Successful Brokers, What Sets Them Apart
by Chris Walker on Sunday, December 21, 2008
A good friend and business associate recently asked me to sit on a panel at leasing meeting, the discussion centered on the tightening credit markets and changing credit parameters and how successful brokers are dealing with this market. As you can imagine, it was a full house.
Here is what I heard:
- Rates are up and the credit window has narrowed.
- Vendors are reporting that existing vendor leasing partners are stumbling.
- Broker/Lessors that have a deep understanding of their vendor markets are seeing new opportunity.
There’s no lack of bad news out there and if you are looking for a reason to be depressed you will not be disappointed. However, there are a lot of folks who have chosen to take advantage of the market and their approach is pretty straight forward: They understand a market niche better than their competitors and are using this knowledge to help vendors meet their goals.
I agree, it sounds simple, but you’d be surprised how many people haven’t taken the extra steps needed to set themselves apart. The ingredient most important to most vendors is a deep understanding of their needs. When you understand the need you can begin to work with the customer to offer creative solutions to meet the need.
Let’s take an example of a computer hardware/software value-added reseller that provides an enterprise level management system. Sales for the last five years have been strong, profitability on hardware has shrunk but software margins remain strong. The vendor gets several calls a month from broker/lessors to provide customer financing. The financing source with the lowest rate gets the business. Sound familiar?
What is the vendor’s need in this example? You could assume low rate is the need, based on the facts above. But the sales person who understands this niche sees it differently. They have spent hours talking to people at all levels in the vendor’s organization. They understand the over-arching business strategy from the CEO, the sales objections faced encountered on the street and the customer support issues after the sale.
Let’s say our vendor interviews have revealed some interesting insights:
- Increased competition is shrinking company profits (hardware and software).
- Customers are keeping software longer and delaying upgrades.
- Financing sources are looking at soft cost percentages more closely.
- Vendor has a service and maintenance program for the software but customer renewal rates diminish over time.
A traditional approach to leasing would suggest the vendor may be looking for fees (aka points) to enhance profitability and for the lessor/funding source to allow for financing of service agreements. That means low rates and higher risk which is not a high percentage play in today’s credit market. But a couple more questions may yield an opportunity.
What if we asked more questions about the vendor’s needs?
Q: What is the most profitable part of your business?
A: More sales to our existing customers.
Q: Which product?
A: On the initial sale it’s software but ongoing it is unquestionably service and maintenance revenue.
Q: Is there anything that keeps you from selling more service and maintenance?
A: A couple things. The first year’s service and maintenance it is included at no additional cost so we have to either sell it upfront or contact the customer prior to the end of the first year for renewal. And because our product is well made the customer seldom has issues that require service so there is little incentive to extend the service and maintenance plan.
Q: Are there other issues with service?
A: We have to invest substantial resources to sell the extended plans that are renewed. In fact we have an inside sales person dedicated to this product.
Q: So if you could find a way to sell more service and maintenance plans with the initial sale that would increase your margin and ensure a satisfied long term customer?
A: Yes it would.
Now you have an opportunity to provide a creative solution that is outside the bounds of traditional financing and you have uncovered an opportunity that probably exists for many other vendors in this space.
Now you can match the vendor’s need with a funding partner that has products and services that will allow you to deliver a solution to the vendor that helps them create long term customer relationships. Your attendance at industry meetings where you meet with funding sources and service providers pays off in your ability to know where to turn for innovative solutions.
Successful brokers are experts at asking the questions that clarify needs and then matching the need to the proper product. The result is long term a relationship for the vendor, the broker and their funding source.