Even My Dentist Offers Financing

July 31, 2008

Even My Dentist Offers Financing
By Matt Michel, Comanche Marketing

What does my dentist know about business that most contractors do not?  He knows that he makes more money when he offers financing.

According to the marketing research air conditioning systems sell for 37% more when the contractor provides financing.  Do you know what happens to the 37% premium?  Most of it falls straight to the bottom line.

And yet, most contractors fail to offer financing.  The vast majority of those who do offer financing limit themselves to manufacturer endorsed programs. 

Few people pay out of pocket for a kitchen remodel, an air conditioning system, a swimming pool resurfacing, or anything else costing thousands.  Even if a homeowner has the money socked away, he doesn’t want to use.  He wants to finance the work.

When you provide financing, you’ve got more control over the sale.  You’ve got the ability to flip the homeowner to a different lender if he fails to qualify.  You’ve got the ball.

Ask the homeowner to make his own financing arrangements and you give away the ball.  Now you’ve got to wait for the homeowner to act and hope a competitor doesn’t swoop in with an attractive financing program to take and keep the ball for the rest of the game.

Most businesses understand this.  The big boxes certainly understand it.  Even my dentist gets it.  He not only offers financing, he has a choice of financing plans.

The dentist offers financing through third parties.  His customers get to pay over time.  He gets paid right away.

When you think about it, my dentist’s business is not all that different from a service contractor’s.  My dentist may be in a fixed location, but he is in a service business. 

Like a service contractor, my dentist uses planned maintenance to build relationships over the long term.  Dental technicians sell add-ons (e.g., special power toothbrushes, whitening, and extra fluoride).  My dentist also deals with emergency service, unplanned and planned replacement work.

Because the emergency service and unplanned replacement work is expensive and unexpected, my dentist offers third party financing.  His customers make payments.  He collects up front. 

The payment approach also works to encourage people to accelerate planned replacement work.  Why save a little each month and live with the problem?  Take care of and pay for it over time.

While his business is similar to a service contractor’s, he’s more successful than most contractors.  Since everyone on his staff, starting with the call taker/receptionist is well-versed on financing, his average ticket is higher than it otherwise would be.  Most of the extra money drops straight to his bottom line.

As a result, my dentist invests in the latest dental technology, like an in-house milling machine he uses to manufacture crowns while you wait.  With the capital assets, he makes even more money. 

On a personal basis, my dentist bought a big new house in the country.  His kids are in private school.  He’s got a big new boat.  And it’s all been paid for by me and his other customers.

Financing works because consumers think in terms of payments, in terms of available personal cash flow.  This is why gas prices hurt so much.  Higher gas prices reduces available cash flow.

Develop a Financing Mentality

Develop a financing mentality in your company and you’ll close more sales and larger sales.  People are more likely to come up with $175 per month than $10,000 all at once.  A financing mentality involves more than simply signing up for a manufacturer’s plan.  It means arranging for several plans in case one of the turns the customer down.

It also means offering different types of plans.  Do not limit yourself to a revolving plan where the payment is set at a percentage of the outstanding balance, like a credit card.  Also offer an installment plan with a fixed number of payments, like a mortgage.

A loophole allows some revolving plans to avoid the 4% minimum payment requirement that affects credit cards today.  The minimum payment might be as low as 2%.  That’s good, but you can do better with extended term installment financing.  For example…

Job Price = $10,000
Interest Rate = 8.0%

Payment at 60 Months = $202.76
Payment at 72 Months = $175.33
Payment at 96 Months = $141.37
Payment at 120 Months = $121.33

By comparison, a 2% minimum from a revolving plan is $200.  If you’re selling something that will last ten years or more, why not match the financing to the life and offer a payment that’s 39% lower than your competitor who uses the manufacturer revolving plan?

A financing mentality also means you are familiar with the various discounts available.  The discount is the amount you pay to buy down a rate or to delay a payment (e.g., 12 months, same as cash).  Not only should you be familiar with the buy downs, but you should price them into your quotes.

For some customers, the discount may be needed simply to get the customer approved.  Line up a “second look” program to finance the credit challenged for the discount amount.  Instead of 12 months, same as cash, they get financing period.  The people who fall into this category know they have credit problems.  They’ll buy without the same as cash promotion simply because you managed to finance them.

If you want to make more sales, sell payments on every job.  Take a tip from my dentist and offer financing on every sale above $500.

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