Approval Rate vs Take Rate: The Financing Metric Contractors Miss

you got a partial approval. I only got an approval for $7,000. People count a repair as a sale, but are they really? They do. Yeah, they do. Are they really counting that and going, but I could have sold a system, but I wanted a $19,000 system and now I only got $7,000. What am I supposed to do?

Hi, I'm Bill Brown. I built and sold an HVAC company and now I run ServiceTitan Hacks, which is about 11,000 contractors that are trying to get more out of ServiceTitan and out of their businesses. And financing is one of the top 2 or 3 topics that come up in the group. And it's one of the pieces that people have very little information about. My guest today, Eric Haworth, is a Senior Vice President of Business Development at GoodLeap. And before GoodLeap, he ran the financing side of Contractor University for EGIA, which means his actual job for years was sitting on the other side of the table Grading finance companies on behalf of contractors. And so he's not a rep that just got handed a rate sheet. He's the guy who used to audit the rate sheets. So Eric, thanks for coming on.

Hey, thanks for having me, Bill. Excited to be here.

Awesome. Great. So before we get going, can you give people the 2-minute version of GoodLeap, who you are, how long you guys have been doing this, and what you guys do for contractors? Sure.

We started in 2003 as a mortgage company, Paramount Equity Mortgage. The owners of that company were very successful at that, ended up getting into building a solar company called Paramount Solar down the way when they wanted to diversify away from just mortgages. That grew so large that they got bought out by SolarCity.

Okay.

At SolarCity, they They took the management team from Paramount Solar over to SolarCity because they were so impressed with what they had done building from, to the amount of installs they did in their area that they, that executive team went over and helped run SolarCity and brought them up to about 17,000 installs a month. So one of the, if not the largest contractor ever, you know, and then when they sold off to Tesla, they moved on to their next venture, still having Paramount equity mortgage, they decided, you know what, financing was a pain point for us. Let's get into building financing. And since solar was their route, they started with a solar finance company. And then I was brought on 8 years ago to start building the home improvement side. So we launched around 6 years ago, the home improvement division.

Okay. So you guys started with solar and then now you're doing HVAC projects, electrical, plumbing, pretty much anything on the home improvement side.

We do. We work with, um, major manufacturers, you know, probably a couple hundred distributors in the country, major manufacturers, and some of the largest contractors, kind of a who's who of the largest contractors out there in the marketplace.

Fantastic. You know, I remember I was searching when I had my heating and air conditioning company, I was searching for different finance companies. I think this was around 2018, 2019, and Goodlead came up. From Goodman. So Goodman recommended GoodLeap, and I remember one of the big things that they mentioned was how much higher you guys approve loan amounts for. And that's one of the issues that we had where we, we started to sell HVAC systems for significantly more than we got approved for, for other, from other lenders. And so is it, is that something that you guys built from the start? to have those higher approvals? Is that because of solar or how did you guys decide to do that?

No, I think what our goal was, was to build a product that you could deliver what you promised more often in the home. So our goal was to build something that you could actually, if you promised a homeowner a certain rate or term, that it wasn't counter-offered. A lot of finance companies out there, And they're all great finance companies. I'd never disparage any other finance company out there because they all have their model. But in their models, quite often you can see where they're pretty much a 700+ and rarely dip below that type because that's what the investors out there want and what banks would like to see, right? Because those assets are going to perform better. And then they have underwriting criteria that tend to judge a customer based on 2 areas, and one of those is debt-to-income, and the other one is their FICO score variant. And then there's other things that they mix in with that along with mortgage rates, installment rates, and other things that can be criteria that all end up being whatever their underwriting criteria that they judge each homeowner on. Well, we just kind of looked at that across the spectrum, having all the mortgage business that we've had over the years because We've been one of the largest. We looked at how consumers tend to pay back, and our goal was how do we lower that across the spectrum so we can get, so we can deliver the amount that you need. So if you need a $19,000 system, you're not getting countered with a $7,000 system.

Mm-hmm.

You need a $25,000 system, you're not getting countered with a $10,000 on a counter. And then how do we do that at the same interest rate and term that you were asked throughout as well. And that way you're not having to change in the middle of the sale and now go back and counteroffer. You've probably seen through your financing, oftentimes you get a counteroffer and that could be a deal killer. So sure, we just wanted ours to be something that was more across the spectrum that way.

Yeah, that makes sense. I mean, I have personally sold HVAC equipment in homes and experienced that where you give a customer a quote for $15,000 and They verbally accept it. And then after that you say, well, let's do the financing. Or rather we talk about how, what different payment options are available, right? And we do have rate sheets, but I usually would pick just a couple different plans from them rather than just showing them the whole thing. And the way I would pick is I always wanted a 0% for a long term because I felt like that was Something that people kind of came to expect during that time, you know? But I mean, you know, some of those ended up being 15 points to offer those and then would do like another low. And so we would verbally talk about the rate and the term and the total price and the payment, right? And then we would get on either the app or paper or whatever the financing company had. And When it came back $10,500 and they wanted the $15,000 system, then you're kind of like, what do we do? Because they, I really, really, I wouldn't say convinced, but I really, they really felt great about the $15,000 system, the payment, the terms. We even discussed when it was going to be put in and now we're, we're like, it just a lot of times killed the deal. And then you'd have to go back to the financing company and try to get approved for more. And there would be like this awkward feeling between the customer and the salesperson where they're kind of like, I guess it's almost unsaid, well, maybe my credit score isn't as good. Or it was just, it was awkward, you know, to, for that, for that to happen, for the rate to change or the amount to get approved for to be lower. And For me, I would stay in the game and figure out what to do. And sometimes it meant selling the lower price system. Sometimes it meant them adding cash to it if they had it, or getting the difference from a friend or a bad situation, doing a repair or doing nothing. But what I found was some of my technicians who sold would just, that's it. Okay. Well, you didn't get approved. And then Kill it. It would kill the whole deal. So, uh, that, that's definitely something that's, that's, that I've experienced over, over the years, you know? And, uh, so when I went to, when I went to GoodLeap, I noticed you guys had some great plans. And, uh, we were talking the other day about how you kind of pioneered the 0% equal payment, uh, in our industry.

