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bcbuie
join:2005-07-20
| reply to binary1000
Re: ROI
If you have to spend cash to buy all the customer equipment, then yes letting the customer pay $30/month or $40/month for the equipment would kill your business.
But most businesses should be able to get a business line of credit, or even use a personal home equity loan. As long as the customer is paying more per month than you are to pay off the loan then you come out ahead, in addition to the profit on the service.
The 900MHZ CPE is in the $300 - $600 range (depending on brand and type), not $1300.00.
We do it this way; we give the customer two choices. They can pay $X/month with no contract and they can buy the equipment outright at our cost. Or, they can sign a 2-year contract for $X-$15/month, + roughly $20/month for the equipment. If they break the contract before 2 years they have to pay a cancellation fee and return the equipment. At the end of the 2-year period they own the equipment and are paying $15/month less than if they didn't sign a contract. So they not only get to finance the equipment over 2 years but they also save money on the service in the long run.
Not the only way to do it, just one way to skin a cat. The idea is to give people an incentive to sign the contract.
Ben | |
pdg2
join:2005-10-19
Waterford, MI
| Since $600 of equipment isn't covered in 24 months at $20/month, I assume the remaining $120 is paid for when the equipment is installed? + an install fee to cover the time cost as well? Otherwise it seems like even with the monthly fee the GROSS profit on one user over 12 months at $30/mo is $360 - $120 = $240 - infrastructure costs of say 20%, to net possibly $198 per year on a user? And we haven't even counted the personal time to get the account running.
Granted, if the user cancels you get the gear back less the costs to dismantle it, but you are paying carrying costs on the equipment balance all that time.
I just did an Excel budget. With 122 users in 17 months it shows NET monthly figures (on just the residential users) of $3387 with:
$32.95/user + $199 install fee
less
$240 cost for CPE and install
$633/mo for monthly recurring support costs
$32.95 x 122 = $4019 - $633 = $3387
but for every new user that gets installed, we lose $41 + install costs, which takes about 3 months of the sub fee to pay off.
So it seems like one really needs to get to over 300 users to make this into a real business. | |
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