In the home performance world, and in residential service contracting in general, when it comes to paying for work, cash is still king. But relying 100% on cash transactions with your customers means you miss opportunities.
Home performance jobs are complex. They often include multiple combinations of insulation, air-sealing, heating, cooling, windows, doors, lighting and appliances. It’s not uncommon to see work scopes exceeding $15,000 or even $25,000. On projects costing several thousand, or tens of thousands, of dollars, your closing rate depends in part on your ability to listen to the homeowner and generate a solution they value. It also depends in part on their ability to pay. Most customers can’t—or don’t want to—pay cash for big ticket projects. If you don’t help them with alternatives, you’ll either lose them altogether or wind up with a smaller and less complete job. A UNC survey in Philadelphia found 80% of the homeowners who used a loan would not have be able to move forward without it. Would you like to keep those customers or lose them?
At a minimum, you need to be able to steer customers to financing. Even better, you should facilitate the process and directly connect the customer to the program or lender.
Many in the HVAC world are well aware of this. Having financing available increases close rates. It also increases average ticket sizes as it gives homeowners the ability to do more than they’d do if they had to write the whole check today. And financing that can be arranged today removes competition in the form of tempting boats, or high-priced vacations, or iPhone upgrades for the whole family.
If you’re participating in state- or utility-sponsored programs, you might have access to loans tied to these programs. Heck, the loans might be the reason you signed up. The program loans can be helpful, but rarely are they the magic bullet, especially when they have a high administrative burden and long time lags before approval (or even longer lags before payment—watch that float!). In any event, you’ll want some non-program tools in your tool belt.
With financing, more attractive rates do help. But they don’t have to be 0 percent – the sweet spot might be in the range of 4-9 percent. At least as important as the rate is the ease of access. The faster and more hassle-free the financing, the more likely you are to get uptake. Regardless of the rate, though, have multiple options, even market rate options, to help customers with different needs. From credit card-type financing to bank retail loans, customers need options so you want options. (Another reason HVAC contractors have an advantage in home performance is that manufacturers and distributors often arrange financing programs—and many allow a few thousand dollars of things like insulation and air-sealing to be bundled in.)
Programs like PACE, should it ever get off the ground in your area, are an example another tool–not right for all, but right for some. You might even consider one of the innovative approaches some as that offered by Sealed. They work with qualified contractors to bundle an energy-savings guarantee with financing, essentially talking risk away from the homeowner. Neither of these are a one-size fits all solution, but each could be a this-size-fits-you-perfectly solution for customers.
If you’re not able or allowed to facilitate the financing, at least be able to direct your customers to the lenders, and let them know what information they’ll need. When you help figure it out and work through it, oddly enough, they’re more likely to figure it out and work through it!
As I’ve discussed before, financing is not a cure-all. It doesn’t replace your need for an effective sales process, and you won’t find people beating a path to your door just because you offer it. But it helps. And if you don’t offer it, chances are you’ll be hurting.