Episode 86: Payment Plans – What You Need to Know

Today we’re getting clear on the pros and cons of payment plans and key questions to ask yourself as you consider whether to offer payment plans in your coaching business.

86: Payment Plans - What You Need to Know

Should I offer a payment plan? How long should it be? What's the best approach to pricing it? Whenever I talk to a coach about pricing their offers we always come back to these questions about payment plans. There are a lot of factors to consider and balance when it comes to creating payment plans in your coaching business.

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Show Notes

Should I offer a payment plan? How long should it be? What’s the best approach to pricing it?

Whenever I talk to a coach about pricing their offers we always come back to these questions about payment plans.

There are a lot of factors to consider and balance when it comes to creating payment plans in your coaching business. Today we’re exploring the pros and the cons of payment plans and the three main considerations you need to keep in mind when deciding if and how to include payment plans in your business.

Topics covered

  • What does a payment plan look like?
  • The benefits of having a payment plan option for your coaching offers
  • Balancing accessibility with risk
  • Getting creative with the timing of a payment plan
  • An ethical approach to pricing your payment plans
  • How to mitigate the risks associated with payment plans

Resources mentioned

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Well hello my friend. Welcome to the Coach with Clarity Podcast. My name is Lee Chaix McDonough, I'm your host. And today I am really excited to dive into a topic that comes up all the time amongst my Coach with Clarity Members, my private coaching clients, and in the free Coach with Clarity Community. This is a great time to mention that if you're not already a part of the Coach with Clarity Community, my free Facebook group, I would love to connect with you over there, you can just head to CoachwithClarity.com/community. And that will bring you right to our Facebook group where you can answer three quick questions and request to join. It is such a fantastic community, and I am so honored to have the opportunity to connect with over 5 thousand new, veteran, and aspiring coaches over in the Facebook group. And I would love for you to join us there. So head on over to CoachwithClarity.com/community, and I look forward to getting to know you better over in the group. But let's get back to the topic at hand today, which is all about payment plans in your coaching business. Whenever I talk to a coach about pricing their coaching offers, and that might be private coaching services, group programs, a course, a membership, you name it, it runs the gamut. But it always comes back to this question of payment plans. Do I have to offer a payment plan? If so, when and how, and how many payments, and for how long? There's a lot to balance when it comes to creating payment plans in your business. So today, we are going to dive in and explore everything you need to know when it comes to payment plans. We're going to talk about the pros and the cons to payment plans, and I am going to share with you three main considerations you need to bear in mind when deciding if and how to include payment plans in your business. So my hope is that by the end of today's episode, you feel even more confident in your decision making ability about whether or not to have a payment plan. And then if you do decide to create one, you'll know everything you need to consider as you create the structure for that plan. So, are you ready? Okay, let's dive in. 

