You Should Be Doing More Leasing And Less Selling Of IT Equipment
Of the 14 people in the room, almost everyone's hand went up. In some cases, they own one vehicle and lease the second one.
Had I asked that same group the same question 10 years ago, my bet is that maybe one hand would have gone up.
Somewhere in the mid-1990s the automotive dealer world reached a tipping point when it came to auto leasing. Today auto dealers often make more money leasing a vehicle than they do selling it outright.
Consumers are likely to lease a more expensive vehicle than they are to purchase that same vehicle because of the ready cash needed to purchase vs. lease. The consumer's cash outlay often improves his or her selection via a lease than with a purchase, and the dealer makes more money. It boils down to a classic win-win business deal.
Of course, there were a number of factors in play that helped the automotive world reach the tipping point on leasing.
I bring this up because I believe the issues surrounding IT equipment and services are ripe for a very similar tipping point toward leasing.
If you are not offering a leasing option to your customers today, you should be. Let me highlight a few reasons in a very limited amount of space.
Most companies don't want to own more than the core assets necessary to run their business. In essence, cash tied up in anything that isn't necessary to drive the business is not cash well-spent.
If you take a look at the money a company invests in IT equipment, it amounts to nearly 50 percent of its capital expenditure. While there are some tax advantages to owning equipment, such as depreciation write-offs, in the end most businesses are more interested in cash flow than tax write-offs. If there is anything the most recent downturn has taught us it's that proper management of cash and assets can make or break a company.
I talked to one solution provider last week who is making 16 points on his leasing deals and getting the depreciation tax write-off to boot. At the same time, he is able to cut the customer's monthly outlay on a lease vs. a purchase deal.
In making the shift to leasing, other positive things also can happen if you structure the deals properly, such as including services as part of the overall lease.
By telling a customer you will take over ownership of its equipment and services, you essentially turn a hardware sale into an outsourcing contract. A discussion about the cost of a piece of hardware becomes a conversation about a service-level agreement.
And, by offering to meet a minimum standard of equipment, guaranteed network uptime, response time to problems, etc., the relationship changes and the focus is shifted away from the customer beating you up on hardware margins.
Once you sell one of these deals, the customer-retention level rises because everyone inside of that organization is now your customer, and they realize they are being treated that way the second you respond to an issue. That's a lot different than being treated as an end user, as is the case with most traditional sales.
This issue is obviously far too complex to deal with in a single column, but think about what leasing did for the automotive business and why it happened. Then ask yourself whether the time is ripe for a similar opportunity in our industry.
Make something happen. I can be reached at (516) 562-7812 or via e-mail at [email protected].