When entrepreneurs seek to boost their sales revenue and improve their customer retention, one simple yet powerful strategy is often overlooked: offering customer payment plans.

The large corporate space figured this out some time ago, and in fact you can see them using this approach in many of your own experiences as a consumer:

When you are shopping for a new car, it’s certain that every manufacturer has ensured that their dealers have a monthly finance option available. Without finance, only a fraction as many cars would be sold each year.

• If you’re renting the house you live in, then it’s very likely that you’re paying by automatic monthly debit to your bank account.
• Your insurance company would much prefer that you use the pay-by-the-month option, if you aren’t already. They know that sending you a bill for the annual renewal will prompt you to shop around and quite likely switch companies, so instead they process a smaller automatic debit each month to keep inertia on their side.
• It’s likely that your electricity company, Internet service provider and other utilities are set up to charge their bills to your credit card each month.
• Your gym is debiting your card for their monthly membership fee. Even if you don’t make it to the gym for some time, odds are you won’t cancel your membership to save $70 per month.
• Of course one of the oldest forms of payment plans is still popular today: the “lay by” programs offered by retail stores generate around $2 billon in sales per year.

The examples of payment plans above all work because they offer one or both of these two key benefits to the customers using them:

1. Convenience from automation: We’ve all become so busy that saving even a few minutes per month on paying bills is a relief. In fact it’s become a must-have, a feature that consumers expect and demand from companies in the categories above.
2. Easier budgeting: Most of us find it easier to manage our money when expenses are a regular, predictable amount each month. Many people find it extremely difficult to plan and save up to pay cash for a large purchase. Our desire for instant gratification pushes us towards the “buy it now and pay it off” approach, so providing that option has become essential for companies selling large ticket items to consumers.

Clearly offering payment plans can generate extra revenue for your business if you’re selling consumer products. If you operate in a B2B niche, then you may not have considered the fact that many businesses want the same two benefits as consumers do. The only difference is in terminology: the business world refers to the two points above as “labour savings” and “cash flow management” respectively.

Are you making full use of payment plans in your business? There is every reason to do so – the technology has become affordable for any size business and the benefits are compelling:

• Increased sales of large ticket items (which often have the highest profit margins).
• Lock in ongoing, repeat business that you would otherwise have to compete for (be the easy, default supplier for future needs).
• Improved customer retention (as in the pay-by-the month insurance example).
• Reduced labour costs in your accounts department (automatic debits replace people chasing unpaid invoices).
• Smoother cash flow in your business – especially important if your product has seasonal or other dips in sales at certain times of year.

What types of payment plans can you offer in your business? You’ll quickly start to see opportunities when you focus on making it easy and convenient for customers to buy from you – and then keep buying from you.

Depending on your business, some options could be:

• Automate payment of your regular invoices by debiting your customers’ credit cards – taking a lesson from your Internet service provider. This works best when customers buy from you regularly and the value of each invoice is small (less than about $200 for consumers or less than $1,000 for businesses).
• Selling equipment? Provide a prepayment option for regular servicing, for example: schedule a technician to visit every quarter (if that’s what is required) and set up a payment plan charging one third of the fee each month. A busy plant manager will appreciate the set-and-forget, hassle free service – especially if you “sweeten the deal”, say by absorbing the cost of any unplanned service calls that are required in spite of your regular maintenance work.
• Perhaps you can add an ongoing supply of consumables to follow a capital purchase, such as a subscription to supply chemicals after you’ve installed a new swimming pool. You will know how quickly the supplies of chemicals will be used if the pool is being properly treated, so you can organise to replenish them at the right time.

Adding the right payment plan strategy to your business is one of the fastest and easiest ways to lift profitability – without having to change anything else. With a bit of thought, you’ll quickly start coming up with ideas that complement your products and will be on your way to realising the potential of this powerful idea.

Ken Wood is the founder and Chief Tap Turner at I.T. on Tap
www.itontap.com

Tags: customer management, customer payment plans, customer retention

This entry was posted on Thursday, March 11th, 2010 at 5:39 pm and is filed under CRM Software. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.