Penny Wise and Pound Foolish
Invest your pennies and be pound smart!

There's nothing like a good idiom to highlight a problem. Being penny wise and pound foolish is really saying that fixating on saving a small amount of money may prevent you from earning even more. “Not seeing the forest through the trees” is another idiom with similar meaning. What do these idioms have to do with offering point-of-sale consumer financing?

Expense Versus Opportunity

Businesses have expenses and all good managers track those expenses and manage them carefully in a budget. Expenses such as fixed assets, personnel, and sales and marketing are, of course, necessary to conduct a successful retail business. When the clock strikes 10 a.m. and your retail doors open to customers, you have your set of fixed costs for the day.

You’ve already paid the lease on your facility. Your electricity bill is covered. Your staff members are receiving regular paychecks. You’ve spent money on advertising to drive traffic to your facility or website. So, when a customer decides to purchase your products or services and wants (or needs) to pay over time for their purchase, you should have a practical point-of-sale financing solution to offer them. By adding a small variable expense (usually 10% or less) to close the sale quickly, you’re preventing the customer from walking out the door to shop your competitors who offer more payment options.

Fixed Versus Variable Costs

Some business owners look at the variable expense of a point-of-sale consumer financing program as an added expense they just can’t afford. Holding tightly to a strict budget and not considering this type of expense can be looked at as penny wise and pound foolish. Why? Let’s do the math.

As noted earlier, every day your business opens you have fixed costs, as described above. For simplicity, let’s say that on a daily basis those costs are $2,000. As you’ve budgeted, you expect, on average, a certain amount of sales each day to cover your costs and generate a nice profit. We know that your fixed costs will occur regardless of the day, but sales can fluctuate daily. Let’s say it’s Tuesday and you generated $4,000 in sales. On average, each sale has a “cost of goods sold” – the cost of the product being sold, when deducted from the sale price, generates what is called a gross profit margin. If the average cost of goods sold is $2,500, your $4,000 in sales would have created a gross profit margin of $1,500. Having fixed costs of $2,000, you would be technically operating at a loss of $500 for the day.

If on this same day you had several potential sales, and had a user-friendly,  point-of-sale finance system, providing payment options for customers who could not pay with cash, those sales would have turned a profit.

Invest Your Pennies and Be Pound Smart

Any successful retail business requires sound investment and the flexibility to adapt to the changing needs and expectations of customers.  Using business innovations such as easy-to-use consumer financing provides customers with more financing options and a better customer experience. The end result is more business, more approvals, more sales, and ultimately, a prosperous business.