Many dealers choose to incorporate financing dealer fees into their system prices. (Note: If you’re taking this approach, we’d encourage you to ensure that you are doing it in a way that is compliant with Reg Z / the Truth In Lending Act - your financing provider should be able to provide you with guidance.) Here’s how we support you on the OpenSolar platform:
Let’s start with an example: You want to offer your customer a cash option and a loan option for a system. The cash price is $20,000, and the loan has a 10% dealer fee. How much should you charge if the customer chooses to purchase with the loan option?
- If you charge $20,000 for that as well, you would have to pay a $2,000 dealer fee (10% X $20,000) and you would only be left with $18,000 after you paid the dealer fee. (Iteration 1 in the table below.)
- So, you might add that $2,000 dealer fee into the system price, and charge $22,000 for the loan option. But, as soon as you increase the system price, the dealer fee increases as well. Now you’ll have to pay a $2,200 dealer fee (10% X $22,000) and you would only be left with $19,800 after you paid the dealer fee. Closer, but you still haven’t been made whole after the dealer fee. (Iteration 2 in the table below.)
- You could do another iteration, and add the $2,200 dealer fee into the system price, and charge $22,200 for the loan option. But, again, as soon as you increase the system price, the dealer fee increases as well. Now you’ll have to pay a $2,220 dealer fee (10% X $22,200) and you would only be left with $19,980 after you paid the dealer fee. We’re getting closer to the target of $20,000 but still not there. (Iteration 3 in the table below.)
As you can see in the table above, you’d have to go through this process 7 times to get to the right system price (and for higher dealer fees you might need to do it 10+ times). You can use a calculation to skip all these iterations: Standard System Price = Base System Price ÷ (1 - Dealer Fee %). So, in the example above, Standard System Price = $20,000 ÷ (1 - .1) = $22,222.22.
This is how we incorporate dealer fees in OpenSolar. Standard System Price = Base System Price ÷ (1 - Dealer Fee %).
As a reminder, regulations addressing dealer fees are not always intuitive and may vary by jurisdiction. We highly encourage you to consult with your financing provider to ensure that the approach you are taking is consistent with appropriate regulations.
If you would prefer to calculate dealer fees outside of OpenSolar, you can achieve this by simply entering a 0% dealer fee for each payment option in OpenSolar.