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View Full Version : The cost of a new customer?


LawnLad
02-08-2002, 12:30 PM
What's it cost to get a new customer?
1) Cost of advertising piece (printing plus delivery method)
2) Cost of receiving calls and qualifying them
3) Cost to meet with prospective customer
4) cost to produce estimate/bid
5) Cost to follow up if necessary
6) Cost to 'train' new customer and develop relationship
7) Cost to train crews to understand what customer wants

What does all this add up to? I suspect if you put a dollar amount on your time, you might find that it costs hundreds of dollars per new customer that comes to you through advertising.

What if that customer stays with you for only a 1/2 season or only one season? How long does that customer need to be with you to make the cost worthwhile? Where is the break even point?

What does it cost for referral customers?

What does it cost to keep an existing customer?

Just a few thoughts since we're all throwing around advertising ideas and the related advertising costs. We all advertise to some degree, just be careful that you're not wasting your dollars or fooling yourself that a method you are using or that someone is selling you is working or will work for you. Look at your time and all the costs associated with it.

65hoss
02-09-2002, 05:10 AM
Its always cheaper to keep a customer than it is to find new ones.

Finding and getting new customers are usually hidden cost to some degree. The driving, estimating, time talking with them, etc is hard to calculate. The advertising $$ are easy to find.

Once you get established enough to where "word of mouth" keeps you really busy your in much better shape. Cheapest form of finding new customers is keep existing customers happy and get them to refer people to you.

SprinklerGuy
02-09-2002, 10:42 AM
We have steadily grown in size and database for the last 6 years and it amazes me how few referrals we get. Now that I've said that I'm gonna look.........73 referrals from other homeowners last year.......
Wait though, we also get referrals from landscape maint. companies, realtors, p.managers, and many many more. Every time I debate this topic with myself in my head I realize that if I were smart I would be grooming these relationships and save the 1500-2000 dollars we spend monthly to get new customers in other ways.

It is cheaper to sell something else to your existing customers. shouldn't it also be cheaper to get them to refer you?

What if every customer you had referred you to one client......Wouldn't that be great!

Sorry this is sorta confusing but the bottom line is referrals are much better that advertising. Question is how do we convince ourselves of that and implement ideas to make it happen more often?

LawnLad
02-09-2002, 03:11 PM
A suggestion... ask for a referral from your customers. Though not religiously, we ask our customers if they know anyone who would benefit from our service. We ask for their name and number, and our customers do give us names/numbers.

Also, when you go on a sales call, ask them if they know anyone who could use your service. You'd be amazed how many neighbors are looking together - and then swap information. The more people you connect with, the better the chances of making a sale.

Randy Scott
02-09-2002, 08:48 PM
I've had a pretty good rate of referrals and it definately is the best way to get work. I also have a handful of customers tell me to my face they don't want to refer me and want to keep me to themselves. That is nice to know but doesn't help with getting more work.:)

greensummer
02-09-2002, 09:16 PM
$100.00

PaulJ
02-10-2002, 08:12 AM
I've thought of offering a reward for refarals. like $5-$10 off the next months bill after the refered customer has signed up for service. Not much insentive but it might help and since I wouldn't pay unless they actually signed up I should be able to come out ahead. Not saying I'm going to do this , just an idea .

lbmd1
02-11-2002, 12:50 PM
LawnLad brought up an excellent topic that we have not discussed much in the past. To me, the thread shows in an unrelated yet related posts about how other members on the board feel about buying or selling a business, and what it's worth. How many times do people here say the client lists aren't worth anything, don't bother, just take the money and advertise. Lawnlads 1-7 lists in detail what we have spent or will spend in the future on existing or new clients. When I had purchased an existing LCO's client list (no equipment) about 4-5 years, I realized what this guy had to do to get these 40 some odd accounts and he should be compensated for it. As well as when the time comes for me to sell off, I would expect the same respect of what my time and goodwill with all my clients are worth for my efforts. I'm not saying that spending money on advertising doesn't give you a good result as well, it's just that Lawnlad's post on this topic show really what owners go through to get and keep clients.


Mike

mike payne
02-11-2002, 08:01 PM
I will usually mow a lawn free once for a good referal that last the entire year. I make their last mowing of the year free.

garydale
02-13-2002, 10:19 PM
I could use some guidance on purchasing a client list of about 50+/- from a local fellow going out of business.

