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Pre-pay Lawn Customers

Discussion in 'Business Operations' started by mike48114, Dec 29, 2002.

  1. xpnd

    xpnd LawnSite Senior Member
    Posts: 378

    I've been in business 10 years. I do not understand why I discounted my services in the beginning nor do I understand the concept of discounting now. If you can discount your services and still make a reasonable profit then your desired profit margin may be too large for your market. There is just as much work and it is not any easier with prepay and a discount. The only result I see is a degree of resentment while you are out working a job later in the year for less than you should. It has been my experience customers looking for these discounts have as much loyality as you can fit on a pin head. They are like rats jumping ship the next year if you don't offer it again. My philosophy on pricing has dramtically changed in the last two years. No matter how small your lawn I have a minimum to drop my gate. I don't care if it is a zero lot line with 2K of front lawn. It is still the minimum. Jobs up to 20K have a per KSFT price and it is what it is. Between 20K-42K they are either priced at the KSFT or equivalent hourly rate, which ever is more favorable to me. Above 42KSFT and they are priced at my hourly equivalent. By having a structured rate and not deviating from it I do not have to remember as many lies at night when I go to bed. Every new customer gets charged the same-no favorites.

    IMHO the only customers that deserve a discount are the loyal ones. Customers with a longevity of 3 years or more have their prices frozen until they are 8.25% below my current market prices. These are dollars I do not have to chase with the "free estimate". They come back year after year. If they discontinue their service even for one month to "check out the cheaper competition" they come back under the new customer price structure. When queried about the price increase I tell them upfront I reward customer loyality not lack thereof.

    Running the numbers reflect this to me. A 5% discount on 50K gross income is equivalent to 2.5K lost income, 10% is 5K. I don't know about the rest of you but I'm not willing to let that cash on the table. Look at from a different perspective. If you increase your price by 5% in terms of hard incoming dollars you can afford to lose 5% of your customers and still break even as compared to your old price structure. If you raised your prices would you lose more than 5 customer. Maybe but probably not if you're good at what your doing. Once a customer gets comfortable with a LCS they won't drop and take a chance on an unkown quanity. Use that to your advantage. Better to pay a buck fifty more per service to a guy you know is dependable with high quality and no headaches then go back to what they used to have. But going back to the beginning of this paragraph the 5% loss is actually misnomer. You can actually lose closer to 13% of the customer base when all factors are considered. You can now do 95 jobs in place of 100. Thats 5 stops eliminated, ~ 1 less hour of labor to pay for, by my mowing schedule that is 160 total annual services avoided or the equivalent of 5 years wear and tear on a mower. During the year you will replace those 5 jobs with 5 new ones at the new rate. Now you have increased you gross revenue by 5% and the labor is back where it was with your old prices before you increased your rate. Here are the hard numbers

    100 jobs @$30.00 per job = $3K.
    95 jobs @ $31.50 per job =$2992.5k less ~1 hour weekly labor, equipment wear and tear, and 5 extra stops per week
    100 jobs @ $31.50 per job = $3150.
    You are now making $150.00 per week or by my mowing schedule $4.8k more a year and not expending any more labor as when you were charging $30.00. Maybe that much is chump change to everyone else but not to me.

    Another more extreme example is at the $25.00 rate which seems to be popular.

    100 jobs @ $25.00 = $2.5K
    83 jobs @ $30.00 = $2490
    100 jobs @ $30.00 = $3K or an increase of 20% income with no extra labor or time as the first example. Would you lose 17 customers, I doubt it.

    Sometimes the answer to making more money is not increasing the customer base with discounts but rather an insignificant price increase to cull low profit margin customers and make room for new ones at a new price rate. I experience an average of 3-7% turnover each year depending on the economy and corporate relocates. However I force a minimum of 10% when I review my lower profit margin jobs. Also I keep myself in the 70th percentile as far as rates. For every 10 estimates I put out there I only expect to have three returned. When I start receiving 5 or more I edge up my prices by at least 5%. Work smarter, Work less, Make more money.
  2. Barry D

    Barry D LawnSite Member
    from Georgia
    Posts: 44

    I agree, I do not like to leave money on the table.

    What happens if the customer wants to hire another company mid stream for any reason? Do you have to repay the remaining portion? Do you remind them of the signed contract? Or offer a early termination fee to get out of the contract.

    I Had this happen last year and made the customer pay a $100.00 early termination fee.
  3. f350

    f350 Banned
    from mi
    Posts: 424

    mowing, no chance on pre-pays
    fert base, you have a great opportunity to attract pre-pays.
  4. Kent Lawns

    Kent Lawns LawnSite Senior Member
    from Midwest
    Posts: 870

    20% ?!
    That's insanity, you might as well keep working for someone else than hand 20% of your revenues away.

    7% For fert only clients.
    5% For full service clients.
  5. boohoo

    boohoo Banned
    from USA
    Posts: 77

    Have to remember 20% is only a function of the base price. My Base price could be 25% higher than yours. how many guys have sold a mulch job for $480 when it should have been say $600.
    20% discount right there and the customer didnt even ask.
    Like in any free market economy there are no set prices.
    20% of nothing will always be nothing.
  6. Kent Lawns

    Kent Lawns LawnSite Senior Member
    from Midwest
    Posts: 870

    End of story.

    You're not getting the job anyway:

    My salespeople don't let many get away unless they're to cut throat pricing.

    LAWNS AND MOWER LawnSite Bronze Member
    Posts: 1,129

    Instead of trying to get the customers to pre-pay for the entire season, why not offer them a free mowing if they pre-pay for 10 cuts. I normally offer this when I'm through applying the Premie in March. Good way to stimulate the cash flow after a long winter.
  8. mike48114

    mike48114 LawnSite Member
    Posts: 124

    Very good Idea; Partial season pre pay for a free weeks service. Seems ok as long as its not a huge time taker. Dont want to give too much away, thats why i was thinking a % discount.

    LAWNS AND MOWER LawnSite Bronze Member
    Posts: 1,129

    Some other perks I'll offer is not charge for the first fert. app. if they pre-pay for 10 cuts or not go up on their price per cut (which normally I wasn't planning to if I offer them this option). As for giving too much away, if you have a $100/cut account, giving them $100 worth of mowing for free isn't that bad since you'll get a check for $1,000 up front. Still comes out to a 10% discount. Don't have to worry about billing.
  10. Rob T

    Rob T LawnSite Member
    Posts: 165

    NONE...Why would anyone give a contractor money up front for lawn cutting. I think they would just hire someone else rather than risk losing money to a "no show" contractor. I tryed this when I started and got nowhere.
    (mike48114, I'm not insinuating that you are a risk or that you will be a "no show", but it happens) What protects the customer if you leave town with there moeny?

    Anyway, back to the question. Why give a "discount"? Instead charge a "premium" for monthly billing. Anotherwords, charge your regular rate for up front payers and charge 10% extra for monthly billing. Just word like it's a "discount" if they pay up front. My insurance co. charges me an extra $4.50 each time they send a bill. Thats my "penalty" for not paying in full.:dizzy:

    Don't sell your self short trying to get cash. Maybe a loan would be a better way to go. Think about it... A equiptment loan through a bank should only cost you 7-9% per year. Most eqt manufactures offer specialized loans with pay later options. This way you can get a little cash flow going before the payments start. 8% of a $10,000 loan is (likely) much less than 10% of first year gross income! AND what will you do next year? Will you still offer the 10% discount, your customers will be expecting it.

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