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Tech sales: 3 reasons to shift from upfront purchases to annuities

August 10, 2021

Tech sales: 3 reasons to shift from upfront purchases to annuities
Unless you’re a reseller with financing expertise, the term “annuity” may have an adverse connotation. If you’re like most of us, an annuity was something your grandmother had set up for herself, so she could rely on steady retirement income.
 
Today, in the world of tech sales, annuities mean freedom—freedom for end users to pay over time for tech; freedom for resellers to serve customers who don’t have upfront cash; freedom for all parties who want to show a steady payment stream.
 
The fundamental challenge today is often convincing resellers to switch from upfront payment collection to annuities. After all, many sales pros were taught “a bird in the hand is worth two in the bush” when it came to collecting cash up front. However, the entire pay-over-time tidal wave is coming—and those who don’t adapt may find themselves underwater. Good news: If you’re considering annuities, Ingram Micro is well-equipped to support you to ensure a smooth ride.
 
3 reasons to shift from upfront purchases to annuities
 
1) Easier sale
Let’s say your SMB end-user customer needs $100K worth of tech—today. Not only do they want all the bells and whistles of new tech, but they may need it to secure the organization against cyberthreats. Old tech doesn’t do that. The problem is, they’re balking at the upfront cost, so you could lose the sale.
 
With annuities, your client gets the tech they need immediately, but that $100K gets spaced out over 3 equal payments over 3 years. Suddenly, they got the product they couldn’t initially afford, and you got the sale you weren’t going to close. It’s an easier transaction and a win-win if you ask us.
 
2) Recurring revenue means better evaluations
Sure, upfront cash is king, but what if you don’t get it at all? That’s what could have happened in the scenario above.
 
Subscription transactions are a critical pathway toward recurring revenue. If you care about predictable cash flow over time, annuities may be your answer. On a grander scale, recurring revenue is the love language of an acquiring company. For example, if a managed service provider wants to sell their business, and the acquiring company sees that 80% of their revenue is in recurring motion, it’s a beautiful thing for both parties.
 
3) Good relationships mitigate bad debt
The big question is obvious when it comes to paying over time—what if my client stops paying? That is a legitimate concern, but it rarely becomes a problem with preset expectations and good relationships. Ingram Micro, with its robust roster of resellers, rarely sees bad debt and write-offs when it comes to subscription models—especially when the expectations to pay over time are solidified. Make sure your end-user customers are strong candidates and you’ll both benefit from this symbiotic way of doing business.
 
Even if you hate what you just read …
Let’s say none of this appeals to you. We get it. It took us some time to cross over ourselves. The truth is, we’ve dug into our mounds of predictive financing data and keep coming to the same conclusion: annuities aren’t going away. Our experts project they’ll be commonplace across the IT channel, and vendors will bring them to market that way. Keep in mind, millennials are either currently running IT departments or will be soon. Guess what millennials are very comfortable with—paying for subscription services over time.
 
Ready to talk annuities or general financing? Ingram Micro’s financial solutions team can help you win with your clients.
 

 

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