Lower Payments Means Bigger Sales: Using Consumer Financing

My wife couldn’t think of a good way to deliver the shockingly bad news: She’d just gotten the quote from the dentist. To fix all the things wrong with my family’s teeth was going to cost more than a decent used car.

Eight-thousand two-hundred and fourteen freaking dollars! And seventy cents!

After switching to an insurance plan that our previous dentist didn’t accept, it took nearly two years to finally get around to finding a new one. Sure, you’re supposed to go to the dentist every six months, but what’s the worst thing that could happen after two years? A few cavities?

Well, when you have six kids, the answer is a lot more than a few cavities. Two teenagers needed their wisdom teeth out. Another one had a gap in her front teeth that needed to be closed. An assortment of fillings, root canals and extractions was needed. And, the dentist warned, I really needed to get my old 1970s-era silver fillings replaced before they cracked and fell out of my face.

My immediate instinct was to prioritize: Which kids had the worst problems that needed to be fixed the most urgently?

Then my wife handed me a brochure from the dentist stating that they offered multiple financing plans, including, among others, 12 months, no interest — if paid in full.

I pulled out my iPhone and did the math: $684.56 a month. All things considered, doable. To be sure I wouldn’t hit the dreaded “interest kicks in” part of the plan, I rounded the payment up to $750 a month for 11 months and told her to get all the work done.

Here’s what you need to know about my financial situation: I’m no Bill Gates, but I live in a nice home in a nice part of town. I drive reasonably nice cars, and I take vacations with my family. In other words, I look a lot like your typical customer.

As we shift the discussion to financing of home improvement projects, let me dispel a couple of myths upfront:

Myth #1: My customers don’t want/need financing.

Fact: Either they’re lying, or you’re making bad assumptions based on faulty logic. First, cash is a lot harder to borrow than it was five years ago. Home equity? Just a memory. Second, nobody wants to take $8,000 to $40,000 out of their savings for home improvements. Just because they don’t ask for financing options doesn’t mean they won’t be thrilled when you offer it. According to GE Capital’s 2012 research study, 75 percent of GE Capital cardholders say financing makes large purchases more affordable, and 39 percent would not have made the purchase or would have gone to another retailer if financing had not been available.

Myth #2: Financing costs too much, so I’ll only use it as a last ditch option.

Fact: Financing doesn’t cost you money; it makes you money. Check out these stats from GE Capital’s home specialty division:

  • $5,519 — Average sale with “no interest if paid in full in 12 months” offer
  • $7,466 — Average sale with longer term, low-APR finance offer

GE Capital doesn’t currently provide stats about what the average sale is when no financing is offered, but, for sake of argument, let’s conservatively guesstimate $4,500. That’s about a 67 percent increase in average ticket price (with long-term, low APR) over no financing. Assuming the cost of financing to you is about 5.5 to 6 percent (about $450 on a $7,500 sale), can you afford not to offer financing?

But just offering financing isn’t enough. Commit to financing. Instead of using it as a last-ditch effort to salvage a deal that’s slipping away, start with this discussion: “Mr. & Mrs. Prospect, we offer several financing options to make this project affordable. How much money do you feel would fit comfortably into your monthly budget to make this project happen?”

The tension is immediately diffused, and instead of sticker shock for your customer, you simply work the terms of the financing to fit their pre-agreed-upon monthly payment.

One-call closes go up. Overall closing ratios go up. Average sale prices go up. And best of all, profit margins go up. You make more money with the exact same prospects you already have!

When I discovered this gem, I immediately started encouraging my clients to proactively offer financing. A good-size closet organization company told me their average sale was about $2,800, which is down from about $3,300 before the recession. They signed on with GE Capital and reported that their first attempt to use it resulted in a $7,700 sale — nearly three times their average. According to the client, their customer said, “Well, since the payment is so low, let’s go ahead and do all three closets right now instead of one.”

Just like my dental work. Extraction, anyone? It’s on me!


Richard C. Harshaw is author and creator of the Monopolize Your Marketplace (MYM) system, and CEO of the company with the same name. Recently, Rich has specialized in marketing for the home improvement industry.