Can Your Customers Afford You?

June 10, 2016

According to the Federal Reserve, half of all homeowners would not be able to cover a $400 emergency. Pitney Bowes reported that the average American savings account balance was less than $6 thousand. So how do you expect them to afford $6 to $10 thousand for a 3-ton replacement system for their 1,500 square foot starter home?

Thanks to our friends in the government, professionally installed replacement air conditioning systems are now beyond the reach of most homeowners after cost increases from mandate upon mandate upon mandate. Whether the regulations are necessary to save the planet is debatable. They will impoverish contractors who do not change their sales approach.

Sell on total price these days and you confine yourself to living with the bottom feeders who have no overhead and limited prospects of prosperity. Instead, sell on payments and not just payments, but the lowest possible payments like 120 monthly installments. In addition, arrange for multiple financing sources, including second look financing for the truly credit challenged.

Think Like a Car Dealer

Few people can afford to pay cash for a car, even a used car. They almost always finance the purchase and advertise and sell the payment. With more expensive cars comes more extreme financing. Leasing involves financing a portion of the vehicle.

Most car dealers employ finance managers who, among other things, manage a portfolio of lenders. These include manufacturer financing as well as several local and third party options. The finance manager will choose the most advantageous option for the dealership that will get the deal done. You may not have a finance manager, but you can have a portfolio of financing sources and options.

Lower the Payments

The old revolving plans that most contractors use and that are typically offered through manufacturers no longer cut it. Moreover, they often aren’t the best deal for the homeowner. Revolving credit is credit card credit. The borrower must make a minimum payment that’s a percentage of the outstanding balance each month, typically 2% to 3%. If the borrower only pays the minimum it can take a very long time to pay down to a zero balance. A better choice is installment financing.

Installment financing, as the name implies is financing over a fixed set of equal installments with a set interest rate. Most home mortgages are installment loans of one time or another (e.g., variable rate, balloons, etc.). Payments can be reduced by using a down payment to reduce the size of the note, by lowering interest rates, and/or by increasing the number of payments. For the amounts being financed in most system change outs, the interest rate will not make nearly as much difference as increasing the number of payments. Here’s a comparison of financing options, including revolving:

Type of Financing

Revolving @

2% Payment

Installment @

0% Interest

Over 36 Months

Installment @

8% Interest

Over 36 Months

Installment @

8% Interest

Over 120 Months






Changing the interest rate from 0% to 8% over 36 months only increased the payment $29 per month. Keeping the 8% rate and stretching the note over 120 months lowered the payment $125 per month.

You might wonder if 10 years is a long time to finance a new air conditioner. The answer is no. It’s a product with a projected life of 15 years. Why not finance it over two thirds of its projected life? This better matches the cost with the usage.

Ten year financing makes it possible for homeowners to afford more enhancements like air purification, more intelligent controls, and so on. It takes the focus off the high price of a new system and moves it to the features and benefits the homeowner desires.

When you read in the trade press about consolidators or franchises offering “rentals” or “leases,” for all practical purposes these are nothing but ten year installment notes. These are your competitors and they will be selling low payments, even if you choose to not offer them.

If you have been feeling more price competition this year, maybe it’s not price. Maybe it’s affordability. Line up the financing programs that will make your systems more affordable to more people, assumptively sell payments, and watch the price competition fall away while profitability increases.


Are you in an HVAC buying group? If not, you are paying too much. Join the Service Roundtable and you will automatically be enrolled in the Roundtable Rewards buying program with more than 100 partners and enjoy the buying power of thousands of contractors. Call Amanda at 877.262.3341 for more information.

About the Author

Matt Michel | Chief Executive Officer

Matt Michel was a co-founder and CEO of the Service Roundtable ( The Service Roundtable is an organization founded to help contractors improve their sales, marketing, operations, and profitability. The Service Nation Alliance is a part of this overall organization. Matt was inducted into the Contracting Business HVAC Hall of Fame in 2015. He is now an author and rancher.