GE Capital, and we wrote the first programs for the zero interest equal pay years ago. And really those were meant for other industries, not really the HVAC industry at the time. It was meant for building them for the, for smaller ticket items like insulation and other things to spread out over 4 years because the dealer fee was so high, like you hit on.

Mm-hmm.

And I think during some tougher times when 2009, 2010 came around and, you know, the economy was going, some contractors found themselves having to market to higher-end neighborhoods and they were looking for ways to do it. And then, you know, revolving accounts, which were the most prevalent at the time, those got legislated during that time, during the Dodd-Frank Act and all that. They got legislated and changed. And when they changed those systems, they found themselves having to go to, because everybody, because there were no apps to do installment programs or anything, nothing that made it easy. So the easiest things at those times were the credit card programs because in the old days, if you had to fill out a truth in lending box and you rounded the wrong way and didn't get funded, that was a pain, right? So I think the difference was, is during those times, those were the big revolving days. So yep, built the first ones of those. It wasn't meant for HVAC, but if you guys started selling it in the marketplace that way and started pushing it to higher-end neighborhoods and had some success, And since revolving was the only active programs that were going at the time before mobile apps became available and the ease of use of the financing today, they just kind of took hold. And I think you see a lot of folks still using them. My argument is that they're not always the best thing for the customer. It's easy for the salesperson to sell because—

Yeah, salespeople love it.

How easy is it to sell? But I think you hit the nail on the head. The dealer fees tend to be high, and even if you get buydowns from manufacturers, they tend to be high. And you're still adding that 10% even after a buydown from— and is that really necessary to close the sale? And is it easier for the salesperson or is it easier for the customer? Both. And I think in In my years of doing it, I found it's just the salesperson that hasn't clicked on that more salespeople have an easier time doing it. But the top salespeople I know in the industry don't use those plans because they don't want anything to hit their commissions. And most of those have 5% caps and stuff, and they might sell other plans that would do just as fine by a CUSCO. Because remember, when you're doing a 5-year no-interest equal pay, you still have a much larger payment. Yes.

Right.

So you have a much larger payment than a 15-year loan on an interest rate. And I would argue that that same customer would probably be better off with an 18-month, no interest, no pay, 18 months to do whatever they want. And you have a much lower barrier or cost, and you're still addressing the same customer. In this case, they have no payments and can pay it off whenever they want or put it on their home equity line or pay it off with their bonus check or their Or they're in, because that same customer that's going to take that zero interest equal pay is the same customer that'd love to have no payments for 12 months or no payments for 18.

And this is something that contractors get zero education on, Eric. I don't, I just said, all right, not all my customers have cash. I would like them to be able to finance because I mean, I'd go into Best Buy and you'd buy a TV for $1,000 and they're like, do you want to pay this over 18 months? And you're like, Yeah, maybe I get the $1,500 TV then if it's over 18 months. So I wanted people to be able to buy whatever they wanted to buy that I had. But all this stuff that you're talking about, I had no idea. There was no education on it whatsoever. Just, uh, these are the terms and this is how much it costs me as a dealer. It was one page and that's what I'd look at.

I'd go, Okay.

Looks good. Like you were talking about revolving, like what is, is that like a store credit card? Is that the same thing? Yeah.

And so the, there's, you know, 2 of the large manufacturers use credit card programs now. And so credit card programs have to sell within the parameters and what their programs are. And so zero interest equal pays became very popular because they really couldn't go out to the longer-term installment loan programs that installments could. So that was their sell against installment loans at the time. And And since they were the only ones that were easy to use, that's what people used. And since a lot of that generation are the ones that are running contracting firms today, and, and, or they're involved with maybe those manufacturers that, and so using their finance program, there's a tendency to run that way. But, but, and I don't think they look at the fact that that's the same customer, not to mention the fact, I don't think they realize that we talked about buying across the spectrum. that those particular plans are not approved across the spectrum. And there's usually counteroffers at a certain point because investors and banks don't want to give really low credit scores a no-interest equal pay for 5 years. So you end up having a product that is exclusive for, you know, 740+ FICOs on average, as opposed to being exclusive across the bands. And so what you end up is either getting counteroffers to other plans for other customers, which is even worse than offering them an installment deal. So if you're offering them a 10/9 interest rate and they get a 14/9, that's not as bad as offering them a zero interest and getting a 14/9.

Yeah, that's completely different, different thing, right? Different, different arrangement.

