What is the Rule of 78 and how does it apply to Sales? (2024)

FAQs

What is the Rule of 78 and how does it apply to Sales? ›

The Rule of 78 formula is simple. Just multiply the amount of new revenue you expect to bring in each month by 78 to get your yearly sales forecast. A caveat to the Rule of 78 formula is that it assumes you'll gain just one new customer per month – and that every customer is paying the same monthly fee.

By applying this rule, you can quickly assess the sales turnover a particular salesperson will bring with a set target every month. To use the rule, you simply multiply the amount of new revenue you will bring in every month by 78 to get the total revenue that will come in during a 12 month period.

Under the Rule of 78, a lender weighs interest payments in reverse order, with more weight given to the earlier months of the loan's repayment period. According to this rule, if you took out a 12-month loan with a total interest charge of $2,000, this is how much you'd pay in interest each month.

Interest Savings: One of the primary benefits of the Rule of 78 is its potential for interest savings. When borrowers choose to pay off a loan early, they can often negotiate a reduced interest rate based on the Rule of 78. This means that the total interest paid is recalculated, considering the shorter loan term.

The Rule of 78s is commonly, even widely, used but is understood by very few people. It is a method of refunding finance charges and/or credit insurance premiums on consumer credit precomputed transactions when the borrower prepays the account in full.

Brian Tracy: “Sell unto others as you would have them sell unto you. The successful sales professional uses the golden rule to sell with the same honesty, integrity, understanding, empathy, and thoughtfulness that they would like someone to use in selling to them.

The idea is to weight the interest so that you pay more of it in the early stages of the loan, but still pay the same amount of total interest as you would with a simple interest formula. As you can see, the sum of the monthly digits for a one-year loan equals 78, demonstrating why this method is dubbed the Rule of 78.

The Rule of 78 – How to Avoid a Debt Trap. The Rule of 78 is a financing method that allocates pre-calculated interest charges that favor the lender over the borrower on short-term loans. This financing practice is highly controversial and in 1992, was outlawed in the United States for loans longer than 61 months.

Amortization Schedule: An alternative to the Rule of 78 is an amortization schedule, which follows a more favorable path for borrowers aiming to reduce their principal. With an amortization schedule, each payment is divided between interest and principal, with the proportion of interest decreasing over time.

Is the Rule of 78s legal? ›

Under the law, a contract with a term of greater than 61 months cannot apply the Rule of 78s. From the following chart, we can see the percentage difference of the cost of a loan between a simple interest refund and the Rule of 78s.

(a) Providing a Regular Schedule for Oral Hearings. A court may establish regular times and places for oral hearings on motions. (b) Providing for Submission on Briefs. By rule or order, the court may provide for submitting and determining motions on briefs, without oral hearings.

The Rule of 72 is reasonably accurate for low rates of return. The chart below compares the numbers given by the Rule of 72 and the actual number of years it takes an investment to double. Notice that although it gives an estimate, the Rule of 72 is less precise as rates of return increase.

The Rule of 78 allocates pre-calculated interest charges that favor the lender over the borrower for short-term loans or if a loan is paid off early. The Rule of 78 methodology gives added weight to months in the earlier cycle of a loan, so a greater portion of interest is paid earlier.

Just multiply the amount of new revenue you expect to bring in each month by 78 to get your yearly sales forecast. A caveat to the Rule of 78 formula is that it assumes you'll gain just one new customer per month – and that every customer is paying the same monthly fee.

The Rule of 78: Explainer

Rule 78 utilises an arithmetic progression to calculate the interest and apportions. The outcome is that more of the interest is apportioned to the first part or early repayments than the later repayments. As such, the borrower pays a larger part of the total interest earlier in the term.

Here's how the Rule of 72 works. You take the number 72 and divide it by the investment's projected annual return. The result is the number of years, approximately, it'll take for your money to double.

The 70/30 Rule of Communication says a prospect should do 70% of the talking during a sales conversation and the sales person should only do 30% of the talking. That means the sales person is actually doing more listening during the sales call than anything else.

The Rule of 72 is reasonably accurate for low rates of return. The chart below compares the numbers given by the Rule of 72 and the actual number of years it takes an investment to double. Notice that although it gives an estimate, the Rule of 72 is less precise as rates of return increase.

Every dollar spent on growth must produce 5 dollars in revenue. I call this the 5X rule. Successful, growing businesses make 5 times what they spend on marketing, advertising, sales or any other growth channel.