Tag: payday loan profits

16
Aug

Payday Loan Customer Acquisition Costs – What Do YOU Think?

Installment & Payday Loan Customer Acquisition Costs

Getting a payday loan customer into your store or on your website landing page is a challenge. What works today? Radio, TV, direct mail, human directional advertising (sign spinners), Google, Yahoo and Bing, DuckDuckGo searches, referrals, Craigs List, newspapers, Penny Saver and Green Sheet ads, signs, flyers, business cards yada, yada, yada.

Ah! And then there are smartphones, mobile, responsive… 70% of our traffic is coming via our consumer applicant’s phone. This is true for both our brick-n-mortars and our Internet lending properties.

The real question? How much should you spend to attract an installment loan consumer, a payday loan, car title loan, or a scrap gold customer?

Consider the “Lifetime Value” of your customer.

The higher your average customer’s “Lifetime Value,” the more you can spend in advertising dollars to attract them. Pretty basic, right? Let’s call this our “Allowable Payday Loan Customer Acquisition Cost – APDLCAC.

So… how do we compute our Allowable Payday Loan Customer Acquisition Cost?

  • We put a value on our average payday loan customer’s Lifetime Value.
  • Then, we subtract our costs to create and deliver payday loans to our customer over the entire relationship we maintain with our customer.
  • We subtract our Overhead (minimum recurring expenses to continue in business (salaries, rent, utilities, phones, etc.) divided by our total customer base (fixed costs) we’ll need to stay in business over this time period.
  • Multiply the result by 1 minus our desired Profit Margin and this reveals our Allowable Payday Loan Customer Acquisition Cost – APDLCAC.

Simple, eh!

Example:

Assume we are simply awesome at servicing our payday loan customers once we latch onto them; I mean acquire them!

Say our typical customer Lifetime Value is $2800 over 10 years. (4 loans/yr X 10 years. Avg loan is $400 at $17.50/$100 = $2800 fees)

And let’s say the costs to create and deliver this customer is $500 over this 10 year period. That leaves us with $2300 in revenue per payday loan customer served.

And let’s say our Overhead expenses are $1,000,000 over the same 10 year period and we serve 2000 customers.

Fixed costs = $500 ($1,000,000/2000 customers = $500 )

This leaves us with $1800/customer before marketing expenses ($2300 – $500).

Assume our goal is to achieve a 60% profit margin. We can spend a maximum of 40% on marketing costs.

Thus, our APDLCAC = $720 per customer ($1800 X .40).

So… any customer we “buy” for $720 or less is a bargain!

PS: Want to pay $100 for FUNDED loans? That’s correct. We have a seriously experienced lead generation company offering loan leads for $100 each – AND YOU ONLY PAY IF YOU FUND THE LOAN! [Reach out with your contact info and “100 Funded Loans” in the subject to Jer@PaydayLoanIndustryBlog.com .]

NOW, what if these payday loan customers are using your other services as well? You offer car title loans? Installment loans? You buy scrap gold? You sell money orders? You cash checks? You offer mobile phone service? You do tax work? What’s that do to your Lifetime Customer Value number?

What? You don’t like my assumptions? Define overhead? Is that “gross” Profit Margin? Yep, you may find this controversial or even simplistic. But it got you thinking, didn’t it?

For more customer acquisition cost insights, study our “Loan Bible” and read:

“The Personal MBA: Master the Art of Business” by Josh Kaufman.

Jer@PaydayLoanIndustryBlog.com

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28
Jan

What’s ALICE Got to Do With Payday Loan Customer Demographics?

Alice in Wonderland 3-Blackpool Illuminationsphoto © 2010 Chris Cox | more info (via: Wylio)
I talk to entrepreneurs researching the payday loan industry everyday. Typically they’ve heard about all the money we’re making and they “want in.”

One common misconception these newbies have, among many, is that the typical payday loan customer is “down and out;” that they’re the “dregs of society.” These entrepreneurs usually begin the conversation by describing a “great location” they’ve already “locked-up” in what can best be described as a “skid row area.”

Man, they don’t get it!

Payday loan customers have jobs. Payday loan customers have bank accounts. Payday loan customers have the ability to pay back their loan!

Our payday loan customer is the Walmart customer; the blue-collar, white-collar employee making $18,000 to $48,000 a year!

And MOST IMPORTANTLY what we all need to understand is that this segment is GROWING!

