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Community Submission: Are online installment plans right for your online store?

Shanae Jones, Ivy's Tea Co.

After getting an email from Klarna, an alternative payment option that allows customers to shop now and pay layer, Shanae decided to test it on her e-commerce Shopify store, Ivy's Tea Co.. She is sharing her results with the Buy From A Black Woman Community after 3 weeks of testing.

What is an online installment plan?

If you’ve purchased a car or a home, then you know all about installment plans. You get an installment loan that you pay off over a certain number of months or years.

Mini installment loans, like the ones I’m talking about here, are available for everyday purchases. They’re micro loans that are paid the same way, except the repayment time is much shorter.

With any of these installment plan options, your customers can shop your store and, instead of checking out with their credit card to pay in full, they can check out using these plans to get their product(s) now but pay for the item(s) over time in small installments until the purchase is paid in full.

How does it work?

Retailers have to be in partnership with one of these installment plan companies in order for customers to take advantage of the service. However, once installed, your customers make the first installment of their purchase when they check out and make the second installment automatically about two weeks later. As a retailer, you ship the items to the customer as if they paid in full and you get full payment from the installment company, which may be a bank or financial technology (fintech) company. If a customer defaults, then the bank/fintech company goes after the customer.

Is it right for my store?

That depends. After testing the results for 3 weeks, I think it is great for consumer packaged goods stores (CPG) like mine and I see why clothing and home goods stores partner with these services.

Initially, I was apprehensive about using the service for my products because I thought that by the time customers finished my products, they’d still be stuck on an installment plan

Through months of research, I found out that customers typically make a repeat purchase in my store 62 days after their first purchase.

Since I started using Klarna in my store, I noticed that my customers are making larger purchases because they have more room to spend and make payments. The result? Customers are purchasing enough tea to last at least 2 more weeks with daily use.

Before trying Klarna, I was worried about customers finishing their teas and honeys before their installment plans were complete, but with them ordering more, their installment plans will finish and there will be some breathing room before the restock. Whoo hoo!

My results:

After using Klarna for 3 weeks, I can say that it was fairly easy to set up. The setup requires a laptop or desktop and I cannot imagine doing it on a small cell phone or tablet. Tech support isn’t hands-on, so if you’re not tech savvy, then you might have problems.

To market the service to my customers, I followed the Klarna guidelines for adding buttons and language about the installment plan on my website. I also told my customers about the program per Klarna’s suggestion in my emails and text messages (each sent twice per week).

Over the past 3 weeks, my average order value (AOV) with Klarna increased by 23%, from $41.17 to $53.56. It is important to note that Klarna is only available on orders of $35 or more. I am confident that the AOV will further increase during the holiday season and with more promotion on my part.

Klarna deposits have been very fast and I get money within 1 or 2 days. Klarna charges a transaction fee that varies, my rate is $3.99% plus $0.30 of each transaction. I've found that this is on par with other installment plan rates.

Some customers enjoy the flexibility of installment plans and I am happy that I can offer this to my customers. If you can afford the transaction fees and have products that easily exceed the $35 minimum, then I completely recommend the service, especially if you offer it only for the holiday season.

You can learn more about Ivy's Tea here or keep up with Shanae via Instagram, Facebook & Twitter.

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