The Pros and Cons How Offering a Payment Plan Impacts Sales

  • Written By:
    Michael Harbone
  • Published On:
    December 27th, 2019
  • Read Time:
    4 Mins
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Should you offer a payment plan for your customers? Should you work with outside parties to offer payment plans? Some companies will now act essentially like credit card companies, financing purchases. Meanwhile, many service providers, including Software-as-a-Service (SaaS) companies, offer monthly subscription plans.

PayKickstart offers a monthly plan. 

All of these various options accomplish one crucial thing: they break up the costs for individual customers, allowing them to pay for services over a period of time. For companies and individuals who are tight on cash, these payment plans often make it easier to purchase the product in question. 

So should you offer payment plans? While such plans make it easier for customers and thus increase the number of customers you can sell to, payment plans can increase risks. What if you sell a customer a product, for example, and they stop making payments? You might find yourself out of money or in court trying to recover your products.

So let’s take a look at the pros and cons of payment plans, how they impact sales, and whether or not you should offer payment plans.

Pro: By Making Purchases Easier, Payment Plans Can Increase Sales

There’s a reason that most people don’t buy houses and cars with cash. Instead, they use credit and make payments over a period of time, sometimes as long as thirty years! Most people wouldn’t be able to gather up the $226,000 dollars that it costs to buy the average home in the United States.

Few people would be able to buy houses without monthly mortgage plans.

By using a mortgage or auto loan, however, people can purchase expensive items. Likewise, if you offer a payment plan for your product, you will be able to offer your product to more customers. Consider that while many customers might struggle to save up a $1000 dollars to buy a computer, many could afford a $50 or $75 dollar monthly payment. Likewise, if you offer a SaaS that costs $1,000 dollars per year, many individuals and companies will struggle to afford it. On the other hand, if you offer that SaaS at $100 per month, many more people could afford it.

This means that payment plans should help you increase your sales. At PayKickstart, we offer customers the opportunity to pay $924 for an annual subscription for our professional plan. However, since we know that many people can’t afford the large upfront payment, we also offer a $99 monthly payment plan, for a total of $1,188.

As you probably noticed, our monthly payment plan is higher. We don’t want to punish customers but there’s an important reason that we have to charge more for a monthly plan… 

Con: Payment Plans May Increase Risks For Your Business

SaaS providers generally charge more for their monthly plans than for their annual plans. If you pay for an entire year of service, many SaaS providers will provide you with a discount. The primary reason for the pricing difference is risk. 

If you pay for an annual subscription fee, the SaaS provider doesn’t have to worry that you will cancel service six or eight months later, thus costing the company revenue. Even if the customer stops using the SaaS, the provider will still get the subscription fee. 

The same is true for just about any type of payment plan. If you sell expensive watches and the customer pays up front for the watch, you get the full payment right away, thereby greatly reducing risks. On the other hand, if you offer a one year payment plan, there’s always a risk that the customer will simply stop making payments and disappear with the product. 

Risks Increase But There Are Benefits

So why should you take on increase risks? For one, if you charge interest or higher fees, you’ll collect more money (assuming the customer makes all their payments). That alone might not be enough to justify offering payment plans and taking on the increase risks. However, there are other important benefits.

Offering consumer credit may increase your Average Order Value (AOV) by 15 percent. Likewise, offering payment installments could can increase AOV by as much as 68 percent. Further, some 44 percent of customers claim they’d abandon a purchase if installments are not available. 

Besides increasing AOV, payment plans should also increase your total number of sales. Steve Chou over at “” found that by offering payment plans for his online courses, he was able to increase sales by 27 percent!

When Should You Offer Payment Plans?

First, just about every business can and should offer options like PayPal Credit in their shopping cart. In this case, you’re not taking on the risks, PayPal is. This also means they’ll get all the extra profit from the credit charged. Still, the risks to you are minimal and flexible payment options should increase sales.

Next, if you offer a service, including SaaS, a payment plan or monthly subscriptions (versus only annual) makes sense. Since the risks will be higher when you offer a monthly plan, you should charge a bit extra. However, with a SaaS, even if a customer stops paying, you don’t have to worry about trying to recover your products. You simply cut off access.

Conclusion: Payment Plans Are Generally a Good Idea

If you can offer a payment plan through Paypal or Square, you should go ahead and do so. Likewise, if you offer Software-as-a-Service, you should offer monthly payment plans to go along side with your annual subscriptions. By offering payment plans, you should be able to increase sales and conversions.

Yes, in some cases risks will increase but in the long run, the pros outweigh the benefits when it comes to payment plans. Of course, each business is different, so you should closely consider your specific needs and risks. There is no one size fits all approach. 

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