Demise of the 60 Month Copier 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.

Bingo!!!!!!!!

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.

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.

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. 

I'm just as guilty also, but will make a bettr effort this year of selling the advantages of the 36 month term.  Thanx for the repsonse!

Thanks for the post, Post ! I am guilty of pushing 60 month leases as standard procedure.  I will take your advise and start to lead with 36 month terms.

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.