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Are pre-payments bad?


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Old 01-25-2012, 04:04 PM
TiedemanLLC TiedemanLLC is offline
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Default Are pre-payments bad?

Going over our 2011 season I noticed that 16% of our income was from services that were pre-paid. The funny thing is, the pre-payment of services was also our best marketing technique used in the 2011 season.

Now with us, and pre-payment we always give great discounts. Anywhere from 5% up to 25% (25% is when more than three years of service are pre-paid). But we are starting to wonder whether allowing clients to pre-pay is actually hurting us in the long run.

Are we just concentrating on pumping cash into the system NOW instead of looking at how much money we are losing down the road?

What are also the pros and cons of pre-payments?
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Old 01-25-2012, 04:36 PM
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Quote:
Originally Posted by TiedemanLLC View Post
Going over our 2011 season I noticed that 16% of our income was from services that were pre-paid. The funny thing is, the pre-payment of services was also our best marketing technique used in the 2011 season.

Now with us, and pre-payment we always give great discounts. Anywhere from 5% up to 25% (25% is when more than three years of service are pre-paid). But we are starting to wonder whether allowing clients to pre-pay is actually hurting us in the long run.

Are we just concentrating on pumping cash into the system NOW instead of looking at how much money we are losing down the road?

What are also the pros and cons of pre-payments?
i used to do that when i had residential accounts but i would offer a 10% discount for monthly auto pay with a credit card and i would give a 20% for pre payment of the entire season.

25% is a little too high even if they paid for the whole season in advance.

but now i bill ahead instead of behind so i have eliminated any discounts like that.
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Old 01-25-2012, 06:24 PM
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Getting your clients to pre-pay is awesome.

Getting your clients to pre-pay in order to eat your profits, sucks.


A discount of 25%, you're most likely paying the tax on their bill and more.
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Old 01-26-2012, 04:24 AM
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There is no reason to discount for pre-pay. No need to apologize to customers about your policy.

This is your business. Run it and bill how you choose. If a customer doesn't like it so be it. The only thing you need to explain is that 'this is the way that has worked best for our company so this is how we will continue to bill clients.' Your main goal is to stay in business. Cash flow is a key ingredient of that.

I can't tell my trash collector that I don't like pre paying. They would tell me to go find another trash collector then.

Again.....DON'T APOLOGIZE FOR PRE-PAY.
DON'T OFFER DISCOUNTS.
PAYMENT IS DUE BEFORE WE CUT YOUR GRASS.....PERIOD.
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Old 01-26-2012, 07:56 AM
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There is a difference between fast food and fine dining. You pre-pay for one.
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Old 01-26-2012, 09:53 AM
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Quote:
Originally Posted by USA Lawn Care View Post
There is no reason to discount for pre-pay. No need to apologize to customers about your policy.

This is your business. Run it and bill how you choose. If a customer doesn't like it so be it. The only thing you need to explain is that 'this is the way that has worked best for our company so this is how we will continue to bill clients.' Your main goal is to stay in business. Cash flow is a key ingredient of that.

I can't tell my trash collector that I don't like pre paying. They would tell me to go find another trash collector then.

Again.....DON'T APOLOGIZE FOR PRE-PAY.
DON'T OFFER DISCOUNTS.
PAYMENT IS DUE BEFORE WE CUT YOUR GRASS.....PERIOD.
that is why i chose to bill ahead instead of behind and when the customer frets about it i tell them i am not bank of america financing homeowners dreams.
if you want to go with the finance plan i suggest you put it on your credit card or go borrow the money from your local bank and work it out with them.

and if the account is not up to date they get no service until it is.
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Old 01-26-2012, 10:53 AM
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Currently my two options are "Pre-pay", or "at time of service".

I don't offer discounts, I offer options - one or the other.



My mother didn't offer incentives for me to eat my dinner when I was a kid, she gave me two choices: Eat what's in front of you, or go hungry.

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Old 01-26-2012, 11:14 AM
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Pre-pay is a good way to target the slow payers or potential non-payers before the growing season ends.

Pre-pay discount would only be offered by us to give the customer an option to capture last year's rates. Other than that I would not offer any other discounts for pre-pay. This is a good way to keep income rolling through the winter season, especially when spring start up $$ is needed.
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Old 01-26-2012, 04:48 PM
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Has anyone looked at the difference in cost between their monthly insurance payments and if they prepaid it for the year? What kind of discounts are you seeing? Could a similar discount % work for lawn care?

Also, is it best to keep the max time to 1 year? Does 3 year lock you into something where you might not want to be performing a certain service that far down the road?
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Old 01-26-2012, 05:33 PM
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Quote:
Originally Posted by Steve View Post
Has anyone looked at the difference in cost between their monthly insurance payments and if they prepaid it for the year? What kind of discounts are you seeing? Could a similar discount % work for lawn care?

Also, is it best to keep the max time to 1 year? Does 3 year lock you into something where you might not want to be performing a certain service that far down the road?
I was waiting for someone to finally ask this question, thank you. Even though you are getting 3 years of cash pumped into your system is that three years worth of cash actually good for the long haul. It may be a short term gain, but does it actually hurt you?
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