Offering PAYG Options to Customers
IT Service providers are faced with a challenge when it comes to making large IT purchases on behalf of their customers. The traditional and most common method is to add a margin to the purchase but make the client pay for purchase up front. Unfortunately, in this economic climate, more and more clients are unable to commit to big upfront purchases and are looking for IT service providers to give them a pay-as-you-go (PAYG) option. There are several ways that this can be achieved.
Purchase the asset up front yourself and charge monthly
This is the simplest method. The upside to this is that you can usually purchase the asset at the best price and then take profit on the monthly fees that you charge your client. The main problem here is that your business has to fund this up front purchase and it make take several years to make your money back. This ties up cash which could be better used to invest in your business to help it business grow. If your customer leaves you or, worse, goes out of business, then you will be stuck with an asset that will be earning no income until you find another customer for it or dispose of it.
Ask the vendor for a PAYG option
Most software vendors will offer a monthly subscription option for their software. Hardware vendors are also beginning to offer this as well. The upside to this is that you are not committing the cash of your business and it is extremely convenient. Some vendors will even offer a "lease" style arrangement where you can return the asset should your customer ever leave or go out of business. The downside to this approach is that the vendor will be usually adding their premium to their monthly fees - and this is potentially extra margin that you are missing out on.
Embrace Asset Finance
Asset finance can be used to finance both IT hardware and software. Asset finance is like any secured loan - the lender will take the asset as security and loan terms will typically be up to 5 years in duration. Most lenders look for a minimum of A$10,000 to be financed but this can be aggregated across customers. The advantage with asset finance is that you don't need to commit any of your cash to get the finance. Interest rates for IT asset finance tend to be in the single digits so it leaves room for you to put markup on the monthly repayments and pass this on to your customers.
More and more customers are looking for monthly PAYG options from IT service providers for their IT assets. If your business has deep pockets then you can purchase assets yourself and charge customers monthly, with a premium built in to the monthly fee. If your business needs more cash to expand and grow then consider either using a monthly subscription option offered by the vendor or embrace asset finance to allow you to achieve the same results.