Buying existing business/accounts

jlcrox2

LawnSite Member
Location
Lawrenceburg, KY
I have searched through various threads on this topic I’m not finding anything I can relate to this exact situation.
My question is when buying out a business/lawn accounts what value do you place on how long the business/customers have been established. This case is a business that’s 30 years+ with roughly 225 spray accounts majority 10+ year customers. The owner is retiring. Revenue is just in excess of 100k which is down from previous years due to owners age and slow down. Also this is just in application work no landscaping or other services but the potential is there.
 

andersman02

LawnSite Bronze Member
Location
Snowy MN
How much does it cost to get a new customer for you? I would be comfortable maybe $100/customer, depending on their revenue they bring in each year. Your at 445 per customer which is really good for my area on apps alone, maybe 30% of their revenue?

I'm assuming they are all auto renewing, so maybe 1/2 the payment up front 1/2 at the end of the season. Only paying for customers who stay on
 

andersman02

LawnSite Bronze Member
Location
Snowy MN
Also depends on whether your trying to grow or not. If you are the a higher price might be worth it
 

TPendagast

LawnSite Fanatic
See there’s the thing

while acquiring the customer has a cost no matter what, there’s no more value in his customers than your own, so you don’t want to pay more for his customers, especially since they may not even be priced in your favor; where as your customers you accumulate are your pricing.

so ultimately
If you don’t know what your cost per customer is already and don’t have the information on hand to figure it out, it’s not possible to answer this question, however the answer usually is ; not nearly as much as the owner wants.
 
OP
J

jlcrox2

LawnSite Member
Location
Lawrenceburg, KY
I appreciate the insight. Also I understand what you’re saying as far as comparing customer acquisition cost. I don’t have those calculated in front of me . I guess my broader question was do you place any more value on accounts or a business for that matter based on the time they have been operating for the length of time the customers have been with them.?
 
OP
J

jlcrox2

LawnSite Member
Location
Lawrenceburg, KY
See there’s the thing

while acquiring the customer has a cost no matter what, there’s no more value in his customers than your own, so you don’t want to pay more for his customers, especially since they may not even be priced in your favor; where as your customers you accumulate are your pricing.

so ultimately
If you don’t know what your cost per customer is already and don’t have the information on hand to figure it out, it’s not possible to answer this question, however the answer usually is ; not nearly as much as the owner wants.
Thanks., I posted my last reply before seeing yours.
 

Wye Oak Tree

LawnSite Fanatic
Location
Rhode Island
I appreciate the insight. Also I understand what you’re saying as far as comparing customer acquisition cost. I don’t have those calculated in front of me . I guess my broader question was do you place any more value on accounts or a business for that matter based on the time they have been operating for the length of time the customers have been with them.?
Well yes I would value them more thus maybe even paying more for the business. If the owner has had many of those customers for 10+ years they are most likely not real PITA people, pay on time and most assuredly not going to stiff you on payment.

Unless the owner has one of the cheapest prices for service around, the customers are likely to be loyal (at least to him) and not shop around for the lowest price.
 

RigglePLC

LawnSite Fanatic
Location
Grand Rapids MI
How many sq feet are these customers? Are they priced fairly--consistently--or are they big lawns priced at $70 dollars per acre?
What sq feet does he cover per round?
What percent do not pay and are written off?
It is slightly easier to make the sudden transition during early summer--which thereby avoids the big advertising and sales push from competitive companies in the spring.

You need a nice warm letter from the previous owner and offer a guarantee of satisfaction when you take over, and maybe a small extra free benefit--for instance free surface insects control--or half-price grub control.
 

TPendagast

LawnSite Fanatic
I appreciate the insight. Also I understand what you’re saying as far as comparing customer acquisition cost. I don’t have those calculated in front of me . I guess my broader question was do you place any more value on accounts or a business for that matter based on the time they have been operating for the length of time the customers have been with them.?
No

the longevity of the customer (ten plus years) is based on the personal relationship with THAT guy.

when you have a brand like coke or Pepsi or Panasonic, no one is dealing with the “owner”.
So the brand has value
A company or investor can buy a brand and there’s value in acquiring it.

a good example of something local to you might be the garbage company, a taxi service or the bus company that picks of the kids for school,
You could buy one of those companies and the repeat customers would continue to repeat, because unless you do something wildly different , no one is likely to ever know the company changed hands.

the local lawn guy had built his rep on HIM not the brand .

how ever in our case, very few people know who the owner of the company is, lots of people think it’s me, because I’m the one they see or talk to,
The owner had focused on building his brand.
If someone bought the brand and didn’t change anything , just let it run, no one would really know anything changed.

the company could be sold, lock stock barrel... turnkey.

if you find something like that, odds are it’s probably out of your price range anyway.

truth is, if bob went out of business tomorrow , you stand a decent chance of getting at least some of those customers anyway.

what you’re looking to do is incentivize bob to prevent his current customers from letting their fingers do the walking and go to you.

that’s far more involved than simply buying a list of bobs former customers.

if bob wants to get paid, then bob needs to sell for you.
Since bob already knows these people and had already sold them in the past, this should be easy for bob.

so what you do is give bob a sign on bonus (let’s say $5000) and a commission sales position with your company

Bob gets his sign on bonus based on 100 percent of his client list.
33.3% up front
33.3% mid season
33.3% end season
Any customers not with you any longer are subtracted from the sign on bonus

so for example if $5000 is the bonus and you pay $1667 up front and by mid season only 75% of his customers are still with you the bonus is only worth $3750 of which you’ve already paid Almost half, so his next payment is 1,250
Now by years end his customers base has dwindled to 60%
Then $83 is all he is owed at the end of the year.

now he can also make money through new and existing sales via profit sharing
Every sale attributed to him, he gets 33% of net profit for his returning sales and 25% of any new or up sold work.

so let’s say he had 400 customers they all got fertilizer at $50.00 and the net profit was 20%

that’s $4000 net profit
His profit sharing would be $1,320 on round one.

he doesn’t have to do a lot other than make sure those customers keep returning to you
He can make money year after year, round after round.
Now.. if he wants he can work on selling new things for you and make even more money.

this way it also protects you
If the customer doesn’t make money, you don’t owe any sales commission because it’s profit based and if for example his customers lose he could end up with no money from the transfer of clients at all.

a guy who’s just looking for “blue sky” (meaning you give me money and I walk away) is pretty much dreaming
That situation really isn’t worth the crayon and the paper napkin used to write the deal in the first place.
 

grassmasterswilson

LawnSite Fanatic
Location
nc
I’ve tried as both a buyer and seller and up until now just has never worked. Either price was too high, terms weren’t good, or other hiccups.

it takes a committed person on both sides to not get cold feet and turkey want and understand the acquisition.....seller really wants to be done and buyer knows his cost and how he’s gonana recoop the money paid out.

dont forget about equipment. Offer a fair market value on it if you need it. Do you have the storage for it?

what about employees. How are you gonna sell yourself to retain his guys if any? Like pender said many clients gonna go with the face or reputation if the owner but a good chance is the labor is the ones they see working all the time.
 

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