional rate. The result? More customers buying a full room’s worth of furniture rather than a single sofa or bedroom set.
Imagine the product you really want is out of reach, and you only have enough cash for something you’re not as excited about. With consumer financing, you can keep your cash on hand, get what you really want, and pay as you go.
3. Improve customer loyalty
With consumer financing, the branded card you offer your customers can only be used with your business. That doesn’t just mean there’s a good chance they’ll come back and take advantage of it again. On top of this, when a customer is approved for a given amount of credit and don’t use it – they might be open to future offers further down the road once they’ve had a chance to pay off their initial purchase. This gives you the opportunity to create a much different “lifecycle” for your customer.
4. Improve cash flow
For some, customer financing can make a big difference for cash flow. First, you have a great alternative to offering an up-front discount in order to close the sale. That means you’re dealing with fewer callbacks and fewer (awkward) requests for a ‘better deal’. Most of all, the product is fully paid for and your customer isn’t parting with a large sum of money all at once.
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Common myths about financing
It wouldn’t be a conversation about financing if we didn’t cover some of the common myths and reservations business owners often express about it.
Myth #1: “My customers don’t need financing.”
This is one of the most common myths encountered about financing programs. But it’s important to remember that even the most affluent customers are looking to make the smartest move with their money. A monthly fee to keep your available cash reserves instead of wiping out savings or discretionary money can be a great incentive.
87% of private label card holders believe consumer financing made their large purchase more affordable. That means more available cash to save, invest, and keep for their rainy-day fund.
Myth #2: “I don’t get repeat sales from cardholders”
For many, this just isn’t true! When surveyed by Synchrony – a leading provider of consumer financing solutions – almost 7 out of 10 (68%) customers say they are likely to use their card again.
Myth #3: “My customers would be offended if I offered it to them”
Sometimes, business owners think a customer would be offended by the offer to finance a product. “What, you think I can’t afford it?” True, talking about finances is tricky. But if you’re focused instead on what product the customer budgeted for and how financing might influence their ultimate decision, you’ll often find that financing helps your customer make a smarter, long-term choice to get an even better product. It’s all in the delivery!
According to Synchrony, 46% of cardholders said they wouldn’t have made the purchase (or would have gone somewhere else) if financing wasn’t available.
Myth #4: “It’s just a different form of payment, I don’t sell more”
Just like with our car buying example, when the difference between the “base” product and the “premium” product is pitched as just $5 or $10 extra a month, it’s easy to see why cardholders tend to spend more when using this form of payment.
Cardholders who used financing to make their purchase of at least $500 spend on average 35% more than non-cardholders surveyed.
(Source)
Myth #5: “The interest rate is too high, and customers won’t be interested”
This is a common way you can mistakenly prejudge your customers. Most financing programs offer rates between 14% and 23% and the simple truth is – if customers weren’t interested, those wouldn’t be the rates!
Many times, your customers need (or want) it now. In the case of replacing something, they might be waiting for an insurance payment. Or, they could be waiting for a bonus or tax return so they can pay in full later. Meanwhile – prime riding weather (and daylight) could be quickly passing them by! Other times, a customer might have budgeted for one product only to desire a bit more of an upgrade. This makes financing a great way to pay for what they can, and pay off the rest month-to-month.
M.E.M.O: Mention early, mention often
The most important best practice to remember when selling with customer financing is the M.E.M.O method: mention it early, and mention it often.
When you lead with financing, you lead with small and manageable payments rather than a large sum that could clean out your customer’s wallet or savings. Bringing it up early can help ensure that you can keep the conversation going and introduce your customer to more products without the fear of sticker-shock driving them away.
Everyone who speaks to customers on the phone (or online) should be well versed in any existing financing offers you may have available. If someone asks about a product or expresses price-resistance, all it takes is a “Before I forget, we’re also offering a financing special at the moment that could get you all of this for a low monthly payment instead.”
The ability to offer financing adds a whole new angle to the way you greet your customers. Instead of “How can I help you?”, “Are you here about our financing offer” is an easy question that gives you the opportunity to offer more information, inform your customer, and answer any questions right off the bat. It can also encourage your customer to take a more serious look at higher priced products you may have at the front of the store.
If you’re looking for a powerful way to upgrade your sales arsenal, consumer financing shouldn’t be overlooked. In a post-pandemic economy with more and more customers focused on saving or investing cash, low monthly payments have become a powerful way to help them do it and get what they need at the same time.
