Prepay discount?

Discussion in 'Lawn Mowing' started by bruces, Apr 24, 2002.

  1. bruces

    bruces LawnSite Senior Member
    Posts: 648

    I made a proposal yesterday on property, 4 acres of mowing every week, wide open mowing, no trimming, an additional area around a lake mowed biweekly or as needed. The property owner takes care of the area around his house.

    My bid will amount to approximately $5,000 for the season, depending on how often the biweekly area is serviced.

    The client said “We are talking about a season long commitment, would you consider a discount for a season long commitment?” And then he wanted to know if I would offer a discount for a prepayment of all or part of the service.

    My thoughts are no discount for the season long commitment. Most customers are season long commitment and the amount of work isn’t any different.

    As far as the prepay discount is concerned, I am considering offering a 5% discount for prepayment of all or part of the bill. In other words, if he pays $2,000 up front, it pays for $2,100 of service.

    Thoughts?
     
  2. lawnMaster5000

    lawnMaster5000 LawnSite Senior Member
    Posts: 589

    one easy way for you to calculate how much discount that you can give is to figure out how much that money will be worth to you.
    I am assuming that you are planning on reinvesting that money into some sort of interest earning account. In order to calculate the value of the lump sum versus the (anuity payments) 12 monthly payments you have to calculate the net present value of each option.
    Your $5,000 bill can either be paid in one lump sum payment by the customer or by (i am guessing) 12 monthly payments of $417. With either you will earn an interest rate of (assuming) 5%.

    According to that 5% assumption:
    - The net present value of those 12 payments is $4693.38
    - The net present value of a lump sum payment is $5,000

    Comparing the net present value of those two options you would make an additional $306.62 if you invested your moeny at 5% and recieved the lump sum payment.

    It is your option what you wish to do with that extra profit - one option would be to pass it as savings on to the customer. Giving the customer a discount of Aprox $300 or 6%.
    I realize that these numbers are not exatly going to fit your situation. If you would like a better explanation please email me.

    P.S. - The anuity chart that i used can propably be found online. I used a text book version.
     
  3. LAWNS AND MOWER

    LAWNS AND MOWER LawnSite Bronze Member
    Posts: 1,129

    I offer a prepay discount in the spring when my cash flow has come to a trickle. When I fertilize in March, I'll offer some kind of discount if they prepay for 10 mowings. I'll either give them a free mowing, or wouldn't go up on their price for the season. Most of the one's that I don't go up on their price are accounts that are over priced anyway. Good Luck

    LAWNS AND MOWER
     

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