And, and I remember that there's 2 ways they can get hit from that. They can get hit for debt-to-income. Because most finance companies trying to take care of their investors and doing the right thing, look at debt to income over 700 FICOs too, in one way. And when they're looking at debt to income across that spectrum, they have to make a credit decision as to whether that person should be approved based on that debt to income. Well, there's a lot of variables to debt to income that are hard to look at, right? So a lot of people will use a thing, what they say is household income. A lot of lenders will use that, but household income is like thrown against what on the bureaus is called modeled income. And if that modeled income is too far off from what the household income was, then of course their systems are gonna spit out, hey, that doesn't match.

Wait, so you can't just put whatever you want in household income?

Man.

Okay. I was just, I was wondering.

But it's gonna show up on a credit report under household income as being different if there's too big of a variance. Or put in, if you put in, you know, a job where it's typically much lower income, and then you say you make, you know, the job normally would be a $30,000 a year job, and you're trying to say that you make $400,000 a year doing it.

Mm-hmm.

Going to flag it. And, you know, and the dirty little secret about underwriting is we've got to do whatever we can to take care of the investors. I think the most important thing is to be consistent and realize That if you have a more, an approach that's much more structured that says, I'm going to get approvals more often by offering a longer term with the lowest possible payment so I don't have to affect debt-to-income. If I'm going to do something for my cash borrowers, like you were talking about, do something like no interest, no payment for 12 months. So it becomes more of a situation Where you're trying to leverage the best of both worlds, where you're offering the lowest monthly payment so that you don't hit debt-to-income and/or you're taking care of your, your, your cash customers, those ones that just have that cash separation anxiety and they don't want to, they don't want to write that check. Because let's face it, HVAC is a little more expensive these days. And, uh, a lot of things are. Roofing and everything else is a lot more expensive than it used to be.

I don't even want to know how much a roof costs for my house. I'm I'm just going to move before that happens.

Everything is so much more expensive than it used to be. Yeah. So when you go in lowering the monthly payment to make it affordable, and all the lenders out there have basically no prepayment penalties to any of their loans. So it's not just Goodleaf, they do across the spectrum. So I just encourage no matter what finance company they're using, that they offer the lowest monthly payment they can, and then they offer a zero interest program for those cash buyers. Because I argue you don't need to pay Those high percentages for the zero-interest equal pays.

Yeah.

If you can target that same customer with no payments over a period, I just think they're better plans overall. I think they're lower dealer fees and a lower barrier. And then even when you're not getting buydowns, you're not breaking the book selling those programs across the board. And then you have to ask yourself what looks better, you know, zero interest with a big payment over 5 years or no payments till 2028.

Right. Yeah. That makes sense. So, I mean, as you know, from the salesperson's perspective, when we, when we learn sales, we learn to ask these qualifying questions to try to help guide the customer to make a decision that's best for them. So we, we give them a few different options for HVAC systems based upon the questions and answers that that go back and forth based upon what fits their home. But when it comes to the financing part of it, there's no training for that whatsoever. Like, what, are there any questions you should ask customers to try to pick what plan is good for them, is best for them?

Um, I think, I think a more methodical approach is better. I think instead of asking the customer what your credit score is, picking a, a plan and knowing what your plan is for each step in the way. Knowing we try to make sure at GoodLeap, we do it a little different. We try to make sure you don't have to have that awkward response as much across.

Yeah. Right. Can you show me your credit score?

That is an awkward—

and who are you voting for in the upcoming election? Right? Yes.

Or religious talk. Either one of those.

Religious.

Yeah.

We'll hit all of them.

We'll hit all at once. I would say I would say having a methodical approach is much better because you're gonna hit more customers over time. And I think getting out, stop putting your own preconceived notions on the customer. I think the pro— the problem is salespeople, not just on products. I mean, there's a reason why less than 5% of the market is high seer, right?

Yeah.

It's preconceived notions. It's no different in financing. They put their own sales, sales professionals tend to put their own preconceived notions. The best of the best don't. I think the best don't go in and offer the lowest possible payment, and they do everything they can to listen to the customer and understand what they're, where they are, but they offer 'em both options. And then if those don't sound right, they can pivot, but they know what they're pivoting to and they know what the response is going to be.

Yeah.

I think not understanding whatever current program you're using, Not understanding that if they are below a certain point that they're gonna get countered. Mm-hmm. If a 740 on this particular plan that they're gonna get countered and being prepared for that is important. We just counter less often at GoodLeap. Mm-hmm. But a lot of those other plans counter a lot. You just have to be prepared to have that conversation.

Mm-hmm.

And if not, I think you mentioned it earlier, Bill, you could end up with a repair. And I think that's what's happening a lot in the industry right now.

Yeah.

Because you, We see throughout the country right now, you see debt-to-income going up. You see kind of a K-shaped economy where the rich are getting richer and the middle class is kind of getting pulled in a lot of ways and getting stretched out. So a lot of those potential buyers are running up to their debt-to-income ratios. They're, student loans got put back on all of their credit reports with the changes in there. So you see credits getting strained. So you just see, you see, you see a taxed consumer right now. So then they have an emergency like an HVAC system or, you know, an electrical panel that goes out or anything else. Right. And they're like, oh my God. And then they, they're thinking, well, that wasn't that much last time. It was only $6,000 last time I had it installed. And now they get a bid and it's 15 grand.

Mm-hmm.

