Posted below is a blog I wrote about a year ago on the old blog site. I'll be moving these over from time to time. A good way to remember that we need to shorten the term of leases that we are presenting and then if there is an objection on price, we can then propose a longer term with out decreasing the price.
As we still struggle to keep margins on equipment, maybe we need to become better advocates of presenting shorter terms for leasing equipment. I've been tracking all of my sales for purchase and leases, 92% of them involve leasing the equipment with a third party leasing provider.
Of that 92%, 89% percent of the leases I've written was for 60 months. I would tend to think that give or take a few percent this might be applicable most of us.
60 months/5 years is a long time, right? Dang, I'm tired of my cell phone after two years and my car in about three. Technology changes so quickly nowadays that I want the latest and greatest new car features whether it's better gas mileage, more comfort, or new technology. The same is true of my cell phone, after only two years I would like to step up to new technology that may enhance my life style of make me more productive. Wouldn't our customers want the latest technology with their copiers and MFP's also?
Why are we not quoting selling more 24 or 36 month leases?
Look at it this way, if you put a customer into a 60 month lease, you'll have to wait at least four years until you or the customer has an upgrade path and 54 months would be the prime time to upgrade. Even at 4 years the upgrade path may not be the rosey of a picture for your customer.
Putting your customer into a 36 month lease means that the upgrade path is now reduced to two years and 30 months would be the prime time to upgrade.
A lot can happen when you have to wait 48-54 months to upgrade the system, items like a major breakdown, a poor service call, your contact being replaced by someone else, and the added pressure from other companies prospecting the same account can put your upgrade in jeopardy. A shorter term lease will reduce these risks for you.
Take a $20,000 lease that is booked for 60 months and the customer will pay $24,000 over the term of the lease, when compared to a 36 month lease the customer will pay about $20,500 (factor of .0284). That's a $3,500 savings to the customer!
So How Can We Get Better at Selling 36 Month Leases?
There's a lot we can do. The first that comes to mind is the savings on the interest, that should wake someone up. The second would be to explain the additional costs in maintenance/supply agreements that the customer would incur. Most of us sell maintenance agreements that have an auto escalator clause that allows the maintenance/supply agreement or the cost per page agreement to increase every year. These annual increases can be anywhere from 5%-10% per year. Do the math!
We'll make it simple, that $20,000 copier/MFP that's pumping out 200,000 pages per year, will mean the first year contract cost is $2,000, with a 7% escalator clause the 2nd year cost is $2,140, the third year cost is $2,289.80, the four year is $2,450 and the last year is $2,621. Add em up and over year four and five the customer would pay an additional $1,071 for maintenance and supplies over a 60 month lease.
Invoicing, our customer will have to process at minimum another 24 invoices, with a small to medium size business the cost to process that invoice and pay it is $15-$35 per invoice. Let's use $20 per invoice and we've added another $480 over the 60 month lease cost.
In total that $20K lease will cost your customer an additional $5,000!! You've got to have this financial talk with your customer. In addition, if you upgrade the 36 month lease, you will lower the customers cost of maintenance and supplies cost/cost per page with the new system, and there will probably be a few new features that will increase the customers productivity!!
Show the Savings to Your Account
That $5,000 savings over 60 months would be $83.33 per month, it's a no brainer, would the customer like to spend 25% more on a $20K lease. I doubt it. Keep in mind that the 36 month lease rate is the most competitive lease rate from all of the leasing companies, they score additional profit for 24, 48 and 60 month leases. I'd rather be able to have a chance to go back to my customer in 24-30 months rather than 48 to 54.