Neither he or I have any idea on how to price each account and what terms to apply.

I would appreciate some input.

ps: great site!

thanks, gary

LawnLad
02-14-2002, 10:57 AM
Let me first say that I'm no expert in this topic. But I've done it once or twice.

There are advantages and disadvantages to buying an existing client list. The value of any service business is the owner that runs the business and the type of relationship that the owner has with his customers. What kind of support will you get from the departing owner with his old customers? Will he be there to answer questiosn or help ease the transition if the customer is a little leary?

You are not guaranteed that any of the customers will remain with you after you 'buy' the rights to contact them. I'll address this in a minute in the pricing part of it.

When taking on somone else's customer list, you need to make sure that your services and contracts will align - or will the new customers accept your pricing and contracts. How will you manage this transition? Will they pay you? What's in the current contracts about payment? Will they accept your contract?

How does his customers value his service? How long have they been with him? Are they with him because of price? His service? The relationship? Do they pay on time? Have you seen payment records? Can you take over these assumptions and have the customers appreciate you in the same way?

Look at the revenue generated from each customer. If he's got a couple of Dog's... maybe you don't buy them, or if it's all or none, negotiate to pay less for these. A couple of Star Customers - you might pay more for them. Particularly if he takes you and personally introduces you to them and walks the customer through the transition.

Ultimately, the list may be worth something. But how much is more based on how long it would take you to find those 50 hot leads and sell the work yourself through your traditional methods. Guaranteed you'll loose some of the customer in the transition. How well the process is executed will determine the percentage that remains. You've got to overcome any of their objections early through a clear, consise message that is commuincated perhaps by the two of you.

The list has more value to you if the customer stays with you for a year, two or three years. Structure your buy out so you pay the previous owner a gross percentage of existing sales for the three years. If you upsell a client on a patio or additional service that they didn't have before, you need not pay him back on this sale. So clearly define what service each customer is receiving, what the annual revenue is per customer.

Maybe give an initial down payment of X dollars per customer for the opportunity to contact them. Offer 3 to 5% (or some number) for the first two years on each customer, and maybe 7 to 10% on the third year. This will encourage the selling owner to hang in there with you, as the big payout is three years down the road. If his customers are not relationship based... this may not work.

The price you pay also depends on how desperate you are and how he perceives this. Are there any other going concerns that are offering to buy his customers? If not, then you've got more leverage to negotiate terms. Maybe three years is too long... shorten it to one or two years.

Rather than just basing it on the individual customer, you could base on it gross sales for the group. If total sales for 50 customers is $50,000... than pay a percentage on whatever sales you derive from them at certain points. Maybe the higher the percentage that remain, the higher the percentage you'll pay. So set up a tier structure.

$50,000 in existing buisness
$45,000 to $50,000 after one year = 10%
$35,000 to $44,999 after one year = 7%
$20,000 to $34,999 after one year = 5%
$ 1 to $19,999 after one year = 3%

The stronger the list, the more the seller will make. You could also structure this so there are different payout points over time so it's not just at one year. Depends on what you want.

Is the seller going to remain in business? Will he continue to offer other services to these clients? You should probably have a non compete for a period of time that prevents him from contacting them or doing any type of work for them for a reasonable period of time. And you need to make sure that he's not selling this list to someone else as well on the side.

Hope this helps. Good luck.

PS - only bought clients a couple of times. For all the times that other contractors have offered to sell... I always found it to be less expensive to find my own clients since they usually wanted too much for their list or the needs didn't match up. Don't be afraid to walk away. If it works out... it's a great way to grow. But don't presell yourself on it before you know all the 'dirt' on his customers. Remember, you'll inherit the revenue as well as all the habits, promises, etc.

TGCummings
02-15-2002, 11:51 PM
Originally posted by PaulJ
I've thought of offering a reward for refarals. like $5-$10 off the next months bill after the refered customer has signed up for service. Not much insentive but it might help and since I wouldn't pay unless they actually signed up I should be able to come out ahead. Not saying I'm going to do this , just an idea .

Sent a notice to my customers in December that I'll knock 25% off one month's service for every referral they send me that becomes a part of my regular schedule. Send me 4 and get 1 month free!

Haven't received one referral from this yet... :(

HOMER
02-16-2002, 02:19 AM
I don't think referrals are as plentiful as some make out. I know I do good work but I can count on one hand the number of customers that have referred me in the past 2-3 years. They like me but don't want to share for some reason. As for cost to gain a new customer? Personally I think that cost can be re-couped within 1 or 2 visits. It's just part of it. If you want the business you have to go see the customer.

