Survey says: Collecting 100% deposits proves beneficial

Home Columns Survey says: Collecting 100% deposits proves beneficial

March 16/23, 2015; Volume 28/Number 19

By David Romano

Traditionally, floor covering business owners ask customers to pay for half the job at the time of the order and the other half when the job is complete. This approach made sense to my wife, so she asked me why I was writing an article stating that collecting 100% was a better idea. I thought to myself if I can prove to her why collecting 100% worked, then I could surely get readers to buy in, too.

Her initial hang-ups with my theory were the total price of the transaction and that she wouldn’t have anyone to hold accountable if something went wrong.

After discussing our past purchases, she said, “I wouldn’t have thought twice if someone asked me to pay for the cost of our new floors up front. I questioned it because you put the thought [of a 50% deposit] in my mind.”

She then went on to explain that “her generation” assumes everything is going to be all right and, if not, the company will fix the mistake. It wouldn’t even cross her mind that the job would be anything less than beautiful without someone to hold accountable. The great thing about this is that studies have shown both Generation X and the millennials agree.

The true hang-up with collecting 100% doesn’t reside with the customers, but in the minds of the owners and sales teams. Most flooring dealers, and a good portion of sales teams, are baby boomers who have held onto their beliefs and not adjusted philosophies to mirror today’s consumer. Just because they, their parents, grandparents and the old guy across the street won’t pay for the entire sale up front doesn’t mean today’s customers won’t. Those who keep holding onto this archaic ideal are the major reason customers continue to pay just half right away.

According to a survey conducted by Benchmarkinc, in which several hundred floor covering store owners participated over a three-year period ending in 2013, those that collected on average 66% or more deposits on retail jobs realized the following:

  • 1.6% less total volume
  • Close rates were nearly identical
  • Gross profit was nearly identical
  • Sales productivity was nearly identical
  • Average days receivable were lower by three days
  • Receivables over 90 days were 16.7% less
  • Bank debt was 13.7% less

Although volume was slightly down, $3.35 million vs. $3.41 million, the benefits of collecting money much faster—having to rely less on bank debt and writing off less doubtful accounts—should make anyone reluctant to collect all up front reconsider their policy. Best of all, collecting more than 66% didn’t reduce close rates, affect gross profit or drag on sales productivity. The same results were found for those who collected 100%.

One last bit of proof that this works: Home Depot, Lowe’s and Menards collect 100% of the payment up front, and we all know the percentage of market share gain for the big boxes over the last decade. If they can do it with their non-inspiring sales team dressed in tacky orange and blue aprons, shouldn’t a professionally trained RSA who knows how to build trust be able to do the same?

For those who are still reluctant to collect all up front I highly recommend collecting at least 75% at the time of closing and 25% prior to installation. Make sure you check with your state laws prior to making adjustments to deposit policies.

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