How to overcome the biggest hurdle when offering financing to your customers.
It happens all the time. A Solution Provider new to financing presents their client with a monthly lease option. The first question from the customer is: “What’s the interest rate?” Suddenly the sales person wonders why they didn’t just give them the cash price.
While you could avoid that scenario by leading your customer down the path you want them to go (check out this blog on how that works), we want to arm you, as a true consultative salesperson, with a smart response to the most common objection:
“Financing costs more than paying cash.”
The biggest objection to paying for the solution always begins with the interest rate. It sounds something like this: “I see you put a monthly payment option on here for the solution. What is the interest rate on that payment? I have the cash on hand... won’t that will be less expensive than leasing?”
It is true that you can’t borrow money for free. It just doesn’t work that way. (If somebody is offering you free money, it’s time to ask more questions!) But all money is not created equal. Ask your customer how hard they want their cash to work for them, and how they plan to grow their business.
Whether financing costs more than paying cash depends on what’s being done with the cash. Oil mogul and billionaire, Jean Paul Getty said, “Lease that which depreciates. Buy that which appreciates.” Cash is a precious commodity for businesses. Even cash-rich companies don’t pay for most assets with cash. (Check out the Microsoft example.) They use their cash to make more money, and use leasing and bank lines on hard assets that have a specific life span.
Let’s use Getty’s little nugget of advice to build your response to overcome this objection.
Say your business has a $40,000 windfall. You also need a new server. Instead of buying the server - which is a depreciating asset, you take Getty’s advice and finance it at 5%. Now, you still have a pile of cash, which you decide to invest in the stock market. Over time, you could potentially earn a return of 7% to 12%*. In this case, you would pay $2,000 in finance charges, and make $2,800 (at 7%) in the stock market. More times than not, your customer will come out ahead by financing unless they are getting an interest rate more than 10%.
But what if you have customers who don’t invest in the stock market? They can invest that cash back in their business (and potentially make much more than a 12% return). For example, they grow their business by using $40,000 on an advertising campaign which could lead to more sales. Technology buyers we surveyed back up those findings and say they like to spend their cash on hiring new team members, marketing, advertising, or inventory. Challenge your customer to find a place in their business where cash will make the highest impact on their growth.
If your particular customer isn’t business-savvy, now is your chance to be a trusted advisor and help them understand their options. Take some time to educate them on why financing can cost less than paying cash and ask them if they’ve thought of other ways to use their cash. The worst that can happen is they pay cash and go off your radar for upgrades.
*This Investopedia link says the average return on the S&P500 is 7%. This article from Dave Ramsey says the average return is closer to 12% and explains his logic.
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