Buying someone else's customers

[Ofallon Lawn Dude]

Hi all-

I found this forum over the winter and have seen some great threads and topics. Lots of good brains working out there! I got a call the other day from a guy who saw the signs on my trailer. He is currently in the business, and what I got from trading voicemails is the he is scaling back his business and would like to sell some of his cutomers. I am at my limit for a one man operation and know I need to hire help to take the next growth step, be it bought customers or ones I acquire on my own.

My questions are these....

How do you value for purchase price another's customers?

Have any of you bought another's and what has been your experience with bought customers?

I appreciate your thoughts.

Greg

[Tracy]

I have found that people don't like to be "sold" ..... you may lose some of the ones you "bought"

-Tracy

[Phil Nilsson]

The cut and dry answer is from 20% to 30% of gross sales for one year (grounds maint accts) but the better answer is to start with those percents and make sure the accounts are profitable otherwise their value is ZERO.

Good way to test the accounts ... figure the total man hours it will take to perform the work of each customer account divide those hours into the total gross sales (take out any billed materials first) ... this gives you earned return per hour ... compare that return per hour with your own ... and how far above cost per hour is that return? You're buying profits, not merely sales.

Safe to buy them? ... build in a provision for customer drops and cancels so that you pay only for customers who stay ... at least short term ... after short term it's up to you to retain what you bought.

Phil

[P&C Lawn Care]

I really don't think customers should be "SOLD". I know that whomever has built up a list of customers may want to retire and sell off the business, but the customers should not be included. If the LOC can just treat them as a number, then you guys who complain about the "scrubs" doing your work for less, well it's just NUMBERS isnt it? I feel my customers are more than just a number that can be sold off, they pay not only for my services but also my honesty, dependability, integrity and ethics. At least I feel my residentials are that way. Commercial accounts with contracts just want to make sure the work is done at the rate specified. After the term of contract is over they may not renew.

[GrassMaster]

Hold on, Wait a Minute?

You would feel different if you could sell out your lawn service business & walk off with a $100K Sayonara Bonus for 5 years work...

I did!

My business was profitable & had a worth, I'm supposed to get that Money for leaving because I earned it & because I'm worth it!

Some people might have a desire to have a business, let it run them to death til they can't handle it no more (Old Age) & when it's time to call it quits, you just dissolve it... Not Me?

A change of pace, doing different things for a living, only makes you better, wiser & richer.

I would make sure if I bought a person out, that it would be profitable for me, so I could justify the up front expense...

And of course the experience that I have now, I know that taking over & buying out another person is just another Shortcut to Success & it's a Win Win Situation!

Starting out Cold Turkey has many Many Disadvantages! But we don't always have a choice, we do the best we can with what we got & go from there. I've been there & done that Several Times!

Trust me I know this, I've been on both sides of the fence quiet a few times on this one.

Just a few things I've missed out on...

I had a guy come to me & asked me if I was interested in a Home Insulation business. He wanted $65K for it. I thought he was crazy & too much money. A friend of mine bought it & his first year he made over $150K salary, he lives on the beach now!

I had a friend that wanted me to loan him about $20,000 for a Pawn Shop about 20 years ago & he said he would give me 50% of the profit. He now owns 6 or 7 of them last time I saw him & ask for 40% of the profit from them & the guys running can have the rest. The last time I saw him he doesn't do much of anything except travel & spends money.

I've regretted both, but that's life, Remember you set your self worth & I'm worth a lot!

[Phil Nilsson]

The simple explanation is that it costs money to get customers ... advertising expenses, lead development, site visit, job proposal writeup and customer retention. When you sell accounts all of those costs are (avoided) by the person buying the "work". Not to mention the years it takes to develop a customer following.

What does it cost you in upfront costs to get your customers?

Phil