Building a strategy to offer payment plans is an iterative process for all business owners. Just like anything in running a small business, the odds of you getting this right the first time are unlikely. Your conversion rate will improve over time as you sharpen your sales skills and that’s okay! Just remember that your payment plan won’t be locked into place and will be a malleable part of your business that evolves over time. As your customer base grows, and your business moves from zero to one,
Creating a flexible payment plan strategy can exceptionally propel small business owners. Using installment plans will allow you to take on new clients and turn your big-ticket items into reasonable weekly or monthly payments for your clients.
Here are six steps to consider as you’re creating your payment plan strategy.
1. Start with your service objective
Not only is it important to think about how your payment plan is going to be billed but it is critical to start with how you will create value for your clients. As an example, if you have monthly sessions, it probably doesn’t make sense to bill in weekly installments. And vice versa.
If you’re going to coach 1:1 or coach in groups, this will also be a factor! So when building your customer payment plans, it might seem obvious, don’t start with the payment solution, start with the service objective.
2. Define your value proposition
Over the course of the payment plan, your aim will be to deliver value over the duration, of course! But are there key moments where the value hits more effectively? Are there certain milestones that you’ve designed as part of this package to resonate with the client?
By clearly defining your value proposition, you’re going to connect the value in cold-hard cash to the tangible value that your service delivers.
Say in a 3-month package, you have a 1-month progress milestone. Then a monthly billing model that hits around the time of this milestone might make sense for your coaching business.
3. Outline your service offering
Are you only going to offer a one-time payment? Are clients forced to purchase a long-term program from you? If you clearly understand and define the ways that you create the most value for your clients, building your services to fit your value strategy should be much easier.
Consider price anchoring your most important service offering. This means launching a smaller and larger program to put your best offering in a place where clients are more likely to pick that service.
4. Create your economic model & cash flow requirements
Building your economic model starts with doing some backward math to outline the most sustainable approach to your services.
Where to start:
- How much do you want to make in an annual term?
- How many clients can you take on at any given time?
- Is this the only service you want to sell?
Understanding the answer to all four of these questions is critical to pricing your services. For this example, we’ll use round numbers. Say your answers are:
- You’d like to make $100,000 annually
- You can take on 7 clients at any given time and the package is 12 weeks (3 months)
- This will be the only service that you sell
Let’s do some backward math:
- In this model, you can ultimately service 28 total clients over the course of a calendar year (4 quarters x 7 clients = 28)
- At a gross income of $100,000 and 28 total clients, you’d need to charge roughly $3,600 per package.
- Say you opt for the $3,600 package that’s billed monthly: your gross monthly income would be rough $8,400 (($3,600 / 3 = $1,200) x 7 clients at a time)
Now, this model assumes that you’d have a full roster of back-to-back clients for a full year. No doubt that’s #Goals! But it might be unrealistic. So creating a variety of models will help you ultimately understand where you need to price a package. It might also be helpful to calculate how much you’ll loose if payments are processed via a credit card or debit card. Although small, payment processing fees might play a factor too.
Worst: Worst-case scenario, what would the model look like if you have 3 clients at a time instead of 7?
Better: What if you had 5 clients at a time instead of 7? Maybe in this model, you also sell a different service i.e. a smaller package, too
Best: 7 for 7 clients at a time #Goals
5. Put yourself in your client's shoes
Ultimately, this package is for your clients, right? Once you’ve defined your value proposition and have a feel for the right economic model for your lifestyle, it’s time to think about who your clients are and how this applies to them.
Understand your clients’ economic situation first and foremost. For example, if you’re a career coach and you’re working with clients that might be in between jobs, charging $10k for a coaching package over 4 months might not be the right model.
On the flip side, if you’re an executive leadership coach, charging $5k for a coaching package weekly over two months might also not be the right fit.
Now, those are two extreme examples, but it’s important to consider how your clients are going to pay for your coaching service and what the economic impact is on their livelihood.
6. Set the best payment plan options
Are you going to bill weekly? Or are you going to bill monthly? Depending on the frequency of how you actually deliver your value (see step #2). This is the final question to answer to come up with your payment schedule for new customers.
Billing weekly tends to be a better fit for shorter packages. Cases where you’re launching a 12-week program on [fill in your package name]. Ultimately, this is going to be a higher-frequency payment plan for your client.
For programs and packages that last longer than 3-months, billing monthly might be the best option for you. Generally, these tend to be higher ticket offerings and you don’t want to get into a billing model that turns out to be annoying for your client.
Bill one-time (upfront):
This is the big hitter, would your clients like to pay for your services up-front? If your clientele has more cash on hand i.e. you might run a package for a company or an executive) then billing upfront would likely be the primary option as a coach because you’re getting money up-front.
If you’ve decided to create a package with multiple payment options/plans, then you might consider incentivizing a client to pay for a package at a reduced rate (maybe 5% or 10%) when paying in full for the service versus paying using installment payments.
Additional payment term ideas:
Cash flow is a critical factor in building your payment plan, ultimately you need to be paid too! That’s the bottom line. Here are two other ideas for flexible payment options for your clients:
50% down payment & 50% halfway point: Consider requiring a large deposit to enroll in the package and then require paying the other 50% of the package once the client is halfway through the program.
75% down payment & 25% package completion: Another variation of a large deposit up-front. With 75% up-front, this might require more from the client at the start but can connect them deeper to the value and buy-in quickly, not having to pay for the full package until completion.
At the end of the day, your offering and service strategy is going to change over time. So dive head first into building your strategy with the intent to learn, change and adapt to what your business and clients need.
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