Let me start off by saying that most clients will ultimately finance the equipment they buy.
Understanding this presents an excellent opportunity for suppliers to offer finance as a function of their sales process.
In doing this, suppliers can reap significant rewards both in increased sales as well as margins on those sales.
To explain this in more detail the following is relevant
This formula is relevant whether the asset is $5,000, $50,000 for $500,000. For the sake of the exercise we will focus on a $50,000 asset.
The use of a simple finance offering allows the supplier to offer the product at $50,000 or $960 p/m (over a five year term).
Remember this is not you as a supplier providing finance, it is you as a supplier working with a financier to offer finance to your clients. From your perspective it is simply an asset sale.
As is most often the case, the client is looking at the equipment relative to a monthly saving or monthly income from that equipment, therefore the monthly finance cost is very relevant.
So why is this important?
• If finance is offered, it accelerates the sales process to conclusion as it shows the asset acquisition as a monthly cost and makes it easier for the client and less for the client to think about as a complete solution has been offered.
The simple use of a finance option at $960 per month may be the difference between you and your competitor.
Product suppliers from car dealerships to Harvey Norman selling computers have been using this strategy for years.
• The use of a monthly finance option not only substantially reduces the pressure on margin reduction, it can often allow margin increase as price consideration is now viewed at a monthly cost level.
To put this in dollar terms.
$48,000 which is $2,000 reduction on margin which may seem a worthwhile target for the client in terms of cost reduction, becomes less relevant when expressed in monthly finance terms as $48,000 is in reality $920 p/m
Conversely, $52,000 represents a marginal increase on monthly payments to $998 p/m
• Finally, for many larger clients, the use of finance in the form of equipment rental has been a particularly powerful sales tool as it has allowed clients who are managers at an operational level to sign off the acquisition of the asset under an operating expense budget as opposed to seeking a capital equipment purchase sign off at a senior or board level.
In a world where there is significant competition, those suppliers who can offer an easier and complete solution will place them themselves ahead of the pack.
I am not for one moment, suggesting that finance is the sole key to more sales or greater margins, however it is a very useful arrow to have in your quiver and if it results in only a 10% to 15% improvement in top line sales, it is a very useful tool.
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