Posted in Planning

Are payment plans causing you to lose money?

When selling a product or service with a payment plan there have hidden costs that most professionals miss. These costs eat at your profit resulting in an unexplained waist. Many professionals are forced to close their door without fully understanding what happened, they just conclude that they don’t know how to handle money.

Exactly how are you losing money?

Let’s assume that you’re selling a course for $1,000, and you allow your clients to pay for in in ten installments. You’re still charging the $1,000 but that’s the problem, you should be charging $1,091.  Why $91? I’ll explain. The assumption is that your money should appreciate at a rate of 10% a year, so if you would have gotten the payment in full and invested it correctly you would have had $1,100 instead of $1,000. That $91 is the calculation of the appreciation your money should have gotten based on the payment plan.

The issue is you’re being charged for it so not charging it from you clients is a big hole in your business plan. Credit card and bank use this method to charge you for allowing you to use the capital that should still be frozen. In some cases, they charge you are a rate of 15% to 20%. But wait, is $91 worth all this migraine? What if you sold 10, 20 or 50 courses? You would have lost $910 to $4,550!

How do you calculate this expense?

You take the 10% of the total bill and divide it by 12 months. You only charge for 11 of those 12 months because the first payment is cash. So if you take 100 divided by 12 then multiply it by 11 you get $91.66 that’s the interest you should be charging. There is a more complicated calculation (some people like to complicate the crap out of everything) but this should cover your bases. If you find that 10% is not doing the trick ask you bank how much they charge you for a loan of $1,000 for a year and update your calculation accordingly.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s