How to handle a customer who wants to exercise buyout to own

Your customer is 6 months out from their lease expiring on the copier they leased from your dealership.  They asked you what it would cost for them to purchase the equipment.  You get the buyout to own quote from the leasing company and send it over.  A few days later they let you know they have decided to purchase the equipment and are not interested in upgrading to a new copier at this time.

We have all seen this happen and given today’s economic conditions, it is happening more than ever.  For many sales representatives, this is a lost revenue opportunity and they move along.

But wait!  There is an opportunity here to earn revenue and gross profit!

The buyout to own figure includes the full stream of lease payments, any remaining service/ supplies, and an inflated residual position generally around 25-30% of the original funded amount.  If you let the customer send in a check to the leasing company, they retain everything except for the service and you don’t even get so much as a “thank you.”  The following example illustrates how you can turn this situation around.

Lets say the original deal funded $15,000 and was for a 60 month FMV.  With a .0200 rate factor, the lease payment alone is $300.00.  With 6 months left that = $1,800 in lease stream plus the purchase option (@ 25% of $15K) of $3,750.00.  Thus the buyout to own (not including any aftermarket) is $5,550.00.  Your customer has agreed to pay that amount to the leasing company.

Tell your customer the leasing company has a wonderful “Zero Percent Interest” financing program available they can use to buy this equipment for terms of 12 and 24 months.  We will show the 24 month here.  Take $5,550 and divide it by 24, that comes out to $231.25 per month.  Now divide that payment by the leasing company’s 24 month $1.00 rate.  Lessors charge pretty high interest rates, lets say this is a .0510 factor which translates to 20.21% interest (but you do not mention this rate to the customer.)  Divide $231.25 in to .0510 and you should get $4,534.31.

Thus, with that payment you can fund $4,534.31.  Next, take a look at the upgrade to own figure.  Generally the formula for that is 90% of the equipment payments and a 10% residual.  $1800 x .90= $1,620 plus $1,500 residual = $3,120 is your upgrade to own.

See where this is going?

Your cost of goods is your upgrade to own which is $3,120.00.  Your customer has agreed to 24 payments of $231.25 which will fund you $4,534.31.  That leaves you gross profit of $1,414.31.  What do you get paid on GP?  30%?  Thats a commission of $424.29 you just made on a deal that most sales reps walk away from.  Everyone recognizes revenue differently.  You can argue here the residual is your “c” cost and that plus the profit should be recognized as revenue, just the remaining stream of lease payments would not count.

At the end of the day, your customer is getting a true “0%” interest, they are buying the machine they want, you have them in your lease base still, and you just made $425.

Offsite (www.offsiteequipment.com)  provides a full suite of services for both independent dealers and national branches.  Our services include:

  • End of Lease Assistance.  Offsite can contact your clients to remind them to send in their Letter of Intent for their old equipment, follow up for return shipping instructions, and manage their return shipping logistics.  If you have a customer who is storing their leased asset in a back closet, this is a great service to offer so they do not miss their LOI date.
  • National network of warehouses available to pick up and store leased assets that cannot be returned early.
  • Lease return shipping and copier moves.
  • Outsourced lease administration, Offsite can process your deals for funding on a per transaction fee thus reducing dealers operating expenses.
  • Program Agreement negotiation, back office consultation, lease sales training.  Increase leased sales %, secure lower rates, increase credit approval percentage guaranteed.

Visit our website today at www.offsiteequipment.com .  At Offsite, we know logistics and we know copier leasing, our services are second to none.

Good Selling!

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