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Demise of the 60 Month Copier Lease

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.

 

-=Good Selling=-

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Comments (16)

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Originally Posted by fisher:

Example: Based on the customer's budget, I can justify a total of $50,000 in funding.  If I go in 6 months early, & they still owe $6,000 in remaining payments, I can only fund $44,000 in new equipment.  If I wait until the end, & they don't owe anything on the old equipment, that is an additional $6,000 in Revenue and GP.  It's the same benefit whether you have a Revenue quota or a GP quota.

 

 

In the example above that additional $6,000  would translate into an additional $1,800 in commission.  That is how I look at it and why I always get it down to the end of the lease.

Exactly.

Example: Based on the customer's budget, I can justify a total of $50,000 in funding.  If I go in 6 months early, & they still owe $6,000 in remaining payments, I can only fund $44,000 in new equipment.  If I wait until the end, & they don't owe anything on the old equipment, that is an additional $6,000 in Revenue and GP.  It's the same benefit whether you have a Revenue quota or a GP quota.

 

 

In the example above that additional $6,000  would translate into an additional $1,800 in commission.  That is how I look at it and why I always get it down to the end of the lease.

Originally Posted by txeagle24:
Originally Posted by Art Post:
Originally Posted by fisher:
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.

In my humble opinion the quote above is a flawed way of going about leasing for both you the sales rep and the customer.  Choose the right lease term from the beginning and stick it out until the end of term. 

 

Rolling payments is bad for the customer and bad for you the sales person. 

 

As a sales rep I don't like to even roll a single payment into the new deal.  I view that as a waste of potential profit and a reduction of my commission.  If you look at my leases you'd see the vast majority are 48 months or less.

 

Second if your customer shops you when you are trying to upgrade them early you could be toast.  If the competing sales person is sharp he is going to point out what you're doing and you could wind up losing credibility with the customer.

 

 


There are many of us that have a revenue quota, and the pressure to hit that revenue then precipitates the road to the "early" upgrade. 

 

I wish I had a GP quota, however I don't and I'm sure there are many more like me.  I wish there was a lead program

 

 

If you wait until the end of the lease to upgrade the customer, the remaining payments you would wrap into the new deal as part of an early upgrade would go toward your revenue quota instead.  

 

Example: Based on the customer's budget, I can justify a total of $50,000 in funding.  If I go in 6 months early, & they still owe $6,000 in remaining payments, I can only fund $44,000 in new equipment.  If I wait until the end, & they don't owe anything on the old equipment, that is an additional $6,000 in Revenue and GP.  It's the same benefit whether you have a Revenue quota or a GP quota.

Bingo!!!!!!!!

Originally Posted by Art Post:
Originally Posted by fisher:
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.

In my humble opinion the quote above is a flawed way of going about leasing for both you the sales rep and the customer.  Choose the right lease term from the beginning and stick it out until the end of term. 

 

Rolling payments is bad for the customer and bad for you the sales person. 

 

As a sales rep I don't like to even roll a single payment into the new deal.  I view that as a waste of potential profit and a reduction of my commission.  If you look at my leases you'd see the vast majority are 48 months or less.

 

Second if your customer shops you when you are trying to upgrade them early you could be toast.  If the competing sales person is sharp he is going to point out what you're doing and you could wind up losing credibility with the customer.

 

 


There are many of us that have a revenue quota, and the pressure to hit that revenue then precipitates the road to the "early" upgrade. 

 

I wish I had a GP quota, however I don't and I'm sure there are many more like me.  I wish there was a lead program

 

 

If you wait until the end of the lease to upgrade the customer, the remaining payments you would wrap into the new deal as part of an early upgrade would go toward your revenue quota instead.  

 

Example: Based on the customer's budget, I can justify a total of $50,000 in funding.  If I go in 6 months early, & they still owe $6,000 in remaining payments, I can only fund $44,000 in new equipment.  If I wait until the end, & they don't owe anything on the old equipment, that is an additional $6,000 in Revenue and GP.  It's the same benefit whether you have a Revenue quota or a GP quota.

