I have a bit to share with you today around the psychology of payment plans. When done properly, they can make you a lot more money. And to anyone still hesitant to payment plans, I can assure you that even with failed payments, it is still ALWAYS a net-positive for you!
BNPL Services
"Buy Now, Pay Later" services are becoming increasingly popular and effective. Most checkout page software solutions allow for your customers to use options such as Klarna, Affirm and Afterpay. People are getting accustomed to these services as well. Which means, YOU get paid up front, and the company handles the payment collection. Now, yes you as the merchant pays the fees for this, but it is still a net-positive in your favor. It is for this reason, I highly recommend turning on this option for your customers.
Have Just ONE Payment Plan
Even with a BNPL function turned on for your offers, I still recommend using a Payment Plan option for your customers. But it's VERY important you ONLY offer ONE payment plan option. If you add more you begin to confuse or overwhelm. And an overwhelmed mind does not buy. Now, you can ALWAYS replace payments during a launch or promotion. We do this. We lead with a 6-Pay... then replace it with a 12-Pay. And if you do "switch" the payment, always switch to an "easier" plan... and make it a full day of announcements! This is big news for your audience!
The Payment Plan Costs MORE than the Pay-in-Full
The monthly payments should always add up to MORE than the cost of the pay-in-full price. Why? Because that is the COST of the risk YOU incur for taking a chance on a customer to pay monthly over time. It's essential interest. But never make the payment plan the same or cheaper as the "full price." (We'll go over suggested payment plan prices later.
Lead with the Payment Pan
When pitching your offer, always LEAD with the Payment Plan Option. ALWAYS. The reason is simple: when you lead with the payment plan, that BECOMES the price. And "paying in full:" is a SAVING! But when you lead with the "fixed price," people can get upset or feel penalized for taking a payment plan. So the language should read, "join today for just $97 now. Plus 11 monthly installments of just $97. And if you would like to save big, we have a pay in full option for just $997."
Have a Failed Payment Process in Place
In order to really lean into the Payment Plan strategy, it's important to have a Failed Payment Plan process in place. You don't need to overthink this, but someone on your team should be responsible for reaching out to customers whose credit card fails. Our team has an impressive track record. Our main focus is to simply work with the client, and often times we just create a unique payment plan that works for their current budget. This entire strategy alone could be extensively written on, but the simple concept: have a process for reaching out to failed payment clients, and work with them to get them on a new plan.
Post Launch Payment Plans
Some of my students are resistant to create payment plans. I get it. It can attract lower-caliber clients who fail on their payments quickly. So, here is a middle ground I recommend: Lead with a payment plan you DO feel comfortable with. (let's say a 3 month plan) Then, when the doors close, you can do a re-open with a more aggressive payment plan. (let's say 12 months). The way I see it: anyone who joins the 12-pay is "found money" from clients that weren't going to sign up otherwise.
Best Payment Plan Pricing Options
Don't over think this. It's rather simple. First, I recommend a payment plan that falls into one of the following time brackets: 2 months, 3 months, 6 months or 12.
Choose your preferred time period. Divide that into your price point. And round up a bit.
For example: 12 months on a $997 product would be $83. Round up to $97. 12 Installments of $97.
...or 2 months on $497 is $248. This can become 2 installments of $297.
And yes, I like ending things in a 7... usually a 97. $97... $197... $297.
Paying OFF Your Payment Plan
Any time someone wants to pay OFF their payment plan in advance... do it! Cash is Queen! And in tomorrow's training, I'll share a really powerful way to get people to pay off their payment plan INSTANTLY! So stay tuned for that!
The PROBLEMS with Payments
I figured I would end by just sharing the "problems" with payment plans... considering that despite these problems, you will still be net positive when you implement them.
The longer your payment plan is, you will find higher conversion rates, but you simutanously increase your risk for "default." (hence why you need a failed payment process in place). But it also brings with it a lower-caliber customer. People that have less skin in the game tend to be less committed. Say what you want about this, but in 20 years of excperience, despite exceptions, that is very, very true. (hence why you should encourage more people to pay off their plan)
Despite these real and true "pitfalls" of payment plans, I advise you still implement them in your business, and focus on how yoiu can mitigate the downside as much as possible.
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