65hoss
02-16-2002, 03:15 AM
I guess keeping customers are like wives:

It's cheaper to keep her!

marcie
02-23-2002, 10:02 PM
65hoss............. be nice;)

Nebraska
02-23-2002, 11:32 PM
As far as referrals, keep asking. In person, with letters, etc...develop something that will make it easy for them to refer as well as benefit them in a perceived positive way; of which there may be a multitude of ways. Referrals are the most cost effective method of attaining a customer.

Tim Canavan
02-24-2002, 04:54 AM
I will also be offering a price reduction for referals from existing clients. Just do as much as you're comfortable with. I think it's a great idea and it's a cheap way to advertise. Getting someone else to do it for you can be done another way too. Get with your local realtors. Make up a catchy flier and put it in each one of their mailboxes at the realty office. They need you to help sell their homes. What's the first thing a potential buyer sees? The yard. You get the point. Anyway, after you get a couple of realtors in your pocket, hopefully you are also getting the people moving in. Maybe even the people moving out if they stay in the area. Also, when doing jobs other than just mowing ( clean-ups, mulching, planting, etc.) you should have a yard sign. Leave it for a week or so. I hope you have signs on your vehicles as well.
As far as buying an exising company, I would not pay more than 2 to 3 months of what it's worth minus 5 to 10 percent for those you would probably lose. In other words, If 50 yards gross 5,000 a month, then I would go 15,000 minus 5 to 10 percent. I would also make sure they are under some sort of agreement. Make sure the seller takes you to each and every one of those accounts to meet and talk with them personally. Good Luck.

B. Phagan
02-24-2002, 03:20 PM
One major thing about referrals........IF YOU DON'T ASK OR SOLICIT FOR THEM, YOU PROBABLY WON'T GET ANy!

If you are simply buying customers from someone else and equipment, etc is not involved:

1. Look at the profitability of EACH customer
2. Will that customer mix fit into your schedule
3. What additional services could you add to increase profits
4. How many of them will you lose in the transition and is that provided for in the agreement
5. What is your return on investment, over what period of time, etc

Just wrote an article for purchasing and selling businesses. Check my site and I'll send it to you if interested.

TGCummings
02-25-2002, 12:08 PM
Hey Bill,

Good to see ya! I'll be keepin' a lookout for your advice here. Always a pleasure to have you on our favorite forums, spreading the wealth (of information!) as it were.

So far I still haven't had any luck soliciting referrals. I get 'em, every year, but I sent out a letter with an offer of reduced cost services for more referrals. My hope that it would make folks work a little harder for me, getting me more business. Hasn't panned out yet, but the season is still real early...

B. Phagan
02-25-2002, 02:29 PM
Hey TG,

Well, first suggestion is to NOT give discounted prices for referrals.........possibly a gift certificate to Outback, Carrabas, Red Lobster, etc. Buy a few extra for your use!

Best time to ASK for referrals is when you just got that new customer, monthly newsletters, surveys, etc. Keep pounding them......it'll happen.

Don't know where you are located but due to a great demand, I've put together "Bill Phagan's Green Industry Sales Pro Jubilee" in Florida and coming to NC, SC, GA and Virginia. E-mail me for more info. This is a full day on marketing & selling to the commercial and residential marketplaces for landscaping and maintenance. Also blending in other info that's biz related.

Good luck!

Nebraska
02-25-2002, 06:03 PM
Bill,

I would be interested in hearing your take on pre-payment discounts. My feeling is 10% is excessive, yet a bunch in our area do this.

B. Phagan
02-27-2002, 05:19 PM
Nebraska,

Let me say pre-paid customers are a god send!. Now, pre-payment discounts depend:

1. How much profit are you giving away?
2. Are they paying by cash, check or CC
3. For what period are they paying? Qtrly, 6 months, one year?

This can present problems for our industry when the "lawndogs" are doing the collecting up front and not doing their job or maybe go bellyup prior to finishing out the term.

I always suggest they pay upfront to elimate the "paperwork" and would not offer a discount..........if they pay cash (and of course, I would declare that income to the IRS!) and I'm giving up too much profit, that would be my preference.

I much prefer to use my customers money rather than my own with the above considerations.

Good luck.