The Heart of Your Corporate Strategic Plan – Lease Pricing. Make it Count.

by Scott Thacker

Scott Thacker serves as CEO of Ivory Consulting and on the Board of Directors of the Equipment Leasing and Finance Association as well as its Financial Accounting Committee. He also serves as the co-director of the Research Committee of the Equipment Leasing and Finance Foundation. Prior to joining Ivory Consulting, Thacker was a partner at Accenture responsible for creating and delivering management consulting and software solutions to the North American equipment leasing and asset finance industry. Previously, he held leadership positions with Oracle where he was instrumental in creating the company’s now widely used Oracle Lease and Finance Management application, and with American Airlines, where he was involved in executing aircraft, equipment, real estate leases and other financial transactions.

Ivory Consulting’s CEO Scott Thacker provides advice and counsel to equipment lessors on the best ways to improve customer satisfaction and profitability using pricing. This is the first in his new blog series.

Every company has a strategic plan, right ? Many are three-year plans, some are five-year plans and some are informal, but in some form they exist for every company . The typical elements of a strategic plan are many and varied, but the core of the plan explains how the business solves problems for its customers while making a profit for the business.

In strategic plans typically created by equipment lessors, lease pricing is one of the components normally considered. The type of pricing is often driven by the various financial products offered by the equipment lessor. These are often based upon the selected target market of lessors and/or the type of assets to be leased. In this way, the targeted lessee drives the asset type which drives the financial product which drives pricing.

The various forms of pricing are in one of two camps: fairly simple pricing such as “rate cards,” and more sophisticated pricing, often with leverage and multiple parties involved in the deal. Usually, though not always, simple pricing does not consider tax benefits and does not involve much structuring. It is referred to as pre-tax pricing and might involve a three year lease of medical office equipment. Often, though not always, sophisticated pricing is enhanced by taking into account tax benefits and includes complex structuring. It is referred to as after-tax or structured pricing, and could include a solar or wind energy transaction.

Of course, overriding all of this pricing theory are market forces, and sometimes pricing has to be adjusted to win a deal. Some people have worked in equipment leasing for so long that pricing involves a “gut” check. Still other lessors shower their customers with high touch customer service so repeat business can be priced higher as the lessee has seen the value provided.

Another way of thinking about a lessor’s strategic plan is to start with pricing at its core. Let the other elements of the strategic plan flow from the pricing methods selected first. Begin to view pricing as a strategic weapon and structuring as a friend. The more pricing can be viewed as the heart of the strategic plan, the more it will be the competitive advantage to drive incremental, and perhaps above-market, profits.

During the strategic planning process, thoroughly evaluate the types of pricing methods your company has used in the past and the amount of profit each one created. Then think about how pricing could be changed to increase both profitability and customer satisfaction. Often, applying sophisticated structuring techniques to all types of pricing methods will increase both.

I hope I’ve convinced you to put your pricing methods at the core of your strategic plan. Next time I’ll suggest how to structure a strategic plan around pricing, and the time after that, I’ll look at ways to create higher levels of customer satisfaction and profits with structuring.

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