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First, let's define what we're talking about when we are exploring payment plans. Anytime you are not receiving one single lump sum payment for your services, if you break it out into multiple payments of the same or differing amounts, you are essentially offering a payment plan. Payment plans are incredibly common in business as a whole, but especially in the online space, and even more so in coaching. One reason I really love having a payment plan option in my business, and this is definitely a pro, is that payment plans can make your programs and services much more accessible to your clients. I don't know about you, but when I am considering investing in a program that for me would require a pretty good sized financial investment, so maybe that's four figures or five figures, it can be difficult to come up with a single lump sum payment at the time of purchase. By offering a payment plan, you make it easier for your ideal clients to say yes because they're able to spread the payments out over time. This could potentially make it more likely that your client will say, “Yes, count me in”, knowing that they're able to pay for it over time versus having to come up with a payment in full right from the start. Another pro to having a payment plan is that you are able to create some consistent recurring revenue in your business. So while it's great to be paid $5,000 or $10,000 in a lump sum payment, it can also be advantageous to have $500 or $1,000 coming in every month for a certain time period. Because then you know, no matter what happens, you've got a revenue stream that is constantly coming in over an extended period of time. That can really help when it comes to budgeting and ensuring that even if you are not actively selling something or not actively in a launch period, you still have revenue coming in. I know that I take great comfort in knowing that a portion of my revenue comes in without fail month after month, and it's because I have had payment plans for programs or my membership. So those are two very important pros to payment plans. Number one, you make it more accessible for your clients which might mean they're more likely to say yes. And number two, it provides you with a consistent source of revenue over time. Now however, we have to mention the elephant in the room, which is the number one drawback to having a payment plan in your business. And that is that you are assuming a certain level of risk when you are providing services to your client before they have paid for them in full. Unfortunately, there may be a time where even though your client has agreed to pay you a certain amount over a certain period of time, they may not be able or willing to follow through on their obligation. And that means you may have provided them with a high level of service that you are not going to be paid in full for. Now, there are certainly ways to minimize that risk and make it less likely that that will happen to you. Certainly having a strong coaching agreement or program agreement that your client signs can go a long way towards protecting your business. But even with that in place, if you have a client who is no longer paying you, based on your agreement, you still have to spend a lot of time, energy, and money to recoup what is owed to you. So I want to acknowledge right off the bat, that if you decide to incorporate a payment plan in your business, there is a certain level of risk that you are assuming. And don't worry, we're going to talk about specific ways to mitigate that risk in today's podcast episode. So now that we've covered the pros and cons of payment plans, let's talk about those three considerations you want to keep in mind when you're deciding if you want to have a payment plan, and if so how you want to structure it. The first consideration is time. How long is this program or service you're offering your client supposed to last? I find that if I am offering a short term engagement, so say it's a single session, or it's a mini course that a student will finish in a relatively short period of time, say less than three months, I don't find those short term engagements are ideal for payment plans. And that's because I like to make sure that my payment plans are finished by the time a service ends. So if we're talking about a single session or a short term course, it may be difficult to create an extended payment plan for a client and have them be paid in full by the time the service ends. So that's why for shorter term programs, single sessions, I don't offer payment plans. Now that doesn't mean you always have to require payment in full for those shorter term engagements. You may decide that you're comfortable breaking the payments into two but that you are not going to fulfill your part of the agreement, so host that single session, or provide access to your mini course, until that second payment is made. So there are ways to incorporate some sort of payment plan with those short term engagements. But on the whole, I'm going to suggest that if it's a short period of time, that you really look at having just a single payment. Many coaches I work with, however, have what I consider to be mid-length engagements. And for me mid-length is three to six months. So perhaps you have a six month coaching package, perhaps you have a 90 day program. I think this is a great time period to start considering incorporating a payment plan into your payment structure. And I want to share with you a concept that was originally shared with me by my very first business coach. She recommended that if you're going to have a payment plan, structure it so that the client is paid in full by the halfway point of the agreement. So let's say hypothetically speaking, you have a six month coaching program, and it's $5,000. And you would like to create a payment plan for this program. One option might be to have the client pay 50%. So $2,500 at the start of services. And then maybe pay 25% at the six week point, so that would be $1,250. And then the final 25%, or $1,250, at the 12 week point. So you've got 50% upfront, 25% at six weeks, 25% at 12 weeks. That ensures that you are paid in full by the halfway point of your six month coaching agreement. Now you are free to play with the percentages. Maybe you would rather do a 40-30-30 split, maybe it's easier to have three equal payments. That piece is up to you. But I really like the idea of having the client paid in full by the halfway point, because that ensures that you will at least have your time and energetic investment compensated even if the client drops off. That's why I like having that 50% upfront because if the client drops off prior to say, the 12 week point in this example, they have already compensated you for that first half of the program. So that is certainly one approach to having a payment plan for a mid-length engagement. And again, in my mind, mid-length is anything from, say three months to six months give or take, although that may look a little different in your business. And please, by all means, feel free to define these time periods however will work best for you. Now, if you have a longer engagement, say six months