There is a world-wide shift occurring in the advanced economies! The total number of employees in the service sector and other lower paying jobs is expanding. Higher skilled, higher paying jobs are going off-shore to developing countries where wages are lower.

This shift is so pronounced there is even a name for this market segment; it’s ALICE (Asset Limited Income Constrained Employed).

These are our people! Embrace them!!

As Jeff Weiss with Dollar Financial pointed out in a conference call, “The average wage rate for ALICE is shrinking against the rising tide of higher costs for food, gasoline, health care and other basic necessities.”

“In such an economy, where the margin between personal income and the cost of living is continually narrowing, our products and services can provide a real benefit for consumers and small business owners who may be confronted from time-to-time by an unexpected auto repair bill, a medical bill, or the need to replace broken or obsolete equiptment in order to keep their small businesses operating. The number of ALICE people are increasing around the globe…”

So… bottom line, more and more consumers around the world need our products and services! Banks, credit card companies and economic conditions are literally pushing ALICE right into our arms!

The future REALLY is ours!

Jer
Jer@PaydayLoanIndustry.com

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02
Aug

Payday Loan Profits – Cash America Coninues to Grow and Prosper

The Associated Press ran another story this A.M. regarding the purchase of 39 pawn shops by Cash America International Inc.

Their headline reads:
Cash America buys pawn shop chain for $70M

They went on to write, “Cash America’s first-quarter profit rose 34 percent on a revenue increase of 17 percent, helped by higher revenue from its cash advance business.”

So… the big, sophisticated guys and, from what we hear, many of the small players operating under the radar, continue to expand to increase market share and to achieve record profits. It appears they’re certainly not sitting on the side lines at this juncture in the economy.

Read the original Article here:
Cash America continues to grow and prosper…

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11
Mar

Payday Loan Business: A Magical Method to Increase Profits

Face it! Paying your payday loan employees $8.00 to $12.00 per hour just won’t get the job done. You have to incentivize your people to achieve your goals.

Doesn’t seem fair does it? You’d think a decent hourly wage with a couple of breaks and lunch thrown in would do it. But it doesn’t.

You want a tip? Figure out what you’re trying to achieve and pay your people a bonus to get it done.

You want examples? Here’s what works for us.

When we open a new payday loan or scrap gold location WE WANT TRANSACTIONS! We want to fund loans; as many as we possibly can. So… after checking our competition, studying the demographics in our area, formulating our advertising spend and determining how much money we have available “for the street”, we give our payday loan and car title loan store reps a minimum target and pay a bonus for every transaction exceeding this target. WE PAY THIS BONUS DAILY!

Now, the exact numbers will vary depending on the size of the market we’re in. But our employee bonus system looks something like this.

Our goal week 1 in a new market might be to fund 3 loans per day per employee. (In small markets with plenty of competition we might only have one employee working 10 hours/day.) Our bonus system might pay $5 per funded payday loan beginning with #4 for the day. So should our employee get 6 payday loans funded that day, they earn their hourly wage plus a bonus of $15 PAID AT THE END OF THEIR SHIFT.

(REMEMBER! That new payday loan customer could easily be worth $5000 or more in fees over their lifetime.)

We might implement this bonus system weeks 1 through 4 and then adjust it to a minimum of 6 per day week 5.

Don’t forget to adjust! Perhaps by week 30 you’re more concerned about collections than you are about transaction volume. As discussed in our Payday Loan Collections Manual, place your overdue receivables in buckets; 0 – 30 days, 31 – 60 days, 61 – 90 days, 91-120 days, and 121 days+.  You might pay your employees a percentage of dollars collected; a little more for each bucket. Or a flat fee per contract paid on.

Now, I’m not going to discuss the justifications for paying IMMEDIATE bonuses to an employee for simply doing their job. And we don’t need to quibble about the actual numbers/goals other than to say you must make the target a challenge, communicate it to your employee, MAKE IT SIMPLE and yet be achievable.

BOTTOM LINE, THIS STRATEGY WILL BUILD YOUR BUSINESS!

Get creative.

This system works for both our stores and our Internet business and for a multitude of products we offer.

Good software makes this bonus system MUCH EASIER TO IMPLEMENT. See the software chapters in our Payday Loan Manual and our Payday Loan Internet Report.

Empower your people. Set them free. Trust them. The amount of trust that Google puts in its employees and how amazingly those employees deliver results is impressive. This works for our industry as well.

