If you’ve been to a big-box retailer lately, you’ve likely noticed how heavily they market their consumer credit products. It’s nothing new. Offering financing is an option that large retailers have used for years to give their customers more purchasing power, encouraging larger average order value (AOV) and thus increasing revenue for the brand.
Unfortunately, smaller businesses haven’t enjoyed this same advantage. Why? Because they haven’t had the means to set up a program, lend the funds, take on the additional risk and comply with consumer credit laws. As a result, they lost out on potential sales.
In fact, average order size increases 15% among businesses that offer consumer credit and 93% of first-time consumer credit users said they would use consumer credit again. For large ticket items, consumer credit can be the difference between a conversion or an abandoned cart. After all, 30% of shoppers using consumer credit said they wouldn’t have made the purchase at all if it weren’t for the six month financing offered.
The numbers are stark, and it’s time that small businesses compete with legacy brands when it comes to offering consumers financing options that make sense for both the customer and the retailer. Below, the latest information on consumer credit offerings small businesses can use to close the AOV gap and increase revenue via customer loyalty.
How Consumer Credit Works
New consumer credit products work a lot like credit cards. They extend a line of credit that consumers pay off over time. At checkout, customers simply select this alternative credit option instead of fishing out their credit card.
The first time your customer chooses to pay with the credit option online, he or she is asked a few approval questions, and the lender gives him or her a decision. If approved, the transaction is processed and the sale is completed. The retailer typically receives 100% of the sale funds within a few days. From the merchant’s perspective, you’re done. The financial relationship exists directly between your customer and the lender.
Offer It and They Will Come
All the benefits of old-school consumer financing hold true for online businesses, namely enabling customers to purchase an item and pay it off over time. For example, customers can use consumer credit to pay off large ticket items or a holiday shopping spree over the course of a couple months rather than in one lump sum.
The world of consumer credit comes with additional benefits, as well, for both the consumer and the merchant.
More Sales, Larger Orders
Giving customers access to credit, including special financing offers, like “No Payments + No Interest if paid in full in 6 months,” at online checkout not only gives customers more purchasing power, but also drives sales and increases purchase value. A recent Forrester study found that offering a credit payment option can result in a 17% increase in incremental sales and a 15% increase in average order value.
100% Upfront Payment
Even though your customers have time to pay for their purchases, you, the merchant, still see your money upfront. It’s a win-win situation for both the customer and the retailer in question.
Beyond just an extension of credit, some lenders will help retailers sell even more by offering their customers enticing incentives. Examples include special financing offers on purchases above a certain dollar amount and monthly payment options over a period of time, typically six, 12 or 18 months.
Free to Offer
While some lender programs might charge the business a monthly fee for offering credit, others are free. PayPal Credit, for example, is free to offer. You just pay your normal per-transaction fee as you would for a regular sale.
If you do find a fee-based service you’re interested in, think carefully about signing up. Lenders typically structure credit terms with the shopper to its own advantage. Yet, as the retailer, you are offering the lender access to a customer base in which the lender wouldn’t have otherwise gained brand exposure. Retailers here have the upper hand. Think twice about using lender programs that charge a fee.
With an average online shopping cart abandonment rate of 68%, there’s a lot at stake for online businesses to improve conversion. Giving customers the flexibility to buy now and pay later can mean the difference between a successful sale and an abandoned cart. Just remember to do your homework when choosing a credit-lending partner.
This article was syndicated from Business 2 Community: The Benefits of Customer Financing: Increase AOV 15% with Consumer Credit Options
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