View Full Version : Buying Customers
03-30-2009, 09:56 AM
Hello, I'm looking at buying some accounts but I believe the seller is a little high, however, 1) he has maintained these accounts for over 2+ years, 2) they are in a more "higher end" area, 3) they are all grouped within a few miles of each other, some in the same neighborhood. He is asking about 5-6 months revenue for the accounts. He is willing to work with me for 2-3 times servicing and introduction to the clients.
Any suggestions? Or should I stay away?
03-30-2009, 01:24 PM
My first concern is that the customers are not guaranteed to stay with you after the purchase. I believe in previous threads on the same topic here others have recommended no more than 1-2 months revenue. I am not sure where the threads went to but I know this was discussed several times recently. I would recommend kind of looking through some of the threads on this site to see what you can come up with.
If there is a way to, perhaps you could get the other company to talk to the customers to see if the customers are willing to be serviced by a new contractor. This may increase the chances of the customers staying with you after the switch. but 5-6 months revenue is rather steep I think. Heck that is most of the mowing season. I would not mind having a deal like that myself where I get paid for 5-6 months revenue with no out of pocket cost to me.
This brings me to a new point. Here are some hypothetical figures to consider:
Lets say you pay a total of $12000 for the accounts. For the sake of this post we will say all of the customers stay with you for the entire year. To make it simple we will say you bought 10 customers at $50 per mowing X 4 mowings per month.
You mow their yards for first 6 months, essentially with no profit to you: we know you still have to feed yourself, maybe pay some employees, and buy gas/maintain your truck and equipment. Let say your employees, equipment purchase costs, maintenance costs, etc run you $35 per mowing for each customer. $50 - $15 = $35 out of pocket cost per customer per mowing. $35 x 10 customers = $350 out of pocket cost per week. $350 x 4 mowings per month = $1400 out of pocket cost per month. $1400 x 6 months = $8400 additional out of pocket costs.
Now lets see what the real cost for these customers is: $12,000 up front cost + $8,400 out of pocket cost over 6 months = $20,400. At the above hypothetical figures you will have to mow these same 10 yards a total of 136 times just to break even: $15 profit per customer per week x 10 customers = $150. $20,400 total purchase cost / $150 = 136 mowings just to break even.
If you figure that you may mow each yard 36X per year (9 months x 4 mowings per month which is probably high, but again, this is hypothetical) it will take you 3 full seasons and an additional 7 months just to offset the cost. At this point you have made $0.00 in profit. This means in the first 4 seasons, at the above figures, you will make a whopping $300 profit off these accounts, notwithstanding any additional work they may hire you to do. I think this places the purchase cost in perspective.
hope this helps,
03-30-2009, 03:37 PM
Welcome to our forum!
I think that is a very steep price. Did you ask him why he is wanting to sell?
Do you want to say how many customers was he looking to sell and how much he wanted in total?
If a customer was charged ($30 a lawn x 4 cuts per month) = $120
($120 a month x 6 months) = $720 per customer to acquire them. WOW!
That's high! Can you imagine it cost you $720 to acquire each customer!
How much does it cost to get some business cards made up or hand out some flyers? I bet you could get 10 new customers relatively quickly and not have to pay $7200 doing it!
What made you think about buying the customers anyway vs doing some marketing and getting them yourself?
03-31-2009, 04:20 AM
Another way I've seen these deals calculated is by a multiple of net profit. If your accounts GROSS $100,000 per year and your net profit, after all expense, including owner's salary, is $10,000, you have a 10% profit margin. Now many advocate 1-2 year's profit's, depending on quality of accounts, quality of the "deal," etc. Now the margin is what you TAKE HOME each year, so if you buy 100k worth of work for 10k, you make nothing for a whole year. Pay 20k and you work for free for TWO YEARS.
Sure, if you're doing most of the work, you're probably getting enough back right away to cover all costs and your "pay," but looking strictly at the black and white numbers, it's sobering.
I can't make any judgement on the 5-6 months revenue. Revenu by definition is gross, so it's a little gray. BUT, let's assume that 5-6 months revenue equals, conservatively, 40% of one year's gross. Now let's say these accounts, after all expenses, inc. a portion of your salary, "net" a whopping 20% net profit margin before taxes. (very unlikely) ** you would be paying 2 year's net, or working for free for 2 years. A more likely scenario is that the 5-6 months represents 50% or more of gross, and the profit will be 15%, in which case you're paying a little over 3 years net, or working for "free" for three full years.
My personal opinion - work for free NO MORE than ONE year, less if you can, and agree to a year ONLY if you get guarantees. Otherwise, your time is better spent getting new clients.
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