That's a shocker to 'em. And they really need to replace that system. Giving them a low monthly payment, doing something that's methodical, like Mr. and Mrs. Customer, we can get to this for you for as little as, you know, uh, $197 a month, or we have no payments for 12 months if, if you just want to wait till you get your bonus check or your tax return back in to pay this off.

So that's pretty much it, right? So what you're saying is there's, there's, you're giving them 2 finance options, but you're just saying this is the payment. For this particular system, not getting into how many years and what the APR is, which you do have to disclose during that process. Like the customer will get that information. They'll see whatever that is. They'll know that like, that this is 15, 10, 15 years, right? But you're telling them that $200 payment and then also giving them the option for 0% for For 18 months, is that like a, or 12 months? Is that the same as cash kind of thing? No payments? Yeah. It depends.

No interest. Different lenders have different ways of doing it. We have both, but there's no interest, no payments where there's no payments at all. And there's no interest with minimum payments where they have a low monthly payment every month and no interest.

Yeah.

And they have a balloon at the end that they just pay off before. And, you know, almost everybody pays off before. I mean, that's—

So that's going to be probably more of your people that actually had the cash, if they're going to be able to pay the whole thing within 12 months.

You got it. Or they have a bonus check, but nobody likes to go by their bank account. And, you know, my wife's the worst. We even went, my, my son hit a bunch of milestones and did a good job. So we went and bought him a car and we went to go buy the car. And my wife refused to just write a check for the car. She was like, nope, uh, let's just put it on that 3-year no-interest plan and I'll pay it off. I think she paid it off in 2 years, you know? So, A lot of people just don't like to take the money straight out of the bank account. They just want some time to do it, want to leverage some stuff and pay off with bonus checks that come in or anything else. And this just takes the pain out of writing that check. A contractor a long time ago that I worked with in the industry, who's kind of a legend and been doing it for years, I was at dinner with him and he said a statement that I still love to today. He said, I said, you know, at that time, not a lot of people were using financing very well in the contracting trades. And I said, so what's your secret to really, you know, growing your business? And he says, financing 100% has been. And I wasn't just in the financing business at the time. I was into the member benefits program for contractors. So I did it all. And I said, well, why is that? And he said, well, Eric, he said, uh, he said, uh, my job, you know, my job, uh, You know, all my customers suffer from cash separation anxiety and my job's to cure 'em of it. And financing's that cure because it takes the strain off of writing that big check. And so ever since then, that's been kind of my thought process when we approach financing is how do we make it as streamlined and easy? How do we make it so that we address both those customers, the cash customer and the other customer, so that we alleviate that cash separation anxiety? And that's why that methodical approach works the best. the lowest possible payment. But I hear all the time from contractors out there, I would never take out a 15-year loan. And then I'm always like, well, that's you. You could still, you could say 15 years. They might say that's too big. You could still have a 10-year in your arsenal and the 7-year and say, well, you can only do it over 10, but your payment would be that. And they might go, ooh, that's a bigger payment than I thought. I'll go with the 15. You just have to be prepared to have that conversation. Yeah. But if you Listen, there's a reason why the car industry's been doing this for years. If you walk into a car dealership, they don't even let you want to talk about the actual price. They want to sit you down and give you a payment upfront. It's called preconditioning and you're just trying to precondition you that it's affordable.

And you know what? I've bought a lot of cars over the years, especially when I had a business. I bought a lot of, a lot of trucks, a lot of cars that I didn't want to buy, you know, but had to buy. And they had a formula, they had a process for it. Every dealer, it seemed, did the same thing. Like, like it must have been the finance companies that had consistent training all the way down from them to the, the people selling the cars. Because I mean, it was very consistent. Even the last car I bought here in Florida, same, same thing, talking about payments. I think like writing it on a piece of paper. You know, and handing it to you. Of course they knew what they were doing, right?

They do it the same way every time. That's that methodical approach I'm talking about is just being methodical in your approach so that you're doing the same thing. And remember, there's a reason for it. If you put your own preconceived notions, you might go, I wouldn't want anything but this. But really what you're solving for is debt-to-income and solving for those folks that don't want to write the big check and the people that have the cash but are like, Man, I don't wanna empty my savings account of $19,000.

Yeah.

I can write the check today, but I only have $43,000 in the bank. That's almost half what I have to buy for this. Yeah. You know, and my bonus check is, you know, a month from now and I usually get about $20,000. So, you know, I should be able to pay that off with my bonus check. Right.

That's what you're talking about. And this is the things that are kind of going in there, going on in their head because a lot of times with HVAC systems, They didn't even know that they were going to be in the market for it that morning.

Yeah.

It's a happy moment. So not only did they, they didn't have any, they have no idea how much it costs and they hadn't psychologically felt the death of that money. If you're going to be doing something like a solar project, you're thinking about it ahead of time. You have a chance to see, oh, this is $40,000, $50,000. And you're kind of mentally prepared, but man, HVAC, it's that morning you ha— you think you have a little repair and that afternoon you're spending 15 grand. And that's, it's hard to withdraw that kind of cash.

You know, it's just hard for people. Like I said, that large contractor told me it's that cash separation anxiety. Nobody likes to write that big check. It's just really hard. They work hard for that money. So how do you just lessen that blow? And I think going back to the no interest equal pay, I think that's why a lot of salespeople who garner to it, cuz they think it's easy. It's just one less objection that they have.

