No such thing as a free lunch is something we are all so familiar with in every walk of life, but particularly when it comes to business. So why is 0% finance rearing its head in a bid to help close sales?
Well firstly the obvious positives from your customer’s point of view:
- No interest to pay
- Immediate return on investment
- Along with all the other benefits of funding
From an initial look there isn’t much (if anything) not to like. Your customer gets the equipment they need, without having to save and you close a sale – win, win!
However in reality, there is more to it than this, so is it smoke and mirrors? Well decide for yourself.
Ultimately the interest has to be paid somehow by someone, so in the case of 0% finance this responsibility falls to you – the supplier. You will reduce your return to cover the interest element of the finance, so it is then a case of weighing up how many more sales you will have to make to cover the shortfall.
This could be fantastic… if this increased the number of equipment sales by the correct factor, but there are a few elements of 0% finance that could inhibit this straight forward correlation of lower cost of finance to increase in sales.
What are they?
It is easy to over complicate – people want a quick and easy solution that gets the job done and often are happy to pay for this type of result.
People are sceptical – The too good to be true theory will always play a part in certain transactions, but people can become sceptical of hidden charges even if there is nothing to hide!
Attracting the wrong crowd – Commercially minded people understand that there is a cost attached to most things in business and are happy to pay the price for the correct business investment. I maybe speaking out of turn, or maybe just from past experience but this type of agreement does seem to obtain a lower conversion rate.
So as a result of a combination of the above factors, 0% finance could cause disproportionate work on your behalf, and not really convert enough leads into successful sales to keep up to the required profit margins, particularly if you work it back to an hourly rate!
Therefore, to sum up, keep it simple. Believe in your equipment to sell itself and use finance options to combat delayed decisions or to save cash-flow, freeing up your time to do what you need to do… or you could even go out for lunch (albeit it won’t be free!).