Back to PodcastShorter or Longer Payment Plans? If you’ve ever wondered whether you should have a longer or shorter payment plan, join me for this episode where I walk you through how to answer this for your business. Download as an MP3 by right clicking here and choosing “save as.” RSS feed for Marketing Your Business Big Ideas Why I Love Shorter Payment Plans [0:38] In our company, we’ve always preferred shorter payment plans. And yes, I’m fully aware that in many cases, that means we make less money on the front end, but here’s a lot of the rationale behind why we like shorter payment plans. For us, it’s a lot less stressful because we don’t have to follow-up with people, worry about failed payments, or do all of that collecting. It’s like we sell the service or the product, the course or the program, and then we deliver it, and everything’s all wrapped up nicely. The second reason why we love shorter payment plans is because we love paying our partners as quickly as possible. When we have JV partners or affiliates who are helping promote our programs, we want to be able to pay them early and as often as we can. For example, I know that many times people will have 12 payment plans available. But if you’re an affiliate, that’s a long time until you get your commissions. And so, we want to make sure that we are able to pay our affiliates as early as possible and you can’t do that if you’ve got longer payment plans. The third reason that we love shorter payment plans is I never feel like I can count that money as mine until it is fully collected. What if somebody asks for a refund? You can’t count that money until everything has been fulfilled, until all the payments have been collected. Find Out by Asking 3 Questions [3:25] With all that being said, this year because of COVID, we decided to do an experiment. We knew that there was a lot more uncertainty in the market when we did our launch for our signature program, TRIBE. So, for the first time ever, we experimented with a longer payment plan. Instead of doing a three payment plan, we extended it to six payments. The rationale was that because there’s so much uncertainty, we wanted to make it easier for people to be able to say yes and to join our program. We have just completed the sixth and final payment of that payment plan. And I went back to our team and asked three key questions to help us evaluate whether doing a longer payment plan was more or less profitable for us as a business. And I’m going to share those same questions with you because it’s going to help you evaluate whether a shorter or longer payment plan is worth your while, and how to ensure that you maximize the profitability of whatever type of payment plan you decide. How Many People Started the Payment Plans? [4:56] The first question I asked our team was how many people started the payment plan? You have to know where you’re starting from, so you need to know how many people started the payment plan. And of course, if you want to break it down into the number of payments, then you would take the number of people and you multiply it by the number of payments. In theory, this is the total number of payments that you should be receiving from the people who are part of your payment plan. Let’s say we had 1,000 people who joined our program, and we had a six payment plan option, that would be 6,000 total payments that should be coming in. How many payments were completed? [6:19] The second question you want to ask is, how many people finished the payment plan? So, of the 1,000 people in our example, how many of them completed all six payments? Let’s say out of the 1,000, 900 of them completed the payment plan. So, in theory, that means that we would have received 5,400 of the total 6,000 payments. Or another way to look at that is that if 100 people did not complete their payments, how many did they complete? Some may have completed two of them, some may have completed four, but you want to get an accurate number in terms of how many total payments were neglected or failed or whatever it might be. Where did people drop off?” [7:43] The third question that you want to ask is, where did people drop off? If you were to chart out payment one, payment two, payment three, payment four, payment five, payment six in a six-payment plan example, what were the percentages of payments that were completed for each one? Typically, you’re going to have 100% completion for that first payment, then how many people completed the second payment? How many people completed the third, fourth, fifth and so on? The reason you want to get insight into this is because you can’t make strategic decisions as to whether a shorter or longer payment plan is better or worse until you know these numbers. How Did the Long Payment Plan Work for Us [8:48] When we looked at these numbers ourselves, here’s what we found out. We looked at how many people finished the payment plan, and for us, 85% overall completed all of their payments. The 15% that did not complete all their payments, we could then drill down and look at how many of them made two, three, four, five, etc. Then when we looked at the third question, which was where did people drop off? This is where it got interesting. I’m going to tell you about the first three months because they were the most significant. Month one, 100% of the people made all their payments. In month two, 99% of the people made all of their payments, but in month three, it dropped from 99% to 89%, a 10% drop off from month two to month three. And I can tell you what happened – we completed the course right before that third payment came out. What’s fascinating is human psychology. These are business people running a business or wanting to run a business. But the most common thing when following up with these people as to why they’re not paying, they said that because the course is done, they don’t need to pay anymore. I don’t understand how people can fathom that they are putting good karma out into the world and that they’re not going to attract the same type of people to do the same type of thing to them. Anyway, that gave us tremendous insight into an area where we can strategize around how to fix that big drop off. In month four, five and six, it was pretty much the same in terms of where the numbers were but the biggest drop-off was between month two and month three. Now we have that insight and that visibility into the business, and we can start strategizing in terms of how to alleviate that problem. We can start strategizing as to whether we want to have a longer payment plan again, and compare these numbers to when we had a shorter payment plan. Memorable Quote “A 12-month payment plan is not a membership.” – Stu McLaren “I want to be the customer that I want to attract.” – Stu McLaren Resources Episode 128 – RANT – Payment Plans Are NOT Recurring Revenue Rate & Review the Podcast Reviews for the podcast on iTunes and greatly appreciated! They help us build awareness for the show, which in turn allows us to bring value to more listeners like you. Not only that, but they help us better understand what matters the most to you so that we can constantly improve. If you received value from this episode, it would mean the world if you could take a moment and leave your honest rating and review. You can do that by clicking here.