Mm-hmm.

Realize that a lot of times people see that payment and I think they've all been in situations where the customer sees that payment. It's like, whoa, $500 a month.

Yeah.

You know, that's a lot. You know, that's almost my car payment, you know, for an HVAC system.

Right, right. For my HVAC system.

Yeah.

Right.

So how do you get that as low as possible? And how do you get that payment to be reasonable across the board? And then how do you do it methodically? So you approach both DTI or debt-to-income as well as, you know, making sure that the lender that you do use has something that spreads across that FICO score range without a bunch of surprises in it. I mean, whether they use us or they use anyone else, like I always tell people, You know, just do your research and make sure you look at those things upfront. We oftentimes will run ourselves against other finance companies right behind them, and then we'll prove out our model. And we prove out our model. It's shocking because I think where contractors miss the boat is they don't look at both sides of the equation. I mean, you ran your own business that you sold successfully. You know how much it cost you for a con— For acquisition. How much is acquisition of a customer now on average?

You know, at least up with inflation, right? Yeah.

I mean, say it's around a grand or $1,200 a month every time you roll a truck between all in, by the time you get out there to the home. If, if nothing happens, are you actually taking that into consideration when you're looking at a finance company? Because if nothing happens, not all finance companies are the same. And if you don't vet 'em properly, then what you're missing in is all that margin. So you can't just take a dealer fee into consideration. You have to take a dealer fee versus what's bought. And was it, was that particular, was it a take rate that makes sense? Meaning take rate, meaning will the customer choose it? If you're a 720 FICO and you get offered a 14% loan because your debt-to-income is high, but you think your FICO's good, you really have other income, but you can't prove it out, or the other person in the household's not on there applying, and you're like, we never have this problem. Are you going to take that higher interest loan? There's a good chance that you're putting a barrier between yourself and that sale. So you just want to make sure that if your counteroffers aren't going to kill your sale and that you're going to get bought further across the spectrum, no matter who you use, because if you do, then what's going to happen is you're going to close more of those because everybody forgets the money they lose. And they don't add that into the equation. Right.

And it's a hidden metric, right? It's not written down.

It's not written down. Not written down into repairs because you got a partial approval. I only got an approval for $7,000. People count a repair as a sale, but are they really? They do. Yeah, they do. Are they really counting that and going, but I could have sold the system, but I wanted a $19,000 system and now I only got $7,000. What am I supposed to do?

It might just be a verbal thing that your salesperson tells you. And that's kind of it. There's no, In fact, if you looked at the data, you would see, oh, they bought a repair. And the repair's usually a pretty large one. So it actually would, would, uh, if it's a, if you do have technicians do sales, it actually would kind of look like success.

Well, and with technicians, being methodical is even more important.

Mm-hmm.

Because they have a tendency to want to fix things and not sell things a lot of the times. So if you have a methodical approach that gives the lowest possible payment and a no payment at all, it's even more important with the techies. 'Cause you know, they really want to do the repair.

They do. Yeah, they do want to do the repair.

So they want to fix the thing and do the right thing for the customer. So, you know, but there are a lot of customers who want something new. Maybe they've only been in the house 2 years. They've looked at that old ratty HVAC system and they hear it, they hear it rattling outside every time it turns on and it's going to click, click, click, click. And they really want something new. And sure, you could put a bandaid on it. And, but if you get a counteroffer for $7,000 instead of $19,000, Then most likely that's what you're gonna get is the repair. You're not gonna get the revenue from that sale. And, uh, and, uh, I think that's just part of the equation that everybody leaves out. And, uh, if they get anything from this podcast, that's what I would hope that they would get is that they gotta look at both sides of the equation and start measuring that correctly. Because most, even the largest companies don't. And, mm-hmm, finally teach them to start looking at that metric and they dig into it. They're shocked what they see. They're shocked how many, how many times they've had to pivot to a repair, how many times they've had to, to pivot for the customer to a lower-end system when they were looking for whatever, or just replace one system instead of 2. Um, you know, there were 4 on the house, for instance, and even this house looked, like I said, same preconceived notions. They walk into a giant house and assume they have cash.

Yeah, 100%. I did that when I first started too. these people got the money, they'll be able to buy anything. Yeah, it was, it was bad.

And you'd be shocked. You'd be like, oh, they're, they're scrimped or they have a tight credit ratio or they're, oh, my credit score's only 690 because, uh, you know, I have a bunch of stuff on my credit or whatever.

Or if you own a business and the bank hates you.

Yeah, exactly. So, so I think that's not the type of considerations that a lot of Of owners and installers. And let's just face it, um, I talk to owners all the time. They're disconnected oftentimes from what's happening on the sales on the ground. So they hear anecdotes from folks that don't really understand the whole financing business. They just understand what's easy for them to talk about. Right? Mm-hmm. So that becomes your, your denominator becomes, uh, it becomes easy. It's like, what's easy for me to talk about as opposed to what's gonna get—

Yeah.

Sales?