or more, you can certainly use that same approach where your client is paid in full by the halfway point. And you can just adjust the percentages and the timing, you may decide instead of three payments you want to have six. You can certainly play around with that. And you may decide for a longer engagement, maybe even a mid-length engagement, that you want to break it up into equal payments, so that the client is paying a certain amount every month for the entire duration of your agreement. So instead of being paid in full by the halfway point, they're paid in full at the end. Again, there's a little more risk that you assume when you do so, but that may make it more accessible for your clientele. Right now, I'm currently running a one year “High Level Mastermind Program” for five coaches. And I decided to play around with this idea for this mastermind. Instead of requiring payment upfront, or being paid in full by the halfway point, I decided that for the year, for that 12 month program, they would pay a set amount every month for all 12 months. Now, I recognize that this is a riskier strategy, which is why I have a contract in place with each one of my mastermind participants. And I felt comfortable doing this because I've already worked with each participant in some capacity. We've already had a relationship either through the membership or through private coaching. And I felt that we had built up enough trust that we could have this kind of payment arrangement and it would work out well for everyone involved. And so far, knock on wood, it has worked out very well. So that is the first thing to consider, the length of time of your program or service. And again, for short term engagements, I personally don't recommend payment plans. But for mid-length and longer term engagements, you may want to consider incorporating a payment plan. And there's different ways to do that with how you spread out the payments and setting a deadline by when you'll be paid in full. Now let's talk about the second consideration, which is how you price your payment plan. I'm sure you've seen this, I know I have, that many coaches and course creators will add on an additional fee if someone elects to do a payment plan. So as an example, maybe there's a course that is $997 pay in full, or two payments of $597. Well, when you do the math that is almost a 20% markup, that's that's almost $200. And that's a lot, we are essentially asking someone to pay a lot more money because they're not at a point where they can pay in full at the time of registration. Now I want to be perfectly transparent with you, that is something I did when I first started out. And the reason I did it was because I saw everyone else in the industry doing it. It was, and to a certain extent, still is an industry standard, that when you offer a payment plan, you're going to mark it up 5,10, 20%, sometimes even more. And when I asked why, I was always told it was because of the risk you're assuming. And in order to protect your risk, it's okay to charge more on payment plans. Then I participated in Trudi Lebron’s, “Amplified, Impact, Mastermind” or AIM. And in AIM, we examined business practices through a diversity, equity, justice, and inclusion lens. And we talked about how this type of approach to creating payment plans is actually inequitable and punitive. Because we are literally punishing people who cannot afford to pay in full, we are asking them to pay even more. And that's not a very inclusive business practice. And because inclusion is important to me and part of my business core values, I realized that it did not feel good and it did not feel in integrity to have such a drastic markup on my programs. And it also exposes to the fact that I didn't really have a great reason to have such a high markup in my programs. It's true that if you choose to have a payment plan, there may be some additional costs. For example, you may find that you want to have some sort of program that makes those payments automatic, so that you're not constantly invoicing and billing. And those programs cost money. Also, many credit card processing companies charge a flat rate per transaction. So when you are having multiple transactions, instead of just one, you are paying more to that credit card processing company. So there are some legitimate business expenses that you may need to recoup by adding a little bit more money in a payment plan. But the fact of the matter is, it's highly unlikely that those additional expenses are going to total 20% of your program cost. They certainly didn't for me. So I moved away from having such an exorbitant percentage increase on my payment plans. And now I do two things. Number one, I make sure that the difference between a pay in full price, and the payment plan price is either zero or very low. As an example, when I launched my Certification Program, the pay in full was at $8,450. It was a $1,500 deposit to secure your space, and then it was a payment of $6,950. And that was due prior to the first day of class. My payment plan also required a $1,500 deposit. And then after that, it would convert to five monthly payments of $1,400. That totals at $8,500. So there was only a $50 difference between the pay in full rate and the payment plan rate. And that $50 did help cover the additional credit card processing fees and some of the software costs related to having those automatic payment plans. I felt that when we were looking at $8,450 versus $8,500, it was a small enough difference that it wouldn't make someone feel like they were penalized for electing to have the payment plan. And it did legitimately cover some of those additional costs that I had to incur. This felt like an ethical approach to creating a payment plan for me. So that's number one, so that's the first thing I do. And the second thing I do is rather than penalize people for electing a payment plan, I encourage people to pay in full by offering an additional incentive. So again, for the mastermind that I am currently running, if someone wanted to elect for the year long payment plan, they absolutely could. And if someone preferred to pay in full, then I included a bonus VIP day. The idea of adding something to someone who pays in fulll feels much more aligned with how I want to run my business. It doesn't punish the people who opt for the payment plan. But it does offer something to a person who wants to pay in full. So those are my thoughts when it comes to pricing as a consideration for your payment plans. I want you to really think about what feels in integrity for you in your business when it comes to creating a markup for a payment plan. Take a hard look at the costs you are incurring in order to offer a payment plan. And then ask yourself, what feels ethical and what feels in alignment with how I want to operate my business? I want to be clear, I'm not here to shame anyone who has had higher markups on their payment plans. Again, I did when I started in my business. But now I'm at a point where not only did it not feel good, and I always knew I couldn't really justify the markup, it's just not how I want to run my business anymore. And so any additional fee is going to be relatively small, and I