Business Advice for Bad Economic Times
If They Won't Buy it, Lease it to Them
Written by Chris Martin for Gaebler Ventures
If a recession hits, many of your customers might begin canceling contracts and new sales could become extraordinarily difficult if not impossible. You may have never thought about leasing before. But if you sell a product or service which requires hefty initial outlays of money from your customers, leasing may be a way to maintain your customer relationships.
Entrepreneurs are used to being successful.
That's probably how it was when you started your business. You had no trouble pitching your product or service, persuading customers, closing deals, and booking sales. Selling your wares was simple, and success quickly followed.
Then the economy stopped surging and the recession hit. And all of a sudden, many of your customers began canceling contracts and new sales became extraordinarily difficult if not impossible.
You know that it isn't your fault; your clients just don't have the spending power that they did when times were good. You may be trying to work with your customers on payment plans, cut costs on your end, and alter your product offerings - anything to make another sale.
Forget about selling for a moment. What about... leasing?
You may have never thought about leasing before. But if you sell a product or service which requires hefty initial outlays of money from your customers, leasing may be a way to maintain your customer relationships.
Lease arrangements vary depending on the industry, but perhaps you could settle on a regular monthly (or quarterly or annual) payment amount that your customers can afford. This would differ from a traditional sales agreement, which often requires a large upfront disbursement by your customers.
Smaller payment amounts may not be the only advantage to your customers. If they were obligated to buy your product or service but did not have the cash on hand, they might be forced to borrow the money from an outside source and incur more debt. Conversely, the leasing payments they make to you could be recorded as operating costs, thus allowing your customers to keep debt entirely off their balance sheets.
Granted, your business model may not be set up to produce significant profits from leasing arrangements. But if you're worried about losing customers outright, fat profits may not be your short-term goal. You may be able to juggle your accounting to where regular, smaller revenue amounts might allow you to stay in business - at least until the recession lifts and sales pick up again.
One company which has discovered the joys of leasing is SunRun, a San Francisco-based distributor of solar panels. Because these solar powered systems are more energy-efficient, they allow customers to book substantial savings on their utility bills to the point where the system pays for itself over time. But SunRun saw its sales dwindle as the economy shrank, because homeowners and businesses were less able to absorb the upfront costs of $40,000 on average to install a solar power system.
So SunRun decided to lease its solar panels to customers instead. With the new arrangement, customers only had to pay an installation fee of $1,000 or less and then agree to a fixed monthly bill for their utilities and maintenance for the next 20 years. Under this program, customers could still experience cost savings of 10% to 20% on their electric bills, and the system would still pay for itself in just a few years. But they were spared the monumental outlay of funds they would have had to part with if they had bought the solar panels outright.
As a result of the new leasing program, SunRun posted year-over-year growth of 400% in 2009 - the same year which saw much of its competitors destroyed by the economy. Today, SunRun continues to expand into new territory and hopes to record substantial new growth this year and beyond.
Leasing certainly isn't right for every company. Some firms either are unable to pass on significant savings to their customers due to the nature of their industry or cannot find the financial leeway to adjust their cashflow accordingly. But for companies who are willing to make a few changes, leasing can be the saving grace in a down economy - or even the opportunity to reach a brand new sector of the market.
Chris Martin has been a professional writer for the last seven years. He is interested in franchises and equity acquisition.
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