I was really, you know, as an owner, just thinking about my thought process of choosing a financing company and financing plans. The financing company choice was basically from whatever my distributor offered me. So I'm getting, I'm getting this information when I sign up to be a carrier dealer or a trained dealer there, they use Synchrony or they use Wells Fargo, you get the rate sheet, you look at it, it's in the back of the packet, right? They tell you about maybe some special buydowns. We'll give you 3% off of the 0% for 60 months, or we'll give you, you know, you have to like pay them as a train dealer to get better buydowns on it. You look at that and you go, okay, but there isn't any training on it because it's just given to you by your territory manager. Right. And then we go back to the training on the equipment. You'll get some of that, but this is, it becomes an afterthought. And I, I didn't train my guys on how to offer financing, when to offer financing for many years, many years into it. I just, it was just something I figured that they would do. That's it.

Right.

They'll do it and they'll do it when the customer asks for it. Right. That's kind of, and I think that there's many times that customers didn't even know that we offered payments on things because we never even mentioned it.

It literally needs to be part of your system that it's methodical and it's, and it's, and it's really bulletproof. It has to be in a way where every customer every time gets a low monthly payment offered to them or no payments at all. And it's really the way it should go. I literally think for the cash customers or the zero interest equal pays for the prices that they cost, I just don't think the juice is worth the squeeze across the board because they have such a high fake FICO threshold for approvals.

Okay.

You know, I think you're better off going with a no interest, no pay for a period of time because I think for your cash customers and then Anybody who, and then a low monthly payment for those folks that are gonna be payment shocked, because I think hearing the difference between $200 a month or no interest, you're still offering both options to the customer.

Mm-hmm.

So it wouldn't be apt. So whether you used us or you used anybody else, I think the most important thing is to realize that you have to be methodical in the sales process. You have to get the lowest possible payment you can through any lender you're using, and then, or offer something for both that payment buyer and the cash buyer, but trying to mix 'em both and paying a huge dealer fee to do it just isn't what I've seen across the board to be effective. And when you look at FICO score ranges and debt-to-income ranges, it for sure isn't because you're giving up a whole populace of your customers out there and you're subjecting them to a counteroffer or no approval at all. And I think the better way to go about it is to is to, like I said, offer the low monthly payment option or the no payments at all. And I think our team walked you through what a vetting process looks like so that you could get your education on that vetting process. And I think we always encourage people and we train them to just take 'em through the vetting process so they understand what they're getting. And if we're ever worse than any other finance company when we do that vetting, then the numbers will show it and I have to go back to capital markets and make a better program. I just encourage everybody to look at that because when I run those numbers with a lot of companies in order, your buy should be deep enough. Like when I run those numbers on ours, they're oftentimes that our actual points would have to be, they'd have to pay up to 20 points in order to realize a difference in what they make in margin just on their close rate with us.

Mm-hmm.

And, you know, but their tendency is just to look at the rate sheet right away. So whoever they're using for financing, they have to realize there's this other side of the equation. You've got the margin you're making from a closed deal, and you have to add that into the equation. If you add that equation and figure out what you're paying on dealer fees overall, what you're making up in margin, and you do a simple math problem right there, that's the math problem you're trying to solve for right there.

So reaching out to, to you guys, you're gonna help them pull those numbers and understand what's really going on. So like for the, ServiceTitan companies, you guys have, uh, are used to either teaching the, uh, teaching the company how to pull these reports outta ServiceTitan, how to pull the reports out of the current lenders they're using as well.

Yeah.

Is that something that they would do or you would, you would do? Yeah.

The data from their current lender.

Okay.

A lot of lenders don't supply that data upfront, but they do have access to that data. So you'll see that when you go into your current portal, it'll usually have The loans that are approved, oftentimes not the ones that were denied, and what FICO score ranges those are. And I can send people literally a template that they can send their lender, ask for those, and then we can run it against our underwriting guidelines and see how many of those we would've picked up on average. We do average, it's not a perfect numbers thing.

Yeah.

But we can show them, or, you know, we oftentimes are in a position where You know, we'll let 'em test us, show that first week worth of loans as they push 'em through are ones that got turned down the week before and they see that approval rate almost right away. So I think just gauging whatever company they're using and making sure that you are actually looking both sides of those equations.

Like shortcuts to decisions as owners, right? Like we're not gonna look at those sheets and go, I wonder if there's more behind this. Then, you know, more that I have to think about with it. And, and we, especially if you're on ServiceTitan, we, we have analysis paralysis, right? So we never really think with all these reports that there's more information that needs to be, be gathered, yet another column to put into the equation to make a decision. We're already overwhelmed with the 113 different metrics that ServiceTitan already has.

Yeah.

So we just don't. We just don't look at that. But I'm, that's great that you can help contractors get that data from their lenders. Do the lenders have to give it to them or are they gonna say, well, we don't have it? Do they always have it?

Well, I think there's a difference. I mean, if, if the local rep won't give it to 'em, then they should go to someone higher than the local rep. Sometimes people don't like to display the things that they're not strong at. I mean, there's strong suits for finance companies across there and there's a lot of great finance companies. I mean, I've, And the dirty secret about financing is we really don't want our— you might want your HVAC competitor in the marketplace to go down, but we really don't want finance companies to go down. It's kind of rising tides raise all boats. When a finance company goes under, it hurts the capital market structure, period. I mean, you can see over time when certain other finance companies have had their ups and downs, how it affects the overall market. So we'd rather just win on our merits. And we just want to teach contractors to make the, you know, make it all better. And so like you said, my team's job is to educate contractors to understand the business so they can make an educated decision about it. But Bill, you would be surprised how many people don't make an educated decision. I think it's when they come to many things in their business, they don't dig in, or it sounds good to them as the CEO, but they don't vet it with the lower folks or try something out to just see what the difference is. They go right into saying, well, a bunch of other people are doing it, so we're going to do it. And that's not always, I think we've seen throughout history, that's not always the best way to go in a number of different things. Otherwise beta would've caught on a long time ago and everybody wouldn't have ended up with VHS.