make sure that it is directly linked to the actual expenses I'm incurring in order to make that payment plan happen. And I hope you'll consider doing the same. Okay, we have covered two considerations so far. We've talked about time, and we've talked about price. Now we want to talk about the third consideration, which we've alluded to already in today's episode, and that is risk. As I've said, when you offer a payment plan, you are assuming some level of risk because you are providing some, or even all of your services or your programs, before someone has paid for them in full. So one of the ways that we can mitigate risk is to have a legal contract that includes your policies regarding payments, payment plans, and refunds. Now if you are a Coach with Clarity Member, then you already have access to an attorney-prepared Individual Coaching Contract Template, all you have to do is log into your portal and you'll see it as one of the modules. And in that template, we talk very clearly about your payment structure, how you operate your payment plans, and there's a section about refunds as well. Now because it's a template, you are welcome to go in there and change the language to reflect your policies. But we've got it all right there ready for you. Now if you're not a Coach with Clarity Member, don't worry, I've got a few options for you. First, you can get on the waitlist to become a member when we reopen enrollment in Early 2022. So just head to CoachwithClarity.com/membership and you can get on the waitlist and will be the first to know when the membership is open again. However, if you need a coaching contract right now, and you don't want to wait until the membership opens, there are a number of contract template shops available. One that I've used and recommend is called The Contract Shop. If you go to CoachwithClarity.com/tcs, that's TCS for The Contract Shop, that will take you directly to The Contract Shop where you can explore the dozens and dozens of templates they have, all of which have been prepared by an attorney and are designed to help protect your business and your clients. Now, to be perfectly transparent, that is an affiliate link that I just shared with you. Which means if you make a purchase using CoachwithClarity.com/TCS, I will receive a small compensation at no additional cost to you. I use those affiliate payments to help support the creation of this very podcast. So when you make a purchase using that or any of my affiliate links, you're helping contribute to the production costs associated with this podcast. So let me just give you a quick thanks in advance for using that link. I believe it's really important that we have legal agreements in place, written agreements, that both our clients sign and we as the business owner sign. And I recommend, especially for individual coaching services, that you have a conversation with your client about what they are agreeing to. So yes, they've signed you have it in writing, but have the conversation as well so that they understand how the payment plan is structured. And to verify that they know they can't simply cancel or stop payment, and that that's a violation of the terms that they've agreed to. It's really important to have these conversations so that we're all on the same page. And when we keep the lines of communication open, we oftentimes can avoid those unpleasant, unintended outcomes, or those awkward situations that happen when a client misunderstands what their financial obligation really is. The more transparent we are about our policies and the more we talk about them with our clients, our students, our members, the better outcomes we are going to have. And really having that open communication is the best way to mitigate risk when you are having a payment plan in your business. Well alright, my friend, we've covered so much about payment plans in your coaching business today. We've covered the pros and cons and we've gone over the major considerations, time, pricing, and risk, that you will want to review carefully as you consider creating a payment plan in your business. So with that, let's move into this week's Clarity in Action Moment. For this week's Clarity in Action moment, I'm going to invite you to make a list of all of the offers you currently have in your coaching business. Now for some of you, there may be one offer and that is a coaching package. For others, you may have multiple offers that run the gamut, from private coaching, to courses, to memberships. No matter what your current Spectrum of Services looks like, go ahead and list out all of the ways that people can potentially pay you in your business. Then I want you to take that time into consideration and decide which of those offers are short term, which are mid-term, and which are long term engagements. That will help you decide if a given offer is appropriate for a payment plan or not. So step one is to list out all of your offers. Step two is to determine whether each offer is a short, mid, or long term engagement. From there you can decide which, if any, you want to offer a payment plan for. Then step three is to actually create a payment structure for one or more of your offers. You can decide whether you want to be paid in full by the midway point, or by the very end of your program or service. And based on your preference, you can then decide the percentage or amount of payment you want, and how frequently those payments will be made. Once you have that payment structure set, you will want to make sure that you update any contracts, Terms of Services, or other legal documents you have to reflect that new payment plan. And there you have it: a clear, concise, and ethical way to explore adding or revising payment plans in your business. I so hope that this episode has been helpful and that it is empowering you to decide how you want to handle not just pricing, but also payment in your business. I suspect today's episode may have led to a few “a-ha” moments for you. And if so I would love to hear all about them. Again you can come find me over in the Coach with Clarity Community, just head to CoachwithClarity.com/community to join. And if Facebook's not your jam, no worries. I'm also over on Instagram. Come find me @CoachwithClarity and drop me a private message and let me know what your key takeaway was from today's episode. All right, my friend. That is another episode of the Coach with Clarity Podcast in the books, and I have a brand new episode coming at you next week. So do me a favor. If you have not already followed the Coach with Clarity Podcast, be sure to do so today. That will ensure that the next episode will arrive automatically in your feed and it will be waiting for you when you're ready to listen. Wherever you listen to your podcasts, there should be a Follow or maybe a Subscribe button. Whatever it is, it's free to follow the Coach with Clarity Podcast, so just make sure you click that little button and then you'll never have to worry about missing an episode of the show. So until next time, my name is Lee Chaix McDonough, reminding you to get out there and show the world what it means to be a Coach with Clarity.

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