April 23, 2014, 11:31 AM

How a financing option helped a sporting goods e-retailer increase average order value

Tower Paddle Boards introduced PayPal’s Bill Me Later option at checkout, and consumers using it spend an average of 36% more than consumers paying by other methods.

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An entry-level paddle board on TowerPaddleBoards.com will set you back $595, and the prices of higher-end boards made with exotic materials start at $1,195. Those price points led many customers to call and ask for financing options, says the e-retailer’s founder and CEO Stephan Aarstol, but the small, young company didn’t have the resources to secure a deal with an outside financing company.

That was until Aarstol read about Bill Me Later in an e-mail blast from eBay Inc.’s PayPal division. TowerPaddleBoards.com already used PayPal to process transactions, and Aarstol saw that the e-retailer could allow customers to finance orders of more than $99 through the Bill Me Later service. Customers apply for Bill Me Later financing during checkout—or use an existing account—and are sent a bill for the purchase. A current promotional offer allows customers to avoid paying interest if purchase balances are paid off within six months.

From the retailer’s perspective, the transaction functions exactly the same way as a regular PayPal transaction, with Tower Paddle Boards paying the same transaction fee and still receiving the money upfront. With Bill Me Later, PayPal accepts the risk of a customer defaulting on the loan. Offering financing would not have been possible if Tower Paddle Boards had to accept, process and ship the order before getting the money, Aartsol says. “That would have absolutely killed us as a small business,” he says. Tower Paddle Boards began offering Bill Me Later financing at checkout in June 2013.

PayPal provided banner ads for the e-retailer to display on its sites to encourage customers to use Bill Me Later.  “Adding the banners actually helped quite a bit,”Aarstol says. Before the banners, the average order value of customers using Bill Me Later was $580 compared with $450 for other payment methods. After promoting Bill Me Later availability with the banners, the average order value of customers using it increased to $670 compared with $490 for other payment methods.  The e-retailer’s average order value increased overall during that period.

The banners also helped increase the number of customers selecting the Bill Me Later option. About 5% of customers used Bill Me Later before the banners were added, and about 17% of customers used the payment option after the banners were added, Aarstol says. The increased order size has helped the company increase revenue 10%, and Tower Paddle Boards is on track to do $5 million in sales in 2014. “We were estimating $4.7 million,” Aarstol says, “and we’re already ahead of that.”

Tower Paddle Boards launched in 2010 and generated $3,000 in sales that year. In November 2011, the company secured $150,000 from entrepreneur Marc Cuban on ABC's “Shark Tank.” Tower Paddle Boards drew in $257,000 in sales in 2011, $1.7 million in 2012 and $3.1 million in 2013.

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