Best Practice: Pre-selling and taking advance payment improves cashflow. Taking advance orders with no payment may help you get financing.
Today’s Article: Access to Capital for Branding – Customer Financing
Businesses can pre-sell products or services to customers to raise capital to start or grow a business.
Advantages of a Customer Financing
1. Open to start-up and existing businesses
2. Pre-selling with payment of products or services improves cashflow
3. Pre-selling with deposit of products or services can improve getting a loan
4. Selling with up front retainer improves cashflow
5. Taking advance orders with no prepayment may secure a loan or advance
6. Potential future funding
Disadvantages of Customer Financing
1. Not applicable to all types of businesses
2. Can take time to secure
Create capital by securing customer’s money before you deliver the product or service.
Five Customer Funded Models
1. Matchmaker—Bring buyers and selling together. Example: real estate brokers, eBay or Expedia.
2. Pay-in-Advance— In-advance getting up to 100% of the price of the product or service. Example: crowdfunding, contractors and architects.
3. Subscriptions— Customer pay a subscription price to have access to products and services. The subscription can be daily, weekly, monthly, annually or seasonally. Examples: information, expertise, books, music, food, TV, radio, internet, fitness, supplements, drugs, etc.
4. Scarcity—Strategy is built around having or creating the belief of limited supply to drive up demand. Examples: Apple pre-ordering of new products prior to release
5. Service-to-Product—Popularly used by Microsoft. Involves a service that only comes when the customer buys the product.
Traditional companies launch new products or services by selling them when they are made available to the public. Innovative companies like Apple, allow customers to pre-order them online, prior to the release of the product. They promote to the public how the new product meets a need or solves a problem.
You can pre-sell products or services too. Don’t wait for your product or service to be released. Take pre-orders with payment. Pre-selling helps cover initial costs and helps solve intial cash flow issues – you have the money upfront. How could you do this?
Get a Deposit
Another option to getting the full purchase price is to get a deposit to cover the cost of materials for service types of businesses: contractors, landscapers, plumbers, electricians, etc. How could you do this?
Get a Retainer
Another option is to pre-sell professional services by getting a retainer upfront prior to starting the service or project. Retainers are ideal arrangements for customers to get ongoing support and “as needed” advice. Examples of businesses charging a retainer: attorneys, accountants, designers, agencies (marketing, advertising, social media, PR), etc. How could you do this?
Secure a Loan or Advance
Taking advance orders or pre-selling may help you get capital. By taking the signed order(s) to a lender it shows them why you need the money and how you can pay them back. How could you do this?
Action Step: Does pre-orders, getting a deposit or retainer from customers work with your business model? If so, implement a program to raise capital.
More Ways to Access Capital Return to Brand Library Return to Brand Yourself
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