Payment plans or no payment plans…that is the question…
There’s no doubt about it, offering payment plans on your online course can drastically increase your sales. When you give your customer the option to make 12 monthly payments of $97 that $1,200 course just doesn’t seem quite as scary.
But is it worth it?
While the increase in sales is great, payment plans can also be a huge pain in the a** so the decision should be made strategically.
The right answer as to whether or not you should offer a payment plan option is completely circumstantial but here are a few steps that will guide you in the right direction.
1.) Determine the variable cost per member.
This is the amount it will actually cost you to have an additional member take your course. Include admin costs and the investment of your time. If the program is automated and completely digital you can afford to take more risk with the payment plan. If the program includes one-on-one time or upfront costs you might want to be a little more conservative.
2.) Estimate the delinquency rate
This might seem like a shot in the dark but there is a strategy to it and you can learn a lot about risk analysis through a few Google searches (think of Ben Stiller in Along came Polly…I love that movie) . A good place to start is by determine who your target customer is and research the average delinquency rate for this demographic.
3.) Attempt to calculate the estimated increase in profit if a payment plan is offered.
Estimate the increase in revenue if a payment plan is offered then subtract the variable cost, the additional costs that would be incurred with ongoing billing throughout the year and the estimated amount that will need to be written off due to payments not received.
4.) How long is the course and how much of the full payment will be paid prior to completion?
The more that can be collected prior to course completion the better.
5.) How confident are you in the value the course will provide to your customers?
If your customers take your course and they feel like you did not provide the value you promised to deliver they may not feel as guilty about not providing the remaining payments they promised you. To be honest, if you think your content is “ok” you shouldn’t be selling it anyway. Keep working on it to make it remarkable.
6.) You should always increase the price of the course for the payment plan option
The increase in price helps to offset the loss associated with the time value of money as well as the risk associated with the payment plans. The higher the risk the higher the price for the payment plan option.
There are so many variables that can go into play but the bottom line is this – will you make more money by offering the payment options versus not?
I recently took an online course that offered two payment options: one payment of $997 or 12 payments of $97. If I had to guess, I would estimate that only half the people in the program would have signed up if payment was due in full (200 members vs 400 members).
If this were true the approximate revenue generated would have been $200,000 versus $440,000. If 25% of people with payments plans defaulted on payments after 6 months that would result in a $30,000 write-off making total revenue $410,000 versus $200,000, a net gain of $210,000. In this scenario the benefit far exceeds the risk. You can get a lot more granular here with the risk assessment but I think this is a good starting point.
Another important thing to consider is the lifetime value of the customer and the potential future revenue that will be generated as a result of more people taking the course that wouldn’t have if the payment plan wasn’t offered (an example of this would be referrals, increased exposure, repeat customers, ect.).
7) If you do decide to offer payment plan options I would highly recommend that you only offer two payment options:
1) payment in full, 2) one type of payment plan. Each additional option adds another level of complexity and you also run the risk of consumers failing to purchase due to the paradox of choice.
8) Finally, only offer payment plans if you have the right systems in place such as Infusionsoft, an cloud-based CRM, e-Commerce and marketing automation system.
Infusionsoft can be set-up to automatically follow-up on declined payments, send an email reminder two weeks before credit cards are going to expire and provide the ability for customers to easily update their credit card information.
I hope this helps! If you have any additional questions feel free to ask in the comments below.