Originally Posted by Keith Hachey:
The reason may not be this simple (but many times it is).  It could be that you are proposing a solution the customer would like (machine+ software, multiple machines, better machines), but due to budgetary constraints, the customer will need to delay the implementation or reduce the scope of their project.  Stretching the term makes that solution more affordable, while keeping their monthly payment the same or lower.

 

There are many variables that factor into these numbers.  I would encourage all dealer principles to do a portfolio analysis to see the reasons why for their company.  For sales people - look at your comp plan and find the way to maximizes your compensation.  

 

Budget constraints sometimes requires a longer term, that's a given. What is true for cars does not always equate to this industry. For one, I do not have a "nicer" 50 copy per minute copier to upsell to unless it is make color possible where it wasn't before but now we are back to my first statement regarding budgets.

 

You are right that we don't have much choice but to maximize our comp plans. Fortunately, both my comp plan and my quota are based on GP so there is no incentive to sell stuff they don't need.

 

Originally Posted by Old Glory:

I don't understand why the revenue changes from a 36 vs 60 unless a rep is selling the same payment on both. Over the years, I have heard of reps selling a 36 month term and payment but putting 60 months in the term box of the lease. Short of this kind of illegal activity, I don't see why the revenue changes. A $10,000 copier is either $XXX for 36 months or $YYY for 60 months but the funding (revenue) remains $10,000.

The revenue difference comes from up-selling the customer or moving upstream to more a expensive package, not selling the same machine for the same cost.   

 

Here is the best example I can use:

 

Chevy Malibu:

Cost $30,000.00

Monthly Payment for 36 Month Loan: $900.00

 

Cadillac CTS:

Cost $45,000

Monthly payment for 60 Month Loan:  $850.00  

 

Both loans carry the same interest rate and both cars get you from point A to B - what would you rather drive? You get the Cadillac and it is $50.00 cheaper per month.

 

To quote Jeffrey Gitomer - "Sales are made emotionally, and justified logically"

 

The reason may not be this simple (but many times it is).  It could be that you are proposing a solution the customer would like (machine+ software, multiple machines, better machines), but due to budgetary constraints, the customer will need to delay the implementation or reduce the scope of their project.  Stretching the term makes that solution more affordable, while keeping their monthly payment the same or lower.

 

There are many variables that factor into these numbers.  I would encourage all dealer principles to do a portfolio analysis to see the reasons why for their company.  For sales people - look at your comp plan and find the way to maximizes your compensation.  

I don't understand why the revenue changes from a 36 vs 60 unless a rep is selling the same payment on both. Over the years, I have heard of reps selling a 36 month term and payment but putting 60 months in the term box of the lease. Short of this kind of illegal activity, I don't see why the revenue changes. A $10,000 copier is either $XXX for 36 months or $YYY for 60 months but the funding (revenue) remains $10,000.

Originally Posted by fisher:
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.

In my humble opinion the quote above is a flawed way of going about leasing for both you the sales rep and the customer.  Choose the right lease term from the beginning and stick it out until the end of term. 

 

Rolling payments is bad for the customer and bad for you the sales person. 

 

As a sales rep I don't like to even roll a single payment into the new deal.  I view that as a waste of potential profit and a reduction of my commission.  If you look at my leases you'd see the vast majority are 48 months or less.

 

Second if your customer shops you when you are trying to upgrade them early you could be toast.  If the competing sales person is sharp he is going to point out what you're doing and you could wind up losing credibility with the customer.

 

 


There are many of us that have a revenue quota, and the pressure to hit that revenue then precipitates the road to the "early" upgrade. 

