Buying Residential Customers

mowboy · #1 02-01-2006, 05:26 PM

This question comes from Eric of Lepping Lawn & Landscape:

Is there a basic valuation when buying an existing mowing business from another company? *The company is reasonably large and would like to get out of the residential lawn business. *Is this type of situation covered in your book.

This is a very good question... one that comes up a lot. It is touched on in pages 63-64 of my book but I can give you the short answer here

As a very general rule I would say that a residential customer is worth about the value of one month's revenue. However, it may be more or less depending on a several factors:

1) Where you live? In my area, residential customers are not all that hard to come by so it is not likely to go much higher than 1 months revenue. If you live in a 'tighter' area, be prepared to spend a little more.

2) Is there a signed contract? How long is the contract for (1 year, 2 years). This will affect the price too.

3) How much do the customers spend in extras each year. If they spend a lot in extra work consistently then expect to pay a little more for them.

4) Are the customers new? In other words, what is the existing customer loyalty like. If they are new to the seller, they are likely to drop you after you buy them. If they have been around for a while they will likely trust the decision of the seller to have you take over.

In any case do your due diligence in researching the customers. Find out the answers to the above questions and ask for job costing information on each of the customers so you can see what the actual profit of the job is. Also ask for a complete accounting record for each customer (do they pay on time?). Work with the seller to come up with a suitable transfer period. At the least, have them write a letter of explanation/introduction. Ideally though, they would personally introduce you and perhaps even work side-by-side with your for a few weeks to ease the transition for the customer.

I hope this helps. If anyone else has any comments on buying residential customers we would be happy to hear them!

__________________
Joel LaRusic
Consultant/Author, Start & Run a Landscape Business
www.mowboy.com