In today’s increasingly digital world, it’s more important than ever for contractors to offer financing. I was at the King of Prussia mall, outside Philadelphia, not long ago when I stopped at the food court to buy a salad for lunch. The cashier took my order. I handed her a $20.
“We don’t take cash,” she said.
“What do you mean you don’t take cash?”
“We only take cards.”
I handed her my debit card.
I think it’s safe to say we’re only at the beginning of a period when most, if not all, transactions will be conducted with a credit or debit card. Cards were once used exclusively for buying something expensive. Now people use cards to pay for a cup of coffee.
This Costs Money
That got me thinking about financing. A lot of contractors, especially smaller ones, don’t offer financing to their customers. They leave it to the homeowner to figure out how to pay for the project. Sometimes that’s a credit card, sometimes it’s a check.
Of course, many contractors do offer financing—or they think they do. They have programs with financing companies such as EnerBank and GreenSky. But contractors can hardly be said to making the best use of them. The thought of the fees—anywhere from 3 percent to as much as 12 percent—discourages contractors from being aggressive about it. Plainly, it will cost the contractor to use that money to finance the job.
Then there’s the salespeople part. It’s the salesperson whose job it is to bring up—and sell—financing. Salespeople often aren’t enthused about that. And why should they be? That fee often messes with their commission. Depending on how the owner structures it, that’s either deducted from the price of the job in determining their commission, or it comes out of their commission altogether.
Say, for instance, it’s a $10,000 job that’s financed at 6 percent. Instead of making $1,000 commission, the salesperson is putting either $940 into his pocket—10 percent of $9,400—or $400, which is what’s left when 6 percent is applied to his commission. The result is that most salespeople won’t bring up financing unless they must.
Build It Into Your Pricing
Consider how you price a job. There’s the cost of materials, the cost of labor, the cost of selling it, and your fixed and variable overhead. All that goes into the price because without any one of those components, there wouldn’t be a sale.
Why shouldn’t the cost of financing be part of what you charge? For people who don’t have cash ready to buy a project, that’s how they’re going to pay. If you make it easy, chances are good they’ll buy from you. So build the fees into your overall pricing and plug that into your budget. It’s no different from what any major department store does when taking credit cards. The retailer isn’t eating that 2.5 or 3 percent merchant cost that the banks charge for using a card. They integrate that into what’s on the price tag.
How That Works
We know here at Maggio Roofing that about 40 percent of our sales are financed, and we know the financial products we use cost us about 5 percent in fees. So, say we did $5 million. That means $2 million is financed, and we’re paying about $100,000 in bank charges to use that money. One hundred thousand is 2 percent of $5 million, so we know we need to plug that extra 2 percent into our budget.
If I had my way, 100 percent of our sales would be financed. We’d sell that much more. All the numbers show that when contractors offer financing, the close rate and the average ticket both go up.
Not offering it increasingly leaves you out of the loop. A few years ago I went to buy a car. I spent several hours with the salesperson, going over the features I wanted. It wasn’t cheap. And when it came time to close, he informed me that the dealership didn’t offer financing, so I’d have to arrange a loan with a bank. No dice. That same day, I stopped at a different dealership, selling a different line of cars, and drove away in a brand new Jaguar.
All About Data
Card use enables banks to manage credit of all kinds. More people choose to pay with cards because of the convenience. Banks encourage it. It’s the same thing with financing. Do you really expect someone buying a $20,000 roof to have the money in their checking account? People are accustomed to taking out loans for large purchases, such as a house or a car.
The professional contracting business will have everything it needs in place to help homeowners get the job they need and to help them afford it. Research shows that when people are offered payment options on every single deal, they tend to buy more, buy a higher-priced job and buy a more complete job. So it’s in everybody’s best interest—yours, theirs and the salesperson—that they do that. But they won’t do it unless it’s available, and you show them how easy it is. | QR
Scott Siegal is owner of Maggio Roofing in Washington, D.C., and also owns the Certified Contractors Network. You can learn more about CCN by going to the website contractors.net.