 

I wish I had a GP quota, however I don't and I'm sure there are many more like me.  I wish there was a lead program

 

 

Speaking from the leasing company perspective - the 60 month lease is the preferred term today.  8-10 years ago it was 36 months.

 

From my review of dealer portfolios and speaking with dealership principals, the 60 month lease is the most profitable lease term to the dealership - in terms of equipment funding and service revenue.  

 

Art - from a sales person point of view, it may also be very profitable.  I can give you recent examples of a review I completed for two dealerships.  With dealership #1 - the average funding amount for their 36 month lease contracts was approx. $17K.  The average funding amount for their 60 month contract was $28K - that is a 65% increase in revenue on their 60 months contracts.  For dealer #2 - their average funding amount was $8K on 36 months and $15K on 60 months - an almost 90% increase in revenue on 60 months. Since most incentive plans have the sales reps receiving a percentage of the revenue (in addition to GP, etc) - the sales rep should be making more money on their 60 month leases.

 

The one downside to the 60 month lease vs 36 month is the length of time to upgrade to the new machine, but the upside is the increase in revenue.  I would encourage all of the sales reps to do their own analysis and find out which is more profitable to them.

 

Keith

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.

In my humble opinion the quote above is a flawed way of going about leasing for both you the sales rep and the customer.  Choose the right lease term from the beginning and stick it out until the end of term. 

 

Rolling payments is bad for the customer and bad for you the sales person. 

 

As a sales rep I don't like to even roll a single payment into the new deal.  I view that as a waste of potential profit and a reduction of my commission.  If you look at my leases you'd see the vast majority are 48 months or less.

 

Second if your customer shops you when you are trying to upgrade them early you could be toast.  If the competing sales person is sharp he is going to point out what you're doing and you could wind up losing credibility with the customer.

 

 

I write almost all 36 month leases and almost all of them are renewed for another 24 months or 36 months. If you use a lease company with a guaranteed residual in the 10-15% range you can profit twice on the same box. With my company, I get credit for all the GP on the renewal since nothing is being set up or delivered, etc.

 

I usually quote around a 65-75% payment on a 24 month renewal and a 50% payment on a 36 month renewal. I don't recommend either renewal unless the service history and meter count are good. The total of payments has been slightly higher than a  60 month lease but they have had more flexability with the ability to evaluate regularly and if they need to walk away from the renewal early, the buy-out is much less than if they had to buy-out of a 60 month lease a year early.

 

This allows the customer to have an "intermediate" opportunity to evaluate the suitability of the current equipment.

 

Just an FYI, I also seldom "eat" a buy-out to get the renewal...not all of it anyway. If I write a 36 month lease and go in 6 months early to renew, I tell the customer that they can start the lower payments anytime by just adding the remaining months onto the renewal term. A lot of my leases end up being 30-33 months with 39-42 month renewal. The same 72 months of obligation as back-to-back 36 month leases. By the way, there is never competition on the renewal for obvious reasons.

I don't know about the sales process but as far as service goes customers are happier that get 36 month leases. The ones that go for 5 years often are calling way too often because their machines were shot a year ago.

 

Pre ikon merge we had a lot of 36 month leases but now it seems like most are 60. 

Agreed, 36 month lease is best for the sales person!  But isn't that why work in this crazy business? if someone told me that I could only sell 60 month leases then I would be hard pressed to continue in this business.

 

However, selling the 36 month payment FIRST, allows you to drop the cost of the payments by increasing the length of the payments.  Therefor

we can reduce the cost of the equipment rather than discounting the equipment. Discounting the equipment hurts the rep, and the dealer.

In my opinion, in most cases, the shorter term lease only benefits the salesman, not the customer or the dealership. A lot of the savings you are talking about would only be true if the customer does a 36 month lease and stops but normally as you discuss they don't stop the have a payment for life, it's just a question of how often they refresh their equipment.

 

The shorter term lease does give the customer the benefit of newer equipment sooner but make no mistake, they do pay more for that.

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