Yeah, for sure.

So like I said, I think I think I find it fascinating that once you do educate 'em and the light goes on, which I think it did with you, is why we're doing this podcast. I thought it was important for folks to understand that equation is just whoever you're using. And it's easy to fall for things like all these waterfall companies that are coming out in software that say, you know, well, yeah.

What are those waterfall companies? I've heard about that. What is that?

So they have a lot of waterfall companies that come out and they use a bunch of other lenders in a platform. We're adding a bunch of lenders to ours to fill in some gaps that we have in underwriting that we're just never going to do. But what they tend to sell is that you're going to have a higher approval rate, but it's the same problem you talked about a few minutes ago. It's a lot of other, a lot of the main lenders have their second looks too that are very similar, but what is the customer getting approved for and is it something that they'll accept? And I think what they never look at, contractors don't look at is take rate. How many times did I make the offer and the customer said no because they got countered with the high interest rate? So the only thing that really matters is did it get funded and did it get funded for the amount that you wanted? Those are, that's the metric that matters. And, uh, Yeah. Waterfalls, you picture all these different finance companies in a waterfall that all have different criteria and different rates and terms. You promise something at the high end of the spectrum and then you got offered something low end. You feel good. And they go to you and say, we have an 82% approval rate. It's amazing. You're going to love that. We have a 90% approval rate. And a lot of every finance company says they have an 80-something percent approval rate, but do they have an 80-something percent take rate? Because it matters if it turned into a funded loan because you got the right amount and you got it at an interest rate that was reasonable because they count those partial approvals as approvals.

Sure. Yeah.

It, yeah.

And if you're gonna take the best metrics you possibly can when talking with your customers, right?

Yeah. So I can give them a spreadsheet that helps them send to their company and I can give them a calculator. They can run it through and they can play with it and see if that's a good company and vet them against each other and see how it all works out in the end and make their own decisions. And we do that by Just to educate the customer on, on what they're getting into. Because like I said, we want to win because we're the best solution. And, uh, because that's how people are going to stick with us. But oftentimes, you know, especially with changeover of management, the folks will come in and they think of finance companies as a commodity. And then they'll change from us and then they'll scratch their heads. And months later they call us up and, you know, after I'm on a call with them and they're like, oh, we changed over. But we figured out, yeah, your metric was right. You know, it killed our line. And, and, uh, so I just encourage people to stop looking at finance companies that way and make sure that you vet them looking at all the variables, including what your, your actual take rate is, not just your approval rate, but how often the customer said yes for the dollar amount that you requested.

Yeah, that, that makes a lot of sense. That, that's interesting to, or that makes a lot of sense to get those additional metrics and there's different numbers and do run a what-if analysis, right? To see if it, if it makes sense to do that. So how would, how would somebody get that template from GoodLead? Is it—

Yeah, they could call me. I could send 'em just the spreadsheet that says what to ask for, for a finance company. Um, so they could do that and then we could work it out to where if they wanted to go through a training or anything else, or even with you, we could set up some webinars for you to train people what to look for in a finance company and how to vet 'em. Just a how to vet a finance company webinars. We could do that with you, Bill, too, for just your group. But in the meantime, if you just want to share my information, I'm happy to share it with them.

Mm-hmm.

What outcome you're looking for, you should be able to just dump those into AI and figure out where you could have picked up or where you lost dealers. So if you have a metric and you download all of your Your, what, what the, you just have to track what the salesperson initially pitched.

Mm-hmm.

And they have, you have to have a way for them to actually put that in. This is what I pitched and this is what I ended up with. Right. And for finance.

Yeah.

And then you have to track, did we ask for the full amount in financing? Yes. Did we get X? Right. And so that's the tricky part is how do you actually track that? Otherwise, otherwise you're missing a part of, of the equation and like, like I mean, uh, listen, we wanna win because we're the right product. It's just hard to get out our product and show 'em that the right product, cuz there's a whole lot of, uh, there's a whole lot of, uh, misconceptions about the industry out there. Mm-hmm. That a lot of people have. For instance, if, is it, if you really, you know, is it more important to just have an approval rate?

Mm-hmm.

Well, that sounds good, but if nobody ever takes the loan, it's like if a tree falls in the woods, right? And nobody's there. Did it really happen? Nobody knows, right? If it close, if the sale doesn't close, then, you know, I think everybody just leaves it at that. They just don't ever dig into why that happened. Oh, it was a bad salesperson. Oh, it was a bad— that's where being methodical is really important. Every salesperson, every time, no matter what they're doing, offers a low monthly payment or no payment at all. And I think what you'll find is Being methodical, just like the car industry is, because you have good and bad salespeople.

Yeah.

You might be able to unleash your monsters that are really good and let them do whatever they want to do because they're going to excel, whatever. But that's your top 20%. How about the other 80% of your business? Are you going to allow them to do whatever they want to do?

You need a, you need a process for them to follow. You need a formula that's, if you follow it, is most likely to succeed or yeah, you're just hoping that they're one of the 20%.