Organize and simplify. (You really should read, “The E-Myth Revisited“)

Finally, as a business owner, the need to implement a bonus system to motivate your employees to perform their job may seem REALLY UNFAIR. GET OVER IT! JUST DO IT!!

THIS WORKS!

What do you think? Jer@PaydayLoanIndustry.com

What’s your biggest problem? Jer@PaydayLoanIndustry.com

Need our Collections Manual?

Want to start a Payday Loan Internet Business?

How to start a Payday Loan Business?

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12
Feb

Payday Loan Industry QC Holdings Fourth Quarter Results 2008

Payday loan, installment loan lender, buy-here-pay-here (BHPH)  operator QC Holdings Inc. reported revenue growth of 8% for a strong fourth quarter 2008.

About QC Holdings, Inc.

Overland Park, Kansas based QC Holdings, Inc. is a provider of short-term loans in the United States, operating 585 branches in 24 states at December 31, 2008. Having 25 years of operating experience in the retail consumer finance industry, the company entered the short-term loan market in 1992 and, since 1998, has grown from 48 branches to 585 branches through a combination of de novo branches and acquisitions. During fiscal 2008, the company advanced approximately $1.4 billion to customers and reported total revenues of $227.7 million.

“Our fourth quarter results were a nice finish to 2008,” said QC Chairman and Chief Executive Officer Don Early. “Despite the obvious economic headwinds, our field personnel contained losses while improving revenues and minimizing operating expenses. This effort produced a 15% growth in pre-tax income quarter-to-quarter.

Highlights for the fourth quarter included:

  • Income from continuing operations of $4.0 million, or $0.22 per diluted share;
  • Income from continuing operations of $4.3 million, or $0.24 per diluted share, exclusive of governmental affairs expenditures in connection with 2008 ballot referendum initiatives in Arizona and Ohio (“2008 referendum expenditures”), compared to $3.8 million, or $0.20 per diluted share in fourth quarter 2007;
  • An 8.0% increase in revenues to $61.1 million compared to $56.6 million in fourth quarter 2007;
  • A 5.4% improvement in gross profit from comparable branches (defined as those branches that were open for all of the two periods being compared) over prior year’s fourth quarter; and
  • Adjusted EBITDA, which is earnings before interest, taxes, depreciation, amortization, charges related to stock options and restricted stock awards, and non-cash gains or losses associated with property disposition, of $11.1 million.

** QC Holdings Fourth Quarter 2008**

Total revenues increased $4.5 million quarter-to-quarter, primarily due to higher installment and automobile loan volumes. QC holdings originated $341.0 million of payday loans during fourth quarter 2008, a slight increase over the $339.8 million during fourth quarter 2007. Installment and automobile loan volumes totaled $12.4 million for fourth quarter 2008 versus $9.0 million in prior year’s fourth quarter.

Revenues for comparable branches (those branches that were open for the 15 months since September 30, 2007) increased 2.5%, or $1.4 million, to $57.1 million during the three months ended December 31, 2008. This increase is primarily attributable to growth associated with branches added in 2005 and 2006.

During the three months ended December 31, 2008, the company reported an increase in loan losses to $17.3 million compared to $15.7 million in the same 2007 period. The loss ratio for the current quarter totaled 28.4%, up slightly from the 27.8% in fourth quarter 2007. This small increase reflects a more difficult collections environment. Comparable branches totaled $16.5 million in loan losses during the quarter, which was approximately $500,000 higher than prior year’s fourth quarter.

The company’s revenues grew $16.1 million, or 7.6%, to $227.7 million during the year ended December 31, 2008 versus 2007 as a result of increases in the number of customer transactions (particularly installment and automotive loans) and average loan size.

“As we move into 2009, the sour state of the economy and markets continues to pose challenges. With consumer spending and confidence deteriorating, revenue improvements are unlikely for our core short-term lending branches. Furthermore, such an environment is particularly challenging to the collections process.

“Fortunately, we have a 25-year history of adapting to negative circumstances by responding to customer behaviors in creative, efficient, disciplined and profitable ways. We look forward to adding to that track record during this historically unusual period of time and to solidifying our position as a premier provider of short-term consumer credit.”

For complete financials and additional related QC Holdings results for the fourth quarter 2008, view the press release issued by QC Holdings at:

http://www.qcholdings.com/  click on Investment Center

http://www.qcholdings.com/investor.aspx?id=5

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