Pre Pays

Discussion in 'Landscape Architecture and Design' started by crossboneracing, Jan 1, 2007.

  1. crossboneracing

    crossboneracing LawnSite Member
    Posts: 106

    Anyone have experience with prepays and how decent they are as a marketing campaign? I am toying with the idea and wondering how much of a discount to give, include spring and fall cleanups on the estimates, and how well this caters to either homeowners or commercial managment accounts? Anyone who has some advice on anything would be helpful as well as how many mows to estimate, etc or anything else I excluded. Also maybe include one pruning in the spring?
  2. JimLewis

    JimLewis LawnSite Fanatic
    Posts: 6,841

    You would receive more replies if you posted this in the right forum; Commercial Lawn Mowing.

    Anyway, we have over about 15-20 clients who pre-pay for services every year. And I've been accepting pre-pay for a good 7-8 years now. So I'd say I have a pretty decent amount of experience with it.

    I'll try to answer your questions and then give you some tips from my experience with it.

    First, understand that cash-flow is key to this business. I'd venture to say that most LCOs and contractors in general fail because they failed to manage cash-flow properly. So any time you can get an influx of money like this, you are helping cash-flow problems. The more money you have sitting in the bank, the less cash-flow problems and headaches you'll have. So I am highly in favor of pre-pay. It helps a lot! And this is why it's beneficial to take a loss (discount).

    The second biggest reason pre-pay helps is because it totally takes care of any payment issues for an entire year. No invoicing. No calling when they are late. No possibility of a late payment. The entire burden of the relationship is now on YOU - to perform. Because they've already done their part of the agreement - for an entire year! Now payment is one less thing you have to worry about with them. And this is a BIG deal. Not having to worry about payment issues is a rare thing. And it's definitely worthy of a discount as well.

    Pre-pay is really only viable for residential work. I do have one business who pre-pays every year. But the business is small and it's wholly owned by one of our good residential customers. So he came to me asking for pre-pay for the business as well. One reason I say it won't work for businesses is simply because business don't usually do business that way. If anything, they like to pay late, not early. Secondly, businesses usually have several decision makers, who would typically nix an idea like pre-paying. Finally, commercial pre-pay usually involves a lot more risk. It's not so much of a risk for a residential to pre-pay for $1500-$2500, for a year. But a decent commercial job would be $25,000 - $200,000 in a year. No business is going to risk giving you that kind of cash ahead of time. That's too much risk.

    As for what to include, well, it depends on what's typical for your customers. If they typically pay you for a few clean-ups and a pruning job each and every year, then yes, include it. See, for me, it's much easier. Because our weekly year-round service covers everything. There is never any need for a clean-up because we are keeping the landscape clean all the time, year-round. And pruning is included in our service - included in the monthly rate. So this isn't an issue for me.

    As far as how much of a discount to give, you want to be careful. In the beginning, I was eager for the quick cash-flow and big bucks all at once. So I made the offer really enticing. I used to give 2 months service free if they pre-paid for a year in advance. But that presented several problems. The biggest of which was that this was WAY too big of a discount. It equated to like a 17% discount! At first, it seemed like a good idea because in the winter months we only stop by once every two weeks and yet still get paid the same high monthly rate as we get in the summer. But once I thought about it more, and realized it was 17%, I realized I was shorting myself. Nowadays I give a modest 5% discount for pre-payment. That's still plenty enough of an incentive for people to pre-pay. But it's not so much that I end up losing some big dollars.

    As for marketing, you don't really want to market this heavily. One thing you never want to do in this business is appear desperate. Even though it may be true that we really are desperate for cash-flow some times, you can never give off that appearance. So it needs to be a casual thing. Anything more than a casual mention of a pre-pay discount will come off as being desperate for cash. And that in turn makes the customer think you are not managing your business properly or have some sort of other serious financial problems. And you NEVER want the customer even considering anything like that about you. So I only mention it briefly at the estimate state. (I'll post a copy of my estimate form in a minute - so you can see). I always try to meet with the customer in person when giving a maintenance estimate. If there isn't a way to meet in person, everything that they need to know is on my estimate form. But I always have best success with an in-person meeting. So as I am going over their estimate with them (and I go over every detail) - at the very end I just briefly mention the pre-pay discount. I say something like, "Also, I find that sometimes our customers are interested in pre-paying for services for whatever reason. And if that's something you're considering, we do offer a 5% discount for doing so. It's not a requirement by any means. And I don't necessarily encourage people to go this route. But some of our clients just prefer to handle a payment once a year, and so if that's you, there is a discount available for doing so. I just wanted to let you know." And then I move on to another subject, as if it's not really important to me at all. And as much as I'd like to get a pre-payment (for cash-flow reasons), it's really not that big of a deal. Either way I win. If they pre-pay I get a little less profit but I get a huge influx of cash right away. If they don't pre-pay, I get to earn full profit.

    Aside from that, I might mention it briefly on our website or in a newsletter from time to time. But again, I try never to make a big deal about it. I don't want to give the wrong impression.

    If I were going to include it in marketing (like flyers) I'd keep it very small. Maybe just a brief mention of it at the bottom of the flyer or something. Something like, "Ask about discounts for pre-pay!"

    Now some other little tips on pre-pay;

    • Pre-payment is almost always in the form of cash or check, not credit card. Else you give them another 2-3%.
    • If possible, scatter pre-pays over the period of a year. Having one customer pre-pay in January, and another in March, another in April, another in June, etc. is much better for you than having them all pre-pay at the beginning of the year. If you do end up getting several pre-pays all at the same time of the year, you will have to be extra diligent to save that money aside, and not spend it all at once, which will be very tempting.
    • Give JUST enough of an incentive to make it worth their while. A 1% incentive would be a bad move for a customer. They could earn more than that by simply keeping their money in a money market fund for the year. Give them a decent return, but don't rip yourself off either.
    • Tax return time (Feb-May) is the best time to approach customers about this. Customers are getting big tax returns at this time.
    • Don't squander the money. If you are going to spend it all as soon as you receive it, use it to INVEST in your company - something you would have normally had to save up to buy. e.g. new equipment, truck lettering, uniforms, another trailer, etc.
    • Be diligent about keeping records and making reminders. I keep every pre-pay customer memorized in Quickbooks so that Quickbooks automatically generates an invoice each year for that customer. That way I can't forget.
    • Don't make the mistake of taking your pre-pay customer for granted because he's already paid. If you do, you'll be sorry next year when it's time for him to renew and you find that he doesn't plan on using you again.
  3. Cracker Station

    Cracker Station LawnSite Member
    Posts: 66

    Excellent information Jim. Do you mind sharing your estimate form you mentioned with us?? I sense that a lot of guys are in the same boat as me. Started last year part time, got all the right equipment and it paid for, and now want to go full-time and maximize profits to the fullest. I have read post on lawnsite for 3 years and only decided a year ago to step off into lawncare and have come to value your post. Thanks so much for the help for me and others.
  4. JimLewis

    JimLewis LawnSite Fanatic
    Posts: 6,841

    Sure. Sorry, I forgot to do that when I got done with that long post. Here it is (below).

  5. DWL

    DWL LawnSite Member
    Posts: 18

    Hey Jim, that post was excellent. Do you mind reposting that estimate? For some reason it doesn't show up.

    Best Regards,

  6. PORTER 05

    PORTER 05 LawnSite Senior Member
    Posts: 642

    its funny, i dont really like pre-paying, i just dont know why, but i like to do the job bill and get a check---

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