And 100%.

Yeah, that makes sense.

So, and, um, yeah, I think, uh, I think, uh, once we educate, they can never look back. And then they start asking those questions. I was just at a large electrical contractor group and, you know, the guy that runs their program's so educated now, he's showing me all the different counteroffers in his, uh, deal. He was working with 3 other finance companies at the time, showing me how all that stuff works. And it's really cool to see. how they start thinking different about financing and start realizing how important take rate is. And then they can challenge back and, and do other things. So like I said, I, I just encourage people to get learned about it. And, and we're happy to do that. And we, we've done a lot to expand that too. We know there's different customers in the marketplace, so we just are launching, you know, the first really consumer-friendly lease in the marketplace. So it's really like HVAC as a subscription service without all the gotchas that the other ones have.

Mm-hmm.

It's basically an ESA wrapped in, and mainly this is because a lot of, a lot of, a lot of salespersons just don't sell extended service plans or club memberships. They're just not good at it. So they don't sell those. So if this wraps that all in there in one tight package, we're responsible for it. The contractor who sells it gets, you know, gets money per year to go back into the home. And then they get $175, you know, once a year to inspect the equipment depending upon where they are in the country. And they get $175 an hour to go out and fix it if it ever breaks down. And the customer has, you know, a worry-free system without all the gotchas that many leases have had in the past. So, and then we've also just launched an equity line second. This is the first truly quick-paying digital HELOC. It's in, I think, 10 states. Coming up to start from our hub now, you can really take the breath of customers. And I would also argue that that same customer that would be a zero interest customer would be one that wouldn't mind having to worry, not to worry about their system breaking in, you know, like, like mine did. I had 3 systems that went down over the course of a few months and it cost me $4,800 to fix 'em all, even though they all had warranties, 'cause it's tough to pay the labor and all that.

Yeah.

Included in them all. If I would've had leases on all those, you know, I wouldn't have paid anything for it. You know? So, yeah.

The attach rate of extended warranties and memberships is really, really bad on system replacements.

So this allows them to go in and say, for $27 a month, you have, uh, you have HVAC as a service, you know, we'll own it. We'll take, you know, GoodLeap will own it. They'll take care of it for you. We'll be out to fix it, look at it once a year and make sure it's maintained. And the contractor gets paid to go out there depending upon the area that they're in, a cost to go out and do that. That's fair. And then, and then on top of it, they get $175 an hour when something breaks that, you know, they have a process to work out with the ESA company and we help, we help mediate all that in the meanwhile. So the customer gets kind of a bumper-to-bumper warranty on their HVAC system.

That's awesome. Yeah, we will dig into that in Another podcast, another webinar, cuz I'm interested in that, man. There's so many things to be learned about the financing game that I didn't know that I've been learning on this podcast today. So I think it makes sense for other contractors to learn about that and, and start to, start to educate themselves.

100%. That's all we encourage 'em to do. Like I said, I wanna win cuz we have the best product, um, in the marketplace. And the only way I can do that is we educate all the the contract to understand the true, the true cost of financing. And I think just don't understand the true cost.

Yeah. So what, what we're gonna do, I'm gonna put a link anywhere that this podcast is, so I'll drop it in the YouTube comments and I'll do a post in our Facebook group where they can reach out to you and get educated on these different metrics that you're gonna want to get. From a combination of ServiceTitan and your lenders to see where you're at with it. And Erik and his team will help you through that.

100%. And we can even supply you a link with a bunch of dates where we just have people on there available so they can hit a certain date and time and they can be educated on it. And we're not going to sell them on anything. We're just going to teach them about financing and how to do it. Maybe do a little plug on You know, how we look at it a little differently, but rest of it will be just about educating them.

Great. Yeah, I'll be sure to share all that. So if there was one thing that you wanted a contractor to take away from this conversation, just one, what would that be?

It would be learn both sides of the equation. Understand that the equation isn't just what the rate sheet shows. It's what the customer, what they, what the customer actually accepts and goes forward with that turns into a funded loan. Because that take rate is everything. And the take rate is, did they take it? And did they take it for the amount that you wanted? If the customer really wanted 2 systems for $25,000 and you only got 7, was that really what you wanted? So really looking at both sides of those equation when you do the math, um, and you're judging all the finance companies, that's what I would want 'em to take away. Just really understand that there's a difference between approval rate And take rate. And everybody's going to tell you their approval rate, but like I said, it's not fair because that doesn't translate. And a lot of times they're scratching their head going, that doesn't translate into what I'm seeing on—

Yeah, right.

P&L at the end of the month. Why does that not translate? So making sure that you understand all those things so you can make the appropriate choices, not just in finance companies, but second look finance companies, things you want to do along the way, anything that fits your model, um, through that. So that's what I encourage folks to do.

That's great. So for any of the listeners, if you're not in the ServiceTitan Hacks group, we've got 11,000 contractors in there talking about, discussing these things, trying to figure out what, how to navigate ServiceTitan, how to make and keep more money in our business. So I'm gonna drop some of these podcast episodes and clips. I want you guys to tell me, in those, what your take rate is. And if you don't know it, reach out to Eric and he'll help you with that.

For sure.

Fantastic. So Eric, thanks for joining me today.

Hey, thanks